As filed with the Securities and Exchange Commission on March 28, 2018
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(cid:1798)(cid:1798)(cid:1798)(cid:1798)
(cid:1800)(cid:1800)(cid:1800)(cid:1800)
(cid:1798)(cid:1798)(cid:1798)(cid:1798)
(cid:1798)(cid:1798)(cid:1798)(cid:1798)
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
For the fiscal year ended December 31, 2017
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 000-29992
OPTIBASE LTD.
(Exact name of Registrant as specified in its charter)
N/A
(Translation of Registrant’s
name into English)
Israel
(Jurisdiction of incorporation
or organization)
8 Hamenofim Street
Herzliya 4672559, Israel
+972-73-7073700
(Address of principal executive offices)
Mr. Amir Philips, Chief Executive Officer
Telephone Number: +972-73-7073700, Fax Number: +972-73-7946331, Email: amirp@optibase-holdings.com
8 Hamenofim Street
Herzliya 4672559, Israel
(Name, Telephone, E-Mail and/or Facsimile and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of Each Class
Ordinary Shares,
par-value NIS 0.65 each
Name of Each Exchange on Which Registered
The Nasdaq Global Market
Securities registered pursuant to Section 12(g) of the Act:
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
Not Applicable
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 5,214,256 Ordinary
Shares, par value NIS 0.65 per share, including 29,895 Ordinary Shares held by the Registrant awarding their holders no voting or equity rights.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes (cid:1798) No (cid:1800)
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes (cid:1798) No (cid:1800)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes (cid:1800) No (cid:1798)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes (cid:1800) No (cid:1798)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or an emerging growth company. See definition of “accelerated filer,
“large accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated filer (cid:1798) Accelerated filer (cid:1798) Non-accelerated filer (cid:1800)
Emerging growth company (cid:1798)
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended
transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. (cid:1798)
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP (cid:1800)
International Financing Reporting Standards as issued by the International Accounting
Standards Board (cid:1798)
Other (cid:1798)
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Item 17 (cid:1798) Item 18 (cid:1798)
Yes (cid:1798) No (cid:1800)
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TABLE OF CONTENTS
CERTAIN DEFINED TERMS
FORWARD- LOOKING STATEMENTS
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
ITEM 3. KEY INFORMATION
ITEM 4. INFORMATION ON THE COMPANY
ITEM 4A. UNRESOLVED STAFF COMMENTS
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
ITEM 8. FINANCIAL INFORMATION
ITEM 9. THE OFFER AND LISTING
ITEM 10. ADDITIONAL INFORMATION
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
ITEM 15. CONTROLS AND PROCEDURES
ITEM 16. [RESERVED]
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
ITEM 16B. CODE OF ETHICS
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
ITEM 16D. EXEMPTION FROM THE LISTING STANDARDS FOR AUDIT COMMITTEE
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATE PURCHASERS
ITEM 16F. CHANGES IN REGISTRANT’S CERTIFYING ACCOUNTANT
ITEM 16G. CORPORATE GOVERNANCE
ITEM 16H. MINE SAFETY DISCLOSURE
PART III
ITEM 17. FINANCIAL STATEMENTS
ITEM 18. FINANCIAL STATEMENTS
ITEM 19. EXHIBITS
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4
4
5
5
5
5
20
35
35
50
63
73
76
77
92
93
94
94
94
94
95
95
95
95
96
96
96
96
96
97
97
97
97
CERTAIN DEFINED TERMS
In this annual report, unless otherwise provided, references to the “Company,” “Optibase”, “we”, “us” or “our” are to Optibase Ltd., a company organized under the laws of Israel, and
its wholly owned subsidiaries. In addition, references to our financial statements are to our consolidated financial statements, except as the context otherwise requires. References to “U.S.” or
“United States” are to the United States of America, its territories and its possessions.
In this annual report, references to “$” or “dollars” or “U.S. dollars” or “USD” are to the legal currency of the United States, references to “CHF” are to Swiss Francs, references to “€”
or “Euro” or “EUR” are to the legal currency of the European Union and references to “NIS” are to New Israeli Shekels, the legal currency of Israel. The Company’s financial statements are
presented in accordance with United States generally accepted accounting principles, or U.S. GAAP. Except as otherwise specified, financial information is presented in U.S. dollars. References
to a particular “fiscal” year are to the Company’s fiscal year ended December 31 of such year.
FORWARD---- LOOKING STATEMENTS
IN ADDITION TO HISTORICAL INFORMATION, THIS ANNUAL REPORT CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A
OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THE FORWARD-LOOKING STATEMENTS
CONTAINED HEREIN ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE REFLECTED IN
THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN THE SECTIONS
ENTITLED “RISK FACTORS”, “INFORMATION ON THE COMPANY” AND “OPERATING AND FINANCIAL REVIEW AND PROSPECTS” AND ELSEWHERE IN THIS REPORT. READERS
ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH REFLECT MANAGEMENT’S BELIEFS, ASSUMPTIONS AND
EXPECTATIONS OF OUR FUTURE OPERATIONS AND ECONOMIC PERFORMANCE, TAKING INTO ACCOUNT CURRENTLY AVAILABLE INFORMATION. IN ADDITION, READERS
SHOULD CAREFULLY REVIEW THE OTHER INFORMATION IN THIS ANNUAL REPORT AND IN THE COMPANY’S PERIODIC REPORTS AND OTHER DOCUMENTS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION FROM TIME TO TIME. WE DO NOT UNDERTAKE ANY OBLIGATION TO UPDATE ANY FORWARD-LOOKING STATEMENTS, WHETHER
AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE, EXCEPT AS MAY BE REQUIRED UNDER APPLICABLE SECURITIES LAWS AND REGULATIONS.
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ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
PART I
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3. KEY INFORMATION
3.A. SELECTED CONSOLIDATED FINANCIAL DATA
We derived the consolidated statement of operations data for the years ended December 31, 2015, 2016, and 2017 and consolidated balance sheet data as of December 31, 2016 and 2017
from the audited consolidated financial statements included elsewhere in this annual report. These financial statements have been prepared in accordance with accounting principles generally
accepted in the United States of America, or U.S. GAAP, and audited by our independent registered public accounting firm. We derived the consolidated statement of operations data for the
years ended December 31, 2013 and 2014 and the consolidated balance sheet data as of December 31, 2013, 2014 and 2015 from audited consolidated financial statements that are not included in
this Form 20-F that were also prepared in accordance with U.S. GAAP and audited by our independent registered public accounting firm. The selected financial data set forth below should be
read in conjunction with and are qualified by reference to “Item 5. Operating and Financial Review and Prospects” and the financial statements, and notes thereto and other financial information
included elsewhere in this annual report on Form 20-F.
Consolidated Statement of Operations Data:
2013
Year Ended December 31,
2014
2016
2015
(U.S. dollars in thousands, except per share data)
2017
Fixed income from real estate rent
$
13,711
$
13,938
$
15,273
$
16,338
$
16,587
Costs and expenses:
Cost of real estate operation
Real estate depreciation and amortization
General and Administrative
Other operating costs
Total costs and expenses
Gain on sale of operating properties
Operating income
Other income
Financial expenses, net
Net income before taxes on income
Taxes on income
Equity share in losses of associates, net
Net income from continuing operations
Net income from discontinued operations
Net income
Net income attributable to non-controlling interest
Net income (loss) attributable to Optibase LTD
Net earnings (loss) per share :
Basic and Diluted net earnings (loss) per share from continuing operations
Basic and diluted net income per share from discontinued operations
Basic and diluted net earnings (loss) per share
$
$
$
$
$
Weighted average number of shares used in computing basic and diluted net
earnings (loss) per share (in thousands):
Basic
Diluted
2,777
3,813
2,167
-
8,757
2,709
7,890
394
(1,151)
7,133
(1,502)
(186)
5,445
-
5,445
$
2,106
3,339
$
0.65
0.00
$
$
0.65
$
2,958
3,925
1,849
2,352
11,084
-
4,189
429
(1,807)
2,811
(1,609)
(31)
1,171
-
1,171
$
2,239
(1,068) $
(0.21) $
$
0.00
(0.21) $
3,159
4,244
2,615
-
10,018
-
6,320
1,116
(3,366)
4,070
(1,627)
(323)
2,120
-
2,120
$
1,925
195
$
0.04
0.00
$
$
0.04
$
5,127
5,131
5,133
5,133
5,147
5,157
3,057
4,209
2,698
-
9,964
-
6,623
597
(2,769)
4,451
(1,602)
(1,677)
1,172
-
1,172
2,295
(1,123)
(0.22)
0.00
(0.22)
5,180
5,180
2,199
3,369
1,870
-
7,438
-
6,273
384
(1,343)
5,314
(1,518)
(172)
3,624
-
3,624
$
2,159
1,465
$
0.38
0.00
$
$
0.38
$
3,822
3,826
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2013
2014
Year Ended December 31,
2015
(U.S. dollars in thousands)
2016
2017
$
$
18,811
10,112
209,761
238,748
127,741
138,813
78,924
$
$
22,902
14,500
185,204
218,004
112,481
138,886
77,075
$
$
23,806
10,360
214,840
262,944
161,100
138,949
75,584
$
$
16,024
97
207,690
250,384
149,781
139,148
74,128
$
$
20,268
8,927
216,726
259,303
155,181
139,163
77,068
Consolidated Balance Sheet Data:
Cash and cash equivalents
Working capital
Real estate property net
Total assets
Long term loans and bonds, including current maturities
Capital Stock
Total shareholders’ equity
3.B. CAPITALIZATION AND INDEBTEDNESS
Not applicable.
3.C. REASONS FOR THE OFFER AND USE OF PROCEEDS
Not applicable.
3.D. RISK FACTORS
Our business operations are subject to various risks resulting from changing economic, political, industry, business and financial conditions. In addition, this annual report
contains various forward-looking statements that reflect our current views with respect to future events and financial results. Below we attempt to identify and describe the principal
uncertainties and risk factors that in our view at the present time may affect our financial condition, cash flows and results of operations and our forward-looking statements. Readers are
reminded that the uncertainties and risks identified below in this annual report do not purport to constitute a comprehensive list of all the uncertainties and risks, which may affect our
business and the forward-looking statements in this annual report. In addition, we do not undertake any obligation to update any forward-looking statements, whether as a result of new
information, future events or otherwise.
Risks Relating to the Economy, Our Financial Condition and Shareholdings
We have a history of losses and we might not be able to sustain profitability.
Since 2012 and during 2013, 2014, 2016 except for 2015 and 2017, we have been profitable. During 2015, we operated at a loss mainly due to acquisition-related costs of $2.4 million related
to the acquisition of the twenty-seven (27) supermarkets in Bavaria. During 2017, we operated at a loss mainly due to equity losses related to the investment in 300 River Holdings, LLC, which
beneficially owns the rights to a 23-story Class A office building located at 300 South Riverside Plaza in Chicago, IL.
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As of December 31, 2017, we have accumulated losses of $82 million. Given current market conditions, the demand for our real estate properties and other expenses, we may operate at a
loss and may not be able to sustain profitability in the future, and our operating results for future periods will continue to be subject to numerous uncertainties and risks. We cannot assure you
that we will be able to increase our revenues and sustain profitability. For further details regarding our cash flow, see Item 5.B “Operating and Financial Review and Prospects - Liquidity and
Capital Resources”.
We may be affected by instability in the global economy, including the recent European economic and financial turmoil.
Instability in the global credit markets, including the European economic and financial turmoil related to sovereign debt issues in certain countries, the instability in the geopolitical
environment in many parts of the world and other disruptions, such as changes in energy costs, may continue to put pressure on global economic conditions. The world has experienced a global
macroeconomic downturn, and if global economic and market conditions, or economic conditions in key markets, remain uncertain, stagnant or deteriorate further, we may experience material
adverse impacts on our business, operating results, and financial condition.
Our ability to freely operate our business is limited as a result of certain covenants included in the deed of trust of our Series A Bonds.
The deed of trust governing the Series A Bonds, or the Series A Deed of Trust, contains a number of covenants that limit our operating and financial flexibility (such as our minimum
equity (excluding minority interest) will not be less than $33 million; our equity (including minority interest) to balance sheet ratio will not be less than 25%; and the net financial debt to CAP ratio
will not be greater than 70%). For a description of Series A Deed of Trust, see Item 5.B “Operating and Financial Review and Prospects - Liquidity and Capital Resources”. As of December 31,
2017 the outstanding amount under the Series A Bonds was 11.4 million.
Our ability to continue to comply with these and other obligations depends in part on the future performance of our business. Such covenants may hinder our ability to finance our future
operations or the manner in which we operate our business. In particular, any non-compliance with our financial covenants and other undertakings under Series A Deed of Trust could result in
demand for immediate repayment of the outstanding amount under the Series A Bonds and restrict our ability to obtain additional funds, which could have a material adverse effect on our
business, financial condition and our results of operations.
We may continue to seek to expand our business through acquisitions that could result in a diversion of resources and our incurring additional expenses, which could disrupt our business
and harm our financial condition.
As we have done in the past, we may in the future continue to pursue acquisitions of businesses, or the establishment of joint ventures, that could expand our business. The
negotiation of potential acquisitions or joint ventures as well as the integration of an acquired or jointly developed business, could cause diversion of management’s time as well as our
resources. Future acquisitions could result in:
•
•
•
•
•
•
Additional operating expenses without additional revenues;
Potential dilutive issuances of equity securities;
The incurrence of debt and contingent liabilities;
Amortization of bargain purchase gain and other intangibles;
Impairment charges; and
Other acquisition-related expenses.
Acquired businesses or joint ventures may not be successfully integrated with our operations. If any acquisition or joint venture were to occur, we may not receive the intended
benefits of the acquisition or joint venture. If future acquisitions disrupt our operations, our business may suffer.
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A large percentage of our ordinary shares are held by one shareholder who could significantly influence the outcome of actions.
The Capri Family Foundation, or Capri, a foundation organized under the laws of the Republic of Panama, beneficially owns, directly and indirectly through its subsidiaries,
approximately 73.28% of our outstanding ordinary shares as of March 20, 2018, or within 60 days thereafter. For further information, see Item 4.A. “History and Development of The Company”
and Item 7.A. “Major Shareholders” below. As a result of such holdings in our ordinary shares, Capri can significantly influence the outcome of corporate actions requiring an ordinary majority
approval by our shareholders, including the election of directors and the approval of mergers or other business combination transactions.
We are currently, and may be in the future, the target of securities class action, derivative claim or other litigation, which could be costly and time consuming to defend.
In the past, following a period of volatility in the market price of a company’s securities, securities class action lawsuits, derivative claims and other actions have often been taken
against public companies and their directors and officers. Recent years have been characterized by a substantial increase in the number of requests for certification of class actions and derivative
claims filed and approved in Israel. In May 2015, we were served with a motion to approve the filing of a derivative claim against the Company's controlling shareholder, directors and CEO and
certain former controlling shareholder and directors in which we are sued for approximately $ 41.9 million. If this motion is approved and the derivative claim is accepted, this may have a material
adverse effect on our financial results. Additionally, and due to the nature of derivative claims, regardless of its outcome, and even if the claims are without merit, we may incur substantial costs
and our management resources that are diverted to defending such litigation. In July 2017, our subsidiary Eldista Gmbh, received an application for conciliation from its largest tenant in
Switzerland, LEM Switzerland SA, or LEM, pursuant to which LEM mainly demands the elimination of certain alleged defects in the CTN Complex and that LEM be authorized to carry out the
works at the expense of Eldista Gmbh if the works are not executed within a specific time frame as well as a 20%-reduction in rent from February 2012 and until the completion of the works. LEM
demands that Eldista Gmbh be ordered to reimburse a monthly amount of CHF 47,600 as rent overpayment from February 2012 (representing the 20% reduction in rent) until (i) the completion of
the works or (ii) the month of the entry into force of the judgment, whichever occurs first and that Eldista Gmbh be ordered to pay an amount of app, CHF 147,000 (subject to amplification) plus
interest as of May 5, 2017 as consequential damages. LEM further demands to be reserved the right to claim the reimbursement of overpaid ancillary fees. According to the application, the
dispute amounts to a total of CHF 3.54 million (app. $ 3.68 million). If LEM’s demands will be accepted by first instance court for lease matters of canton of Geneva, it may has a material adverse
effect on our financial results. For further information see Item 8. “Financial Information - Legal Proceedings”.
We have experienced significant fluctuations in our results of operations at times in the past and expect these fluctuations to continue. These fluctuations may result in volatility in our
share price.
We have experienced at times in the past, and may in the future experience, significant fluctuations in our quarterly and annual results. Factors that may contribute to the fluctuations in
our quarterly results of operations include:
•
•
•
•
•
•
•
•
The purchase or failure to purchase real-estate assets;
Changes in rent prices for our properties;
Changes in presence of tenants and tenants' insolvency;
Changes in the availability, cost and terms of financing;
The ongoing need for capital improvements;
Changes in foreign exchange rates;
Changes in interest rates; and
General economic conditions, particularly in those countries or regions in which we operate.
It is likely that in some future periods, our operating results may be below expectations of public market analysts or investors. If this occurs, the market price of our ordinary shares may
drop.
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The trading price of our ordinary shares has been volatile, and may continue to fluctuate due to factors beyond our control.
The trading price of our ordinary shares is and will continue to be subject to significant fluctuations in response to numerous factors, including:
•
•
•
•
•
•
•
•
Availability of funding resources for the acquisition of new real estate assets;
General market conditions and other factors, including factors unrelated to our operating performance or the operating performance of our competitors;
Seizure of a substantial business opportunity by our competitors or us;
Changes in interest rates;
Changes in foreign exchange rates;
The entering into new businesses;
Quarterly variations in our results of operations or in our competitors’ results of operations; and
Changes in earnings estimates or recommendations by securities analysts.
This volatility may continue in the future. In addition, any shortfall or changes in our revenues, operating income, earnings or other financial results could cause the market price of our
ordinary shares to fluctuate significantly. In recent years, the stock market has experienced significant price and trading volume fluctuations, which have particularly affected the market price of
many companies and which may not be related to the operating performance of those companies. These broad market fluctuations have affected and may continue to affect adversely the market
price of our ordinary shares. In recent years, the trading price of our ordinary shares has been highly volatile. From January 2017 through March 20, 2018, the closing price of our ordinary shares
listed on the NASDAQ Global Market fluctuated reaching a high of $10.30 and decreasing to a low of $6.60. The fluctuations and factors listed above, as well as general economic, political and
market conditions may further materially adversely affect the market price of our ordinary shares.
Our effective tax rate could be materially affected by several factors including, among others, changes in the amount of income taxed by or allocated to the various jurisdictions in
which we operate that have differing statutory tax rates, changing tax laws, regulations and interpretations of such tax laws in multiple jurisdictions.
We conduct our business globally and file income tax returns in multiple jurisdictions. We report our results of operations based on our determination of the amount of taxes owed in the
various jurisdictions in which we operate. The determination of our consolidated provision for income taxes and other tax liabilities requires estimation, judgment and calculations where the
ultimate tax determination may not be certain. Our determination of tax liability is always subject to review or examination by authorities in various jurisdictions.
If a tax authority in any jurisdiction reviews any of our tax returns and proposes an adjustment, including as a result of a determination that the transfer prices and terms we have applied
are not appropriate, such an adjustment could have a negative impact on our financial results.
There is a substantial risk that we are a passive foreign investment company, and holders of our ordinary shares who are United States residents face income tax risks.
There is a substantial risk that we are a passive foreign investment company, commonly referred to as PFIC. Our treatment as a PFIC could result in a reduction in the after-tax return to
the holders of our ordinary shares and would likely cause a reduction in the value of such ordinary shares. For U.S. federal income tax purposes, we will be classified as a PFIC for any taxable
year in which either (i) 75% or more of our gross income is passive income, or (ii) at least 50% of the average value of all of our assets for the taxable year produce or are held for the production of
passive income. For this purpose, cash and real estate properties are considered to be an asset, which produces passive income. As a result of our substantial cash position and the decline in
the value of our stock, we believe that there is a substantial risk that we may have been a PFIC during the taxable year ended December 31, 2017, under a literal application of the asset test
described above, which looks solely to the market value. If we are classified as a PFIC for U.S. federal income tax purposes, highly complex rules would apply to U.S. holders owning ordinary
shares. Accordingly, you are urged to consult your tax advisors regarding the application of such rules. In addition, there can be no assurance that we will not be classified as a PFIC in the
future, because the determination of whether we are a PFIC is based upon the composition of our income and assets from time to time, and such determination cannot be made with certainty until
the end of a calendar year. United States residents should carefully read “Item 10.E. Taxation” under the heading “United States Federal Income Tax Consequences” below for a more complete
discussion of the U.S. federal income tax risks related to owning and disposing of our ordinary shares.
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We do not intend to pay dividends.
We have never declared or paid any cash dividends on our ordinary shares. We currently intend to retain any future earnings to finance operations and expand our business and,
therefore, do not expect to pay any dividends in the foreseeable future.
We manage our available cash through investments in various bank deposits and money market funds with leading banks. We are exposed to the credit risk of such banks.
During 2017, our available cash was invested in various bank deposits and money market funds with various banks. Our available cash is subject to the credit risk of the banks with
which the funds are deposited and as such we may suffer losses if those banks fail to repay those deposits.
The extenuations given to us as a foreign private issuer impact our publicly available information.
As a foreign private issuer, we are permitted to file less information with the SEC than a company incorporated in the United States. Accordingly, there may be less publicly available
information concerning us than there is for companies incorporated in the United States.
We are obligated to develop and maintain proper and effective internal controls over financial reporting. These internal controls may not be determined to be effective, which may
adversely affect investor confidence in our company and, as a result, the value of our ordinary shares.
The Sarbanes-Oxley Act of 2002 imposes certain duties on us and our executives and directors. We are required, pursuant to Section 404 of the Sarbanes–Oxley Act, to furnish a report
by management on, among other things, the effectiveness of our internal control over financial reporting on an annual basis. This assessment includes disclosure of any material weaknesses
identified by our management in our internal control over financial reporting. During the evaluation and testing process, if we identify one or more material weaknesses in our internal control over
financial reporting, we will be unable to assert that our internal controls are effective. We are required to disclose changes made in our internal control and procedures on a quarterly basis.
However, our independent registered public accounting firm will not be required to formally attest to the effectiveness of our internal control over financial reporting pursuant to Section 404
since the company is Non-accelerated filer.
Risks Relating to our Business
The real estate sector continues to be cyclical and affected by changes in general economic, or other business conditions that could materially adversely affect our business or financial
results.
The real estate sector has been cyclical historically and continues to be significantly affected by changes in industry conditions, as well as in general and local economic conditions,
such as:
•
•
•
•
•
•
•
employment levels;
availability of financing for homebuyers and for real estate investors/funds;
interest rates;
consumer confidence and expenditure;
levels of new and existing homes for sale;
demographic trends;
urban development and changes;
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•
•
•
housing demand;
local laws and regulations; and
acts of terror, floods or earthquakes.
These may occur on a global scale, like the recent housing downturn, or may affect some of the regions or markets in which we operate. An oversupply of alternatives to our real estate
properties can also reduce our ability to lease spaces and depress lease prices, thus reducing our margins.
As a result of the foregoing matters, we may face difficulties in the leasing of our projects and we may not be able to recapture any increased costs by raising lease payments.
We rely on one large property for a significant portion of our revenue.
As of December 31, 2017, our commercial property, CTN complex, in Geneva, Switzerland, accounted for approximately 64% of our portfolio annualized rent. Our revenue would be
materially adversely affected if this property was materially damaged or destroyed. Additionally, our revenue would be materially adversely affected if rental payments at this property decrease
or if tenants at this property fail to timely make rental payments due to adverse financial conditions or otherwise, default under their leases or file for bankruptcy. Additionally, our subsidiary
Eldista Gmbh has a dispute with its largest tenant in Switzerland, LEM Switzerland SA or LEM. LEM filed an application, pursuant to which LEM mainly demands the elimination of certain alleged
defects in the CTN Complex and that LEM be authorized to carry out the works at the expense of Eldista Gmbh if the works are not executed within a specific time frame as well as a 20%-reduction
in rent from February 2012 and until the completion of the works. LEM demands that Eldista Gmbh be ordered to reimburse a monthly amount of CHF 47,600 as rent overpayment from February
2012 (representing the 20% reduction in rent) until (i) the completion of the works or (ii) the month of the entry into force of the judgment, whichever occurs first and that Eldista Gmbh be ordered
to pay an amount of app, CHF 147,000 (subject to amplification) plus interest as of May 5, 2017 as consequential damages. LEM further demands to be reserved the right to claim the
reimbursement of overpaid ancillary fees. According to the application, the dispute amounts to a total of CHF 3.54 million (app. $ 3.68 million). For further information regarding the CTN complex
and the dispute with LEM, see Item 8 “Financial Information - Legal Proceedings”.
With respect to our commercial properties, we are dependent on the continued tenant demand for our properties. If there is a decrease in tenant demand and an increase in vacancy of our
commercial properties, it would adversely affect our financial condition and results of operations.
We own, through our subsidiaries, holdings in several commercial real estate properties, which are currently leased to third parties. In most of our commercial properties we rely on a few
tenants which occupy a significant portion of the available rentable area in such properties. For further details regarding the leases of tenants in our properties see Item 4.B. “Business Overview -
Properties”. If the lease agreements with such tenants are terminated, there is no assurance that we will be able to attract new lessees in favorable terms or at all, which would materially adversely
affect our financial condition and results of operations.
Economic recession, pressures that affect consumer confidence, job growth, energy costs and income gains can affect the financial condition of prospective tenants, and a continuing
soft economic cycle may impact our ability to find tenants for our properties. Failure to attract tenants, the termination of a tenant’s lease, or the bankruptcy or economic decline of a tenant may
adversely affect the rent fees for our properties and adversely affect our financial condition and results of operations.
We may have difficulties leasing real-estate properties.
The fixed income real-estate sector relies on the presence of tenants in the real-estate assets. The failure of a tenant to renew its lease, the termination of a tenant’s lease, or the
bankruptcy or economic decline of a tenant can have a material adverse effect on the economic performance of the real-estate asset. There can be no assurance that if a tenant were to fail to
renew its lease, we would be able to replace such tenant in a timely manner or that we could do so without incurring material additional costs. In addition, we are dependent on our ability to enter
into new leases on favorable terms with third parties, in order to receive a profitable price for each real-estate property. We may find it more difficult to engage tenants to enter into leases during
periods when market rents are increasing, or when general consumer activity is decreasing, or if there is competition for tenants from competing properties. The existence of competitive
alternatives could have a material adverse effect on our ability to lease space and on the level of rents we can obtain. The global economic condition, pressures that affect consumer confidence,
job growth, energy costs and income gains can affect retail sales growth, and a continuing soft economic cycle, may impact our ability to find tenants for our properties. Failure to attract tenants,
the termination of a tenant’s lease, or the bankruptcy or economic decline of a tenant may adversely affect the price obtainable for our real estate projects and adversely affect our financial
condition and results of operations. The failure of tenants to abide by the terms of their agreements may cause delays or result in a temporary or long term decline in rental income, the effects of
which we may not be able to offset due to difficulties in finding a suitable replacement tenant.
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We are depended on the solvency of our tenants and may lease properties at below expected rental rates.
Rental leases may decrease below our expectations. In the case of such decrease, or if circumstances arise beyond our control, such as market prices, market demand and negative
trends, we may have to sell a project at a price below our projections. In addition, we could be in a position where there would be no demand at acceptable prices and we would be required to
hold, operate and maintain the project until the financial environment would improve and allow its disposal.
In addition, the ability to collect rents depends on the solvency of the tenants. Tenants may be in default or not pay on time, or we may need to reduce the amount of rents invoiced by
lease incentives, to align lease payments with the financial situation of some tenants. In all of these cases, tenant insolvency may hurt our operational results.
We may experience future unanticipated expenses.
Our performance depends, among others, on our ability to pay for adequate maintenance, insurance and other operating costs, including real estate taxes. All of these expenditures
could increase over time, and may be more expensive than anticipated. Sources of labor and materials required for maintenance, repair, capital expenditure or development may also be more
expensive than we expected. An unplanned deviation from one of the above expenditures, and other, could increase our operating costs.
The fair value of our real estate may be harmed by certain factors, which may entail impairment losses not previously recorded which, in turn, will adversely affect our financial results.
Certain circumstances may affect the fair value of our real estate assets and/or on certain of our shareholding rights in the companies owning such assets, including, among other
things, (i) the absence of or modifications to permits or approvals required for the operation of any real estate asset; (ii) lawsuits that are pending, whether or not we are a party thereto. In
addition, certain laws and regulations, applicable to our business in certain countries where the legislation process undergoes constant changes, may be subject to frequent and substantially
different interpretations; (iii) agreements which may be interpreted by governmental authorities so as to shorten the term of use of real estate, and which may be accompanied by a demolition
order with or without compensation, may significantly affect the value of such real estate asset. The fair value of our real estate assets may be significantly decreased, thereby resulting in
potential impairment losses not previously recorded in our financial results.
Since market conditions and other parameters (such as macroeconomic environment trends, and others), which affect the fair value of our real estate, vary from time to time, the fair value
may not be adequate on a date other than the date the measurement was executed (in general, immediately after the annual balance sheet date). In the event the projected forecasts regarding the
future cash flows generated by those assets are not met, we may have to record an additional impairment loss not previously recorded.
In addition, any change in the yield rate of any of our real estate assets may cause a significant decrease to the fair value of such assets, thereby resulting in potential impairment losses
not previously recorded in our financial results.
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We may not be able to raise additional financing for our future capital needs on favorable terms, or at all, which could limit our growth and increase our costs and could adversely affect
the price of our ordinary shares.
Real estate activities are largely financed from external sources. We cannot be certain that we will be able to obtain financing on favorable terms for our future real estate activities, or at
all. In addition, an adverse change can occur in the terms of the financing that we receive. Any such occurrence could increase our financing costs and/or result in a material adverse effect on
our results and ability to develop our real estate business. The amount of long term loans currently outstanding may inhibit our ability to obtain additional financing for our future capital needs,
inhibit our long-term expansion plans, increase our costs and adversely affect the price of our ordinary shares.
It is probable that we will need to raise additional capital in the future to support our strategic plans. We cannot be certain that we will be able to obtain additional financing on
commercially reasonable terms or at all. If we are unable to obtain additional financing, this could inhibit our growth and increase our operating costs.
In the event we are unable to continuously comply with the covenants, including with respect to financial covenants, which we undertook with respect to our properties, our results of
operations may be adversely affected.
In connection with the financing of most of our properties, we have long-term agreements with several banks. The agreements that govern the provision of financing include, among
other things, undertakings and financial covenants that we are required to maintain for the duration of such financing agreements. For further details see Item 5.B. “Liquidity and Capital
Resources”. Those existing agreements allow the lender to demand an immediate repayment of the loans in certain events (events of default), including, among other things, a material adverse
change in the Company's business and noncompliance with the financial covenants set forth in those agreements. The occurrences of any event of default may have an adverse effect on our
financial position and results of operations and on our ability to obtain outside financing for our continued growth.
Rapid and significant changes in interest rates may adversely affect our profitability.
We have financed the purchase of the CTN complex and the Rumlang property with loans bearing floating interest rates and further refinanced during 2017 the existing loan secured by
our condominium units in Miami with a loan which bears floating interest rate (as of December 31, 2017 the balance of all such loans was $113.1 million, see also Item “Item 5.B Operating and
Financial Review and Prospects – Liquidity and Capital Resources.”). As a result we are exposed to changes in the LIBOR interest rate (LIBOR on the US Dollar and LIBOR on the CHF). An
increase in the LIBOR interest rate could materially adversely affect our financial expenses and thereby our profitability. In light of the low interest rate environment we have also decided at this
stage not to perform hedging against our exposure to such changes in interest rates.
An adverse change in the Swiss real estate market will adversely affect our results of operations.
Two of our investments, including our most significant property (the CTN complex in Geneva), are located in Switzerland. During 2013 and throughout 2017, as Swiss interest rates
declined, the Swiss real estate prices increased mainly due to the low interest rates and lack of investment alternatives. Along with the historically low interest rates, the overall availability of
financing has decreased significantly as LTV (Loan to Value) rates have been reduced by lenders, leading to more pressure on leveraged transactions further decreasing investments yields. At
the same time, there was no increase in the demand for new rental spaces and the rental market appeared to be keeping stable with a slight slowdown, in particular the demand for prime office
space and the price for such real estate properties. In addition and partially due to the low available yields in the investment market, there is a significant increase in new developments, based on
available equity investments (as opposed to leveraged investments). Such investments will mature and be available in the near future and may have a significant impact on our rental properties
as they will significantly increase the availability of rentable area in the vicinity of our rental properties. Any significant adverse change in the real estate market in Switzerland, such as lack of
attractive financing, a decline in the real estate rates or decrease in demand for the type of properties we own, will adversely affect our results of operations.
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We may suffer adverse consequences if our revenues decline since our operating costs do not necessarily decline in proportion to our revenue.
We earn a significant portion of our income from renting our properties. Our operating costs, however, do not fluctuate in relation to changes in our rental revenue. As a result, our
costs will not necessarily decline even if our revenues do. Similarly, our operating costs could increase while our revenues stay flat or decline. In either such event, we may be forced to borrow to
cover our costs or we may incur losses.
Because of our small size, we rely on a small number of personnel who possess both executive and financial expertise, and the loss of any of these individuals would hurt our ability to
implement our strategy and may adversely affect our financial results.
Because of our small size and our reliance on a limited financial and management personnel, our continued growth and success depends upon the continued contribution of the
managerial skills of our financial and management personnel. If any of the current members of the management is unable or unwilling to continue in our employ, our results of operations could be
adversely affected.
We may experience difficulties in finding suitable real-estate properties for investment, either at all or at viable prices.
Being a company that engages in investments in real-estate, finding a suitable real-estate property for investment is critical to our income. Such finding becomes difficult as the demand
for real-estates in the markets we are involved in grows, and the supply decreases. Therefore, difficulties in finding suitable real-estate properties for investment may affect our growth and the
number of assets we have to offer, and therefore materially affect our potential profit and our business and results of operation.
The choice of suitable locations for real estate projects is an important factor in the success of the individual projects. For example, office space should ideally be located within, or near,
the city center, with well-developed transportation infrastructure (road and rail) located in close proximity to facilitate customer access. If we are not able to find sites in the target cities which
meet our criteria or which meet our price range, this may materially adversely affect our business and results of operation.
In addition, we may be unable to proceed with the acquisition of properties because we cannot obtain financing on favorable terms or at all. We may require substantial up-front
expenditures for property acquisition. Accordingly, we may require substantial amounts of cash and financing from banks and other capital resources (such as institutional investors and/or the
public) for our real estate operations. We cannot be certain that such external financing would be available on favorable terms or on a timely basis or at all.
We face risks associated with property acquisitions.
We may acquire individual properties and portfolios of properties, including large portfolios that could significantly increase our size and alter our capital structure. Our acquisition
activities may be exposed to, and their success may be adversely affected by, the following risks:
•
even if we enter into an acquisition agreement for a property, it is usually subject to customary conditions to closing, including due diligence investigations to our satisfaction;
• we may be unable to finance acquisitions on favorable terms or at all;
•
acquired properties may fail to perform as we expected;
• we may not be able to obtain adequate insurance coverage for new properties; and
• we may be unable to quickly and efficiently integrate new acquisitions, particularly acquisitions of portfolios of properties, into our existing operations, and therefore our results
of operations and financial condition could be adversely affected.
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We may acquire properties or property holding companies subject to liabilities and without any recourse, or with only limited recourse, with respect to unknown liabilities. As a result, if
a liability were asserted against us arising from our ownership of those properties, we might have to pay substantial sums to settle it, which could adversely affect our cash flow. Unknown
liabilities with respect to properties acquired might include:
•
•
•
•
liabilities for clean-up of undisclosed environmental contamination;
claims by tenants, vendors or other persons arising from dealing with the former owners of the properties;
liabilities incurred in the ordinary course of business; and
claims for indemnification by general partners, directors, officers and others indemnified by the former owners of the properties.
The illiquidity of real-estate properties may affect our ability to sell our properties.
Real estate properties in general are relatively illiquid. Such illiquidity may affect the ability to dispose of or liquidate part of real-estate assets in a timely fashion and at satisfactory
prices in response to changes in the economic environment, the real estate market or other conditions.
An adverse change in the German real estate market will adversely affect our results of operations.
Since 2015, we own through our wholly-owned subsidiary, a portfolio of supermarkets located mainly in Bavaria, Germany. In recent years the German real estate market was showing
signs of growth, and stabilization towards the end of 2017. As the European economy have been stagnant at best over the last few years, the German economy and its real estate sector have
shown significant signs of improvement also fueled by a steady decrease in interest rates, an increase in availability of financing and the increasing demand for real estate investments by foreign
investors drown to the German market for the reduced availability of other rewarding investment opportunities in the European market. During 2017, the German real estate market has shown
signs of maturity and stabilization. Availability of financing and interest rates is stable, as well as the demand for rental properties. Any significant adverse change in the real estate market in
Germany, such as an increase of interest rates, a decrease in availability of financing, a decline in the real estate rates or decrease in demand for the type of properties we own, will adversely
affect our results of operations.
An adverse change in the U.S. real estate market will adversely affect our results of operations.
We own, through our wholly-owned subsidiary, several real estate properties located in Philadelphia, Texas, Chicago and Miami, in the U.S. During 2013, the pressure on properties’
pricing have eased somewhat and the U.S. real estate market was showing signs of stabilization and an increase towards the end of the year. During 2014 and throughout 2015 the U.S. real estate
market has shown signs of improvement and a consistent increase in assets prices as the demand for investments increased significantly also driven by financial institutions increased
willingness to finance new transactions along with low interest rates. Throughout 2017, we have witnessed certain changes in the U.S real estate market. While the commercial segment has kept
stable along with a steady demand for commercial and office space rental, the high-end residential market has experienced a significant decrease in the demand for investment properties along
with an increase in the availability of such assets, which in turn, puts pressure on properties prices. Any significant adverse change in the real estate market in the United States, such as a
significant increase of interest rates, a decline in the real estate rates or decrease in demand for the type of properties we own, will adversely affect our results of operations.
With respect to our residential properties in Miami, Florida, the success of our investment will depend on market conditions.
We own, through our wholly-owned subsidiary, 25 residential properties in Miami and Miami Beach, Florida, including 21 luxury condominium units and two penthouse units in the
Marquis Residences, one penthouse unit in Ocean One Condominium and one condominium units in the Continuum on South Beach Condominium. To date, 23 of the units have been fully
constructed and are in rentable condition, while two penthouses are still undergoing renovations and remodeling. Currently 18 of the units are occupied by tenants and the remaining units are
being marketed to potential tenants and potential buyers. For further information, see Item 4.B. “Business Overview - Real Estate Business”.
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We intend to keep holding the units for investment purposes and will consider renting or selling the units in accordance with our business considerations and market conditions.
Depending on our decision, we may be unable to sell or lease up these condominium properties on schedule or on favorable terms, which may result in a decrease in expected rental revenues
and/or lower yields, if any.
We depend on partners in our partnerships and collaborative arrangements.
We are currently, with respect to our real-estate properties in Geneva, Switzerland, Philadelphia, Chicago and Texas, and we may, in the future, own interests in real-estate assets or real-
estate holding companies in partnership with other entities. Our investments in these partnerships may, under certain circumstances, be subject to (i) the risk that one of our partners may become
bankrupt or insolvent or may not fulfill its financial obligations under our partnership agreements, which may cause us to provide financing in excess of our ownership share or which may cause
us to be unable to fulfill our financial obligations, possibly triggering a default under our bank financing agreements or, in the event of a liquidation, preventing us from managing or
administering our business or entail a compulsory sale of the asset at less favorable terms; (ii) the risk that one of our partners may have economic or other interests or goals that are inconsistent
with our interests and goals, and that such partner may be in a position to veto actions which may be in our best interests; and (iii) the possibility that disputes may arise regarding the continued
operational requirements of our assets that are jointly owned. In addition, we hold approximately 30%, approximately 22% and approximately 4%, respectively, of the beneficial interest in the real-
estate properties located in Chicago, Philadelphia and Texas. Our minority interest causes us to rely on our partners to manage the properties, and our influence over decisions regarding the
properties and their management is limited.
Cause of physical damages and other nature losses may affect our properties.
Properties could suffer physical damage caused by fire or other causes, resulting in losses which may not be fully compensated by insurance. In addition, there are certain types of
losses, generally of a catastrophic nature, such as earthquakes, floods, terrorism or acts of war that may be uninsurable or are not economically insurable. Inflation, changes in building codes
and ordinances, environmental considerations and other factors, including terrorism or acts of war, also might result in insurance proceeds being insufficient to repair or replace a property if it is
damaged or destroyed. Under such circumstances, the insurance proceeds may be inadequate to restore the economic position with respect to the affected properties. Should an uninsured loss
or a loss in excess of insured limits occur, we could lose capital invested in the affected property as well as anticipated profits from that property. No assurance can be given that material losses
in excess of insurance proceeds will not occur in the future.
Competition for acquisitions may reduce the number of acquisition opportunities available to us and increase the costs of those acquisitions.
We plan to continue acquiring properties as we are presented with attractive opportunities. We may face competition for acquisition opportunities from other investors, particularly
private investors who can incur more leverage, and this competition may adversely affect us by subjecting us to the following risks:
•
•
an inability to acquire a desired property because of competition from well-capitalized real estate investors, including publicly traded and privately held REITs, private real estate
funds, domestic and foreign financial institutions, life insurance companies, sovereign wealth funds, pension trusts, partnerships and individual investors; and
an increase in the purchase price for such acquisition property, in the event we are able to acquire such desired property.
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Environmental discoveries may have a significant impact on the value, viability and marketability of our assets.
We may encounter unforeseen decrease in value of our assets due to factors beyond our control caused by previously unknown soil contamination or the discovery of archaeological
findings which may have a significant impact and a detrimental effect on the value, viability or marketability of our assets or cause legal liability in connection with our real estate properties. We
may be liable for the costs of removal, investigation or remedy of hazardous or toxic substances located on or in a site owned or leased by us, regardless of whether we were responsible for the
presence of such hazardous or toxic substances. The costs of any required removal, investigation or remedy of such substances may be substantial and/or may result in significant budget
overruns. The presence of such substances, or the failure to remedy such substances properly, may also adversely affect our ability to sell or lease such property or to obtain financing using the
real estate as security. Additionally, any future sale of such property will be generally subject to indemnities and warranties to be provided by us to the purchaser against such environmental
liabilities. Accordingly, we may continue to face potential environmental liabilities with respect to a particular property even after such property has been sold. Laws and regulations may also
impose liability for the release of certain materials into the air or water from a property, and such release can form the basis for liability to third persons for personal injury or other damages. Other
laws and regulations can limit the development of, and impose liability for, the disturbance of wetlands or the habitats of threatened or endangered species. Any environmental issue may
significantly cause decrease in value of our assets or vacancy periods in our leased properties, which could have a material adverse effect on the profitability of that asset and our results of
operations and cash flows.
We are exposed to cyber security risks that, if materialized, may affect our business and operations.
Our operations rely on computer, information and communications technology and various computer hardware and software applications. Despite our implementation of network
security measures, our tools and servers are vulnerable to computer viruses, break-ins and similar disruptions from unauthorized tampering with our computer systems and tools located at
customer sites, or could be subject to system failures or malfunctions for other reasons. System failures or malfunctioning could disrupt our operations and our ability to timely and accurately
process and report key components of our financial results.
Risks Relating to the Sale of our Video Solutions Business
On March 16, 2010 we and our subsidiary, Optibase Inc., entered into an asset purchase agreement for the sale of all of the assets and liabilities related to our Video Solutions Business.
For further details see Item 10.C “Material Contracts”. The following is a risk related to the sale of our Video Solutions Business:
We have been and may, in the future, be subject to further review in connection with government programs that we participated in or received.
During our activities in the Vitec Solutions Business, we received grants from the Israel Innovation Authority, or the IIA, in the Israeli Ministry of Industry, Trade and Labor for research
and development programs that meet specified criteria. In addition, we were also involved in joint research projects with European Companies under the auspices of, and with financial assistance
from, the European Union Research and Development Framework Programs.
In that respect, during 2009 and 2010 we were audited by the European Union, or the EU, for grants received under three FP6 contracts. As a result of the audit findings implementation,
during 2012, we paid an aggregate amount of approximately Euro 340,000 which settled and concluded the financial audit.
Furthermore, we were undergoing an audit by the IIA for royalties paid before the sale of our Video Solutions Business. A payment to the IIA will adversely affect our cash flow,
although from financial prospective, at this time, we believe that we have sufficient provisions to cover the final outcome of such review processes. For further details see Item 4.B “Business
Overview - Remaining items of the Video Solution Business”.
In addition to such audits, we may in the future be subject to further reviews in connection with government programs that we participated in or received during our activities in the
Video Solutions Business. Any review of such kind could result in substantial cost which would have a negative impact on our financial condition.
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Risks Relating to Operations in Israel
The rights and responsibilities of our shareholders are governed by Israeli law and differ in some respects from the rights and responsibilities of shareholders under U.S. law.
We are incorporated under Israeli law. The rights and responsibilities of holders of our ordinary shares are governed by our articles of association and by the Israeli Companies Law,
1999, or the Companies Law. These rights and responsibilities differ in some respects from the rights and responsibilities of shareholders in typical U.S. corporations. In particular, pursuant to
the Companies Law each shareholder of an Israeli company has to act in good faith in exercising his or her rights and fulfilling his or her obligations toward the company and other shareholders
and to refrain from abusing his or her power in the company, including, among other things, in voting at the general meeting of shareholders and class meetings, on amendments to a company’s
articles of association, increases in a company’s authorized share capital, mergers, and transactions requiring shareholders’ approval under the Companies Law. In addition, a controlling
shareholder of an Israeli company or a shareholder who knows that it possesses the power to determine the outcome of a shareholder vote, or who has the power to appoint or prevent the
appointment of a director or officer in the company, or has other powers toward the company, has a duty of fairness toward the company. However, Israeli law does not define the substance of
this duty of fairness. Because Israeli corporate law has undergone extensive revision in recent years, there is little case law available to assist in understanding the implications of these
provisions that govern shareholder behavior.
Because a significant amount of our revenues is generated in Swiss Francs and in Euro but a portion of our expenses is incurred in New Israeli Shekels and in US dollars, our results of
operations may be harmed by currency fluctuations.
Our management believes that the U.S. dollar is the currency in the primary economic environment in which we operate. Thus, our functional and reporting currency is the U.S. dollar.
Notwithstanding, we generate a significant amount of our revenues in CHF (Swiss Franc) and in Euro and incur a portion of our expenses in NIS and in U.S. dollars. As a result, we are exposed to
currency fluctuation of the U.S. dollar against the CHF the Euro and the NIS.
The fluctuations in the dollar costs of our operations in Israel related primarily to the costs of salaries in Israel, which are paid in NIS and constitute a portion of our expenses and the
interest and principal payments of our series A bonds are made in NIS. We cannot assure you that we will not be adversely affected in the future if inflation in Israel exceeds the fluctuation of
NIS against the U.S dollars or if the timing of such fluctuation lags behind increases in inflation in Israel.
Our operations could also be adversely affected if we are unable to guard against currency fluctuations in the future. Accordingly, we perform hedging transactions from time to time
according to our board's approval. In the future we may enter into additional currency hedging transactions to decrease the risk of financial exposure from fluctuations. These measures,
however, may not adequately protect us from adverse effects due to the impact of inflation in Israel.
The deflation rate in Israel was approximately (1)% and (0.2)% in 2015 and 2016, respectively, and an inflation rate of approximately 0.4% in 2017. The changes of the NIS against the
dollar was a devaluation of approximately (0.3)% in 2015 and appreciation of approximately 1.5% and 9.8% in 2016 and 2017, respectively. The change of the CHF against the dollar was a
devaluation of approximately (0.2)% and (2.8)% in 2015 and 2016, respectively, and an appreciation of approximately 4.4% in 2017. The change of the Euro against the dollar was a devaluation of
approximately (10)% and (3.6)% in 2015 and 2016, respectively, and an appreciation of approximately 13.7% in 2017.
Our shares are listed for trade on more than one stock exchange, which may result in price variations.
Our ordinary shares are listed for trade on The NASDAQ Global Market and on the Tel Aviv Stock Exchange Ltd., or TASE. This may result in price variations. Our ordinary shares are
traded on these markets in different currencies, U.S. dollars on The NASDAQ Global Market and New Israeli Shekels on the TASE. These markets have different opening times and close on
different days. Different trading times and differences in exchange rates, among other factors, may result in our shares being traded at a price differential on these two markets. In addition, market
influences in one market may influence the price at which our shares are traded on the other.
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Potential political, economic and military instability in Israel and its region may adversely affect our results of operations.
We are incorporated under the laws of the State of Israel, our principle offices are located in central Israel and some of our officers, employees and directors are residents of Israel.
Accordingly, political, economic and military conditions in Israel and the surrounding region may directly influence us. Since the establishment of the State of Israel in 1948, a number of armed
conflicts have taken place between Israel and its Arab neighbors, and a state of hostility, varying from time to time in intensity and degree, has led to security and economic problems for Israel.
Any hostilities involving Israel or the interruption or curtailment of trade within Israel or between Israel and its trading partners could adversely affect our operations and results of operations
and could make it more difficult for us to raise capital. In addition, recent political uprisings and conflicts in various countries in the Middle East, including Egypt and Syria, are affecting the
political stability of those countries. It is not clear how this instability will develop and how it will affect the political and security situation in the Middle East. This instability has raised concerns
regarding security in the region and the potential for armed conflict. It is also widely believed that Iran, which has previously threatened to attack Israel, has been stepping up its efforts to
achieve nuclear capability. Iran is also believed to have a strong influence among extremist groups in the region, such as Hamas in Gaza and Hezbollah in Lebanon. The tension between Israel
and Iran and/or these groups may escalate in the future and turn violent, which could affect the Israeli economy generally and us in particular. Any armed conflicts, terrorist activities or political
instability in the region could adversely affect our business conditions, harm our results of operations and adversely affect our share price. No predictions can be made as to whether or when a
final resolution of the area’s problems will be achieved or the nature thereof and to what extent the situation will impact Israel’s economic development or our operations.
Anti-takeover provisions could negatively impact our shareholders.
The Companies Law provides that certain purchases of securities of a public company are subject to tender offer rules. As a general rule, the Companies Law prohibits any acquisition
of shares in a public company that would result in the purchaser holding 25% or more, or more than 45% of the voting power in the company, if there is no other person holding 25% or more, or
more than 45% of the voting power in a company, respectively, without conducting a special tender offer.
The Companies Law further provides that a purchase of shares or voting rights of a public company or a class of shares of a public company, which will result in the purchaser's holding
90% or more of the company’s shares or class of shares, is prohibited unless the purchaser conducts a full tender offer for all of the company’s shares or class of shares. The purchaser will be
allowed to purchase all of the company's shares or class of shares (including those shares held by shareholders who did not respond to the offer), if either (i) the shareholders who do not accept
the offer hold, in the aggregate, less than 5% of the issued and outstanding share capital of the company or of the applicable class, and more than half of the shareholders who do not have a
personal interest in the offer accept the offer, or (ii) the shareholder who do not accept the offer hold less than 2% of the issued and outstanding share capital of the company or of the applicable
class. The shareholders, including those who indicated their acceptance of the tender offer (except if otherwise detailed in the tender offer document), may, at any time within six months
following the completion of the tender offer, petition the court to alter the consideration for the acquisition. At the request of an offeree of a full tender offer which was accepted, the court may
determine that the consideration for the shares purchased under the tender offer, was lower than their fair value and compel the offeror to pay to the offerees the fair value of the shares. Such
application to the court may be filed as a class action.
Israeli courts might not enforce judgments rendered outside of Israel, which may make it difficult to collect on judgments rendered against us.
We are incorporated in Israel. Most of our directors and officers are not residents of the United States and some of their assets and our assets are located outside the United States.
Service of process upon our non-U.S. resident directors and officers and enforcement of judgments obtained in the United States against us, and our directors and executive officers may be
difficult to obtain within the United States.
- 19 -
We have been informed by our Israeli legal counsel, that there is doubt as to the enforceability of civil liabilities under U.S. securities laws in original actions instituted in Israel.
However, subject to certain time limitations, an Israeli court may declare a foreign civil judgment enforceable if it finds that all of the following terms are met:
•
•
•
•
The judgment was rendered by a court which was, according to the laws of the state of the court, competent to render the judgment;
The judgment can no longer be appealed;
The obligation imposed by the judgment is enforceable according to the rules relating to the enforceability of judgments in Israel and the substance of the judgment is not
contrary to public policy; and
The judgment is executory in the state in which it was given.
Even if the above conditions are satisfied, an Israeli court will not enforce a foreign judgment if it was given in a state whose laws do not provide for the enforcement of judgments of
Israeli courts (subject to exceptional cases) or if its enforcement is likely to prejudice the sovereignty or security of the State of Israel. An Israeli court will also not declare a foreign judgment
enforceable in the occurrence of any of the following:
•
•
•
•
The judgment was obtained by fraud;
There was no due process;
The judgment was rendered by a court not competent to render it according to the laws of private international law in Israel;
The judgment is at variance with another judgment that was given in the same matter between the same parties and which is still valid; or
• At the time the action was brought in the foreign court a suit in the same matter and between the same parties was pending before a court or tribunal in Israel.
ITEM 4. INFORMATION ON THE COMPANY
4.A. HISTORY AND DEVELOPMENT OF THE COMPANY
History
We are a real estate company engaged through our subsidiaries in purchasing and operating of real estate properties intended for leasing and resale primarily for the purpose of
commercial, industrial, office space use as well as for residential purposes.
We were founded and incorporated in the State of Israel in 1990 under the name of Optibase Advanced Systems (1990) Ltd. In November 1993 we changed our name to Optibase Ltd.
Our ordinary shares have been trading on The NASDAQ Global Market under the symbol “OBAS” since our initial public offering on April 7, 1999.
We listed our ordinary shares for trade on the Tel Aviv Stock Exchange Ltd., or the TASE, on August 6, 2007. On September 23, 2008, we decided to delist our ordinary shares from trade
on the TASE. The delisting of our ordinary shares from trade on the TASE was effective on September 28, 2008. The last day for trading of our ordinary shares on the TASE was September 24,
2008. In April 2015, we listed again our ordinary shares for trade on the TASE. According to the Israeli legislation, Israeli companies whose shares are traded on certain stock exchanges outside
of Israel are allowed to have shares listed on the TASE, while reporting, in substance, in accordance with the provision of the relevant foreign securities law applicable to the Company. In
August 2015, we completed an offering of NIS 60 million non-convertible bonds to the public in Israel and such bonds have been traded on the TASE. For further information, see “Item 5.B
Operating and Financial Review and Prospects – Liquidity and Capital Resources.”
- 20 -
Commencing in February 2001, Festin Management Corp., a British Virgin Island corporation jointly owned by Shlomo (Tom) Wyler and Arthur Mayer-Sommer began to acquire our
ordinary shares on the open market. On September 10, 2004, Festin Management Corp. transferred all of its holdings in us to its shareholders. In addition, during 2008 and 2011, we issued an
aggregate number of 1,063,381 ordinary shares in a private placement to Mr. Wyler, who was considered, until September 12, 2012, our controlling shareholder, and as of the date of this annual
report, serves as the Chief Executive Officer of our subsidiary, Optibase Inc. Since 2012, Capri, our current controlling shareholder, and Gesafi Real Estate S.A., a Panama Corporation, or Gesafi,
acquired 1,797,290 of our ordinary shares from Mr. Wyler. In addition, during November 2013, Gesafi transferred all of our ordinary shares held by it to Capri and on December 31, 2013, we issued
a net sum of 1,300,580 of our ordinary shares to Capri, in consideration for twelve luxury condominium units purchased by us. During January-February 2015, Capri acquired additional 71,229 of
our ordinary shares in two different transactions with an unrelated third party and on the Nasdaq Global Market. For additional information see Item 7.A. “Major Shareholders”.
From our formation until 2010 we were engaged in the Video Solution Business. On May 11, 2009, our board of directors resolved to expand and diverse our operations and enter into the
fixed-income real estate sector. At a special shareholders meeting held on June 25, 2009, our shareholders approved the diversification of our operations by entering into the fixed income real-
estate sector. Such approval was sought solely for cautionary purposes and without any obligation to do so. As of the date hereof, we have entered into certain agreements for the purchase of
real estate assets. For further information, see Item 4.B “Business Overview” and Item 10.C “Material Contracts”.
On March 16, 2010, we and our subsidiary, Optibase Inc., entered into an asset purchase agreement with Optibase Technologies Ltd. and Stradis Inc., wholly owned subsidiaries of S.A.
Vitec (also known as Vitec Multimedia), pursuant to which Optibase Technologies Ltd. and Stradis Inc. purchased all of the assets and liabilities related to our video solutions business. The
closing of the transaction occurred on July 1, 2010.
In addition, we held, on a fully diluted basis, approximately 2.04% of the issued and outstanding share capital of Mobixell Networks Inc., or Mobixell, a private company which designs,
develops and markets solutions for mobile rich media adaptation, optimization and delivery. As of December 31, 2012, such investment was written off completely in our financial reports for 2012.
In January 2014 we sold all of our holdings in Mobixell to Flash Networks Ltd., or FN, without consideration, since Mobixell entered into a share acquisition agreement with FN.
Our principal executive offices are located at 8 Hamenofim Street, Herzliya 4672559, Israel, and our telephone number at that location is +972-73-7073700. Our website is located at
www.optibase-holdings.com. We use a local agent in California for administrative purposes and domestic filings, which is Formation Solutions Inc. 400 Continental Boulevard, 6th Floor El
Segundo, CA 90245.
4.B. BUSINESS OVERVIEW
The real estate market includes the purchasing and operating of real estate properties intended for leasing and resale primarily for the purpose of commercial, industrial, office space,
parking garage, warehouse use as well as for residential purposes. The real estate market is affected by growth or slowdown in the economy, and by changes in the demand and the available
supply of commercial and/or residential properties, as well as the construction of additional commercial and/or residential properties. The real estate market is also affected by governmental,
municipal and tax authority policies regarding planning, building, marketing and taxation of land.
Commencing in the fourth quarter of 2008 and as a result of the global economic and financial market crisis, there has been a slowdown in the real estate market which is evidenced by a
decline in the number of real estate transactions, a reduction in the availability of credit sources, an increase in financing costs and stricter requirements by banks for providing such financing.
During the last few years and through 2016, the situation has changed in certain of the real estate markets we are active in (i.e., Central and Western Europe and North America) as interest rates
decreased and financial institutions were more inclined to grant financing for qualified assets. This has led to increased demand for real estate properties and an increased volume of transactions
in most asset classes. During 2017, the real estate market have yet experienced additional changes as financial institutions have again decreased the availability of financing resulting in more
equity being invested in transactions.
- 21 -
Our strategy in our real estate activities is to become a substantial owner of properties. To achieve this goal, we intend to pursue a number of operating and growth strategies, which
include:
•
•
•
•
•
purchase of real estate mainly in Central and Western Europe, North America and Israel;
developing and improving existing real estate;
maximize the leasing of existing properties to commercial users;
increase and develop unused building rights in our existing properties; and
acquire additional commercial, residential and other real estate assets in light of market conditions, while diversifying our real estate property base.
As of the date of this annual report, our portfolio includes the holdings of interests in six operating commercial properties as well as condominium units in three residential projects.
- 22 -
Properties
The following table provides details regarding real-estate assets properties wholly owned or controlled by us or by our subsidiaries, as of the date of this annual report:
Property
Location
Acquisition
Date
Company
Stake
Nature of
Rights
Property Type
Net
Rentable
Square Meters
Excluding
Redevelopment
Space(1)
Annualized
Rent
($000)(2)
Rate of
Occupancy (3)
Centre des
Technologies
Nouvelles (CTN)
Edeka
supermarkets
Rümlang
Geneva,
Switzerland
March 2, 2011
51%
Ownership
with land lease
Commercial
34,686
10,872
96%
Bavaria, Germany
June 2, 2015 and
July 8, 2015
100%
Ownership
Commercial
37,000
Rümlang,
Switzerland
October 29, 2009
100%
Ownership
Commercial
12,500
3,548
1,569
93%
90%
Miami, Florida
Miami, Florida
2010-2013
100%
Ownership
Residential -
Condominium
Units
4,260
1,063
72%
Annualized
Rent per
Occupied
Square
Meter
($)(4)
326
103
140
347
Portfolio Total/
Weighted Average
-
-
-
-
-
88,460
17,052
93%
208
(1) Net rentable square meters at a building represents the current square meter at that building under lease as specified in the lease agreements plus management’s estimate of space available for
lease based on engineering drawings. Net rentable square meter includes tenants’ proportional share of common areas but excludes space held for redevelopment.
(2) Annualized rent represents the monthly contractual rent under existing leases as of December 31, 2017 multiplied by 12.
(3) Excludes space held for redevelopment. Includes unoccupied space for which we are receiving rent and excludes space for which leases had been executed as of December 31, 2017, but for
which we are not receiving rent. We estimate the total square meter available for lease based on a number of factors in addition to contractually leased square meter, including available power,
required support space and common area.
(4) Annualized rent per square meter represents annualized rent as computed above, divided by the total square meter under lease as of the same date.
- 23 -
Non-GAAP Net Operating Income (“NOI”)
Net Operating Income, or NOI, is a non-GAAP financial measure. The most directly comparable GAAP financial measure is operating income, which, to calculate NOI, is adjusted to add back real
estate depreciation and amortization and general and administrative expenses and other operating costs less gain on sale of operating properties. We use NOI internally as a performance
measure and believe that NOI (when combined with the primary GAAP presentations) provides useful information to investors regarding our financial condition and results of operations
because it reflects only those income and expense item that are incurred at the property level.
A reconciliation of GAAP operating income to Non-GAAP NOI is as follows:
GAAP Operating income
Adjustments:
Real estate depreciation and amortization
General and administrative
Other operating costs (*)
Non-GAAP Total Net Operating Income (NOI)
Year Ended December 31
Thousands US$
2016
2017
2015
4,189
6,320
6,623
3,925
1,849
2,352
4,244
2,615
-
4,209
2,698
-
12,315
13,179
13,530
(*) Acquisition-related costs related to the acquisition of the twenty-seven (27) supermarkets in Bavaria, Germany.
- 24 -
We consider the NOI to be an appropriate supplemental non-GAAP measure to operating income because it assists management, and thereby investors, to understand the core property
operations prior to depreciation and amortization expenses and general and administrative costs. In addition, because prospective buyers of real estate have different overhead structures, with
varying marginal impact to overhead by acquiring real estate, we consider the NOI to be a useful measure for determining the value of a real estate asset or groups of assets.
The metric NOI should only be considered as supplemental to the metric operating income as a measure of our performance. NOI should not be used as a measure of our liquidity, nor is it
indicative of funds available to fund our cash needs, including our ability to pay dividends or make distributions. NOI should also not be used as a supplement to, or substitute for, cash flow
from operating activities (computed in accordance with generally accepted accounting principles in the United States).
Non-GAAP Funds From Operation (“FFO”) and Non-GAAP Recurring FFO (“Recurring FFO”)
Funds from operation, or FFO, is a non-GAAP financial measure. The most directly comparable GAAP financial measure is net income, which, to calculate FFO, is adjusted to add back
depreciation and amortization and after adjustments for unconsolidated associates. We make certain adjustments to FFO, which it refers to as recurring FFO, to account for items we do not
believe are representative of ongoing operating results, including transaction costs associated with acquisitions. We use FFO internally as a performance measure and we believe FFO (when
combined with the primary GAAP presentations) is a useful, supplemental measure of our operating performance as it’s a recognized metric used extensively by the real estate industry. We also
believe that Recurring FFO is a useful, supplemental measure of our core operating performance. The company believes that financial analysts, investors and shareholders are better served by
the presentation of operating results generated from its FFO and Recurring FFO measures.
A reconciliation of GAAP net income to Non-GAAP FFO and Recurring FFO is as follows:
Year Ended December 31
Thousands US$
2016
2017
2015
GAAP Net income (loss) attributable to Optibase Ltd.
(1,068)
195
(1,123)
Adjustments:
Real estate depreciation and amortization
Pro rata share of real estate depreciation and amortization from unconsolidated associates
Non-controlling interests share in the above adjustments
Non-GAAP Fund From Operation (FFO)
Other operating costs (*)
Non- GAAP Recurring Fund From Operation (Recurring FFO)
3,925
541
(1,170)
2,228
2,352
4,580
4,244
1,282
(1,142)
4,579
-
4,579
4,209
2,022
(1,141)
3,967
-
3,967
(*) Acquisition-related costs related to the acquisition of the twenty-seven (27) supermarkets in Bavaria, Germany.
- 25 -
We consider the FFO and Recurring FFO to be an appropriate supplemental non-GAAP measure to operating income because it assists management, and thereby investors, in analyzing
our operating performance.
The metric’s FFO and Recurring FFO should only be considered as supplemental to the metric net income as a measure of our performance. FFO (i) does not represent cash flow from
operations as defined by GAAP, (ii) is not indicative of cash available to fund all cash flow needs, including the ability to make distributions, (iii) is not an alternative to cash flow as a
measure of liquidity, and (iv) should not be considered as an alternative to net income (which is determined in accordance with GAAP) for purposes of evaluating our operating
performance.
- 26 -
The following table provides details regarding our non-controlled real-estate assets or projects in which we indirectly own a minority stake, as of the date of this annual report:
Property
Location
Acquisition
date
Company
Stake
Nature of
Rights
Property Type
Net
Rentable
Square Feet
Excluding
Redevelopment
Space(1)
Annualized
Rent
($000)(2)
Rate of
Occupancy (3)
Annualized
Rent per
Occupied
Square
Feet
($)(4)
2 Penn Center
Plaza
Philadelphia,
Pennsylvania
October 12, 2012
22.16%
Texas Shopping
Centers Portfolio
Houston, Dallas,
San Antonio,
Texas
December 31,
2012
South Riverside
Plaza Office Tower
300 South
Riverside Plaza,
Chicago
December 29,
2015
4%
30%
Beneficial
interest in the
owner of the
property
Beneficial
interest in the
portfolio
Beneficial
interest in the
owner of the
property
Commercial
515,000
11,635
95%
Commercial
2,125,700
27,544
94%
Commercial
1,073,177
15,363
68%
Portfolio Total/
Weighted Average
-
-
-
-
-
3,713,877
54,542
87%
24
14
21
17
(1) Net rentable square feet at a building represents the current square meter at that building under lease as specified in the lease agreements plus management’s estimate of space available for
lease based on engineering drawings. Net rentable square meter includes tenants’ proportional share of common areas but excludes space held for redevelopment.
(2) Annualized rent represents the monthly contractual rent under existing leases as of December 31, 2017 multiplied by 12.
(3) Excludes space held for redevelopment. Includes unoccupied space for which we are receiving rent and excludes space for which leases had been executed as of December 31, 2017, but for
which we are not receiving rent. We estimate the total square meter available for lease based on a number of factors in addition to contractually leased square meter, including available power,
required support space and common area.
(4) Annualized rent per square meter represents annualized rent as computed above, divided by the total square meter under lease as of the same date.
- 27 -
Set forth below is additional information with respect to our projects:
Geneva, Switzerland
On March 3, 2011, we acquired, through our newly owned subsidiary, an office building complex in Geneva, Switzerland known as Centre des Technologies Nouvelles, or CTN
complex. The acquisition was undertaken by OPCTN S.A., or OPCTN, a Luxembourg company owned 51% by Optibase and 49% by The Phoenix Insurance Company Ltd. and The Phoenix
Comprehensive Pension, or, collectively, The Phoenix. OPCTN executed the transaction by acquiring all of the shares of the property owner, Eldista. The seller, Apollo CTN. S.a.r.l, is an entity
majority owned by area property partners.
The transaction was based on a property value of CHF 126.5 million, including existing non-recourse mortgage financing in the principal amount of CHF 85.3 million provided by Credit
Suisse (app. $136.5 million and $92.4 million respectively, as of the purchase date). The purchase price for the transaction was approximately CHF 37.7 million (app. $40.6 million, as of the
purchase date).
The CTN complex is a six-building complex located in the Plan-Les-Ouates business park in the outskirts of Geneva. The complex includes approximately 35,000 square meters of leasable
space (app. 377,000 square feet), is currently leased to 50 tenants, primarily in the field of advanced industries including biotech electronic and information technology industries, and is currently
96% occupied.
The following table sets forth certain information regarding leases of tenants in the CTN Complex, as of December 31, 2017:
2018
2019
2020
2021
2022
Thereafter
Sub-total
Vacant
Total
Number of tenants
whose
leases will expire*
15
7
8
7
10
14
61
-
61
Total area covered
by these leases
Area covered
by these leases
(%)
Annual rent
at expiration
($000)
Percent of annual
rent at expiration
(%)
6,356
836
11,211
1,763
4,956
8,189
33,311
1,375
34,686
18.32%
2.41%
32.32%
5.08%
14.29%
23.61%
96.04%
3.96%
100%
2,054
270
3,827
577
1,529
2,615
10,872
-
10,872
18.89%
2.49%
35.20%
5.31%
14.06%
24.05%
100%
-
100%
* The leases with the tenants described in the above table include either fixed end date, or notice periods ranging from one to twelve months. Number of tenants includes several
tenants with multiple lease agreements with different expiration dates.
In connection with the transaction, Optibase and The Phoenix entered into an agreement regarding their shareholdings in OPCTN. The agreement provides that Optibase will make day-
to-day decisions and provide The Phoenix with customary protective rights. For further information see Item 10.C “Material Contracts”.
For a summary of the principal terms of the financing agreement entered by us for the purchase of the CTN complex, see Item 5.B “Operating and Financial Review and Prospects -
Liquidity and Capital Resources”.
- 28 -
On March 1, 2017, our subsidiary Eldista Gmbh, received a notice from its largest tenant in Switzerland, LEM Switzerland SA, or LEM, regarding the deposit of the monthly rent for
March 2017 amounting to approximately CHF 279,400 (app. $276,800 vat inclusive) with Banque cantonale de Genève under the control of the Pouvoir judiciaire of the Canton of Geneva, as a
preliminary process for filing a claim with the Commission de Conciliation en Matière de Baux et Loyers of the Canton of Geneva, or the Commission. LEM claims that there are serious defects
affecting the rented premises, which merit LEM with a reimbursement of approximately CHF 2.4 (app, $2.4 million) (excluding VAT) as well as approximately CHF 69,200 (app, $68,500) as
indemnification for consequential damages for the years 2014 and 2015. LEM also reserves its claims regarding damages suffered before year 2014. On April 5, 2017 LEM withdrew the deposit of
the monthly rent for March 2017 with Banque cantonale de Genève under the control of the Pouvoir judiciaire of the Canton of Geneva and released the amount to the Company. Thus, paying
the full payment of the rent. In July 2017, LEM filed an application, pursuant to which LEM mainly demands the elimination of certain alleged defects in the CTN Complex and that LEM be
authorized to carry out the works at the expense of Eldista Gmbh if the works are not executed within a specific time frame as well as a 20%-reduction in rent from February 2012 and until the
completion of the works. LEM demands that Eldista Gmbh be ordered to reimburse a monthly amount of CHF 47,600 as rent overpayment from February 2012 (representing the 20% reduction in
rent) until (i) the completion of the works or (ii) the month of the entry into force of the judgment, whichever occurs first and that Eldista Gmbh be ordered to pay an amount of app, CHF 147,000
(subject to amplification) plus interest as of May 5, 2017 as consequential damages. LEM further demands to be reserved the right to claim the reimbursement of overpaid ancillary fees.
According to the application, the dispute amounts to a total of CHF 3.54 million (app. $ 3.68 million). On October 23, 2017 LEM filed a claim with the first instance court, requesting a rent
reduction and related damages amounting to a minimum capital amount of CHF 3,833 (approximately $ 3,926 as of December 31, 2017), based on various defects allegedly affecting the rented
premises. On February 16, 2018, Eldista submitted a reply brief to the court, the Tenant will have until April 9, 2018 to submit a complementary brief and Eldista until May 14, 2018. The Company
has sufficient provision to cover the expected outcome of this claim.
Rümlang, Switzerland
On October 29, 2009, our wholly-owned subsidiary, Optibase RE 1 s.a.r.l., acquired a commercial building located at Riedmattstrasse 9, Rümlang from the Swiss property company Zublin
Immobilien AG. Rümlang is situated 15 km from Zurich and as many commercial buildings due to its strategic location in proximity to Zurich international airport. The purchase price for the
transaction was approximately CHF 23.5 million of which CHF 18.8 million (app. $22.8 million and $18.1 million respectively, as of the purchase date) was financed by a local Swiss bank pursuant
to a mortgage agreement.
The five-story building includes 12,500 square meters (approximately 135,000 square feet) of rentable space with office, laboratory and retail uses. The office building in Rümlang is
currently leased to 13 tenants, and is currently 90% occupied.
The following table sets forth certain information regarding leases of tenants in the Rümlang property, as of December 31, 2017:
2018
2019
2020
2021
2022
Sub-total
Vacant
Total
Number of tenants
whose
leases will expire*
6
2
2
1
2
13
-
13
Total area covered
by these leases
Area covered
by these leases
(%)
Annual rent
at expiration
($000)
Percent of annual
rent at expiration
(%)
5,764
1,208
431
3,369
370
11,142
1,294
12,436
46.35%
9.71%
3.47%
27.09%
2.98%
89.59%
10.41%
100%
786
207
100
425
51
1,569
-
1,569
50.08%
13.20%
6.38%
27.10%
3.24%
100%
-
100%
* The leases with the tenants described in the above table include either fixed end date, or notice periods ranging from three to six months.
- 29 -
For details regarding an option agreement granted to Swiss Pro for the purchase of twenty percent (20%) of the shares of Optibase RE 1 s.a.r.l, the owner of the property, see Item 10.C
“Material Contracts”. For details on a demand received from Swiss Pro to receive certain data in connection with the option agreement, see Item 8. “Financial Information - Legal Proceedings”.
For a summary of the principal terms of the financing agreement entered by us for the purchase of the Rumlang property, see Item 5.B “Operating and Financial Review and Prospects -
Liquidity and Capital Resources”.
Two Penn Center Plaza in Philadelphia, PA
On October 12, 2012, our wholly-owned subsidiary, Optibase 2 Penn, LLC, acquired an approximately twenty percent (20%) beneficial interest in the owner of a Class A twenty story
commercial office building in Philadelphia known as Two Penn Center Plaza.
The transaction was based on a valuation of Two Penn Center Plaza of approximately $66 million, including existing non-recourse mortgage financing in the principal amount of
approximately $51.7 million provided by UBS Real Estate Securities, or UBS. The UBS mortgage loan has a fixed interest rate of 5.61%, maturing in May 2021, and requiring monthly payments of
principal and interest of approximately $300,000. We made a capital contribution of approximately $4 million to acquire a 19.66% indirect beneficial interest in the owner of the property. As of
December 31, 2017, the indirect beneficial interest is 22.16%. For further information, see Item 7.B. “Related Party Transactions”.
Optibase 2 Penn, LLC is a limited partner in a larger joint venture that owns 99% of the beneficial interests in the owner of the Two Penn Center Plaza. Two Penn Center Plaza has
approximately 500,000 rentable square feet and is located in the Center City neighborhood of Philadelphia opposite City Hall and Love Park. The building is currently leased to 148 tenants,
primarily for general office and retail related usage. As of December 31, 2017, the Two Penn Center Plaza was 94% occupied and the annual rental income for the year 2017 totaled to approximately
$11.2 million.
Texas Shopping Centers Portfolio
On December 31, 2012, our wholly-owned subsidiary, OPTX Equity LLC, acquired an approximately 4% beneficial interest in a portfolio of Texas shopping centers. OPTX Equity LLC
undertook this investment as an approximately 16.5% limited partner in Global Texas, LP a Florida limited partnership that is controlled by Global Fund Investments. Global Texas, LP is a limited
partner in Global Texas Portfolio, LP a joint venture that acquired 49% of the beneficial interests in a shopping center portfolio. The partnership agreement of Global Texas, LP provides for
contributions of capital and distributions of proceeds pro rata among the partners according to their respective partnership interests. OPTX Equity LLC has the right to participate in certain
major decisions of Global Texas, LP that require the approval of 51% of the Global Texas, LP partnership interests.
In connection with the transaction, our wholly-owned subsidiary, OPTX Lender LLC, became an owner of approximately 16.5% of the partnership interests in Global Texas Lender, LP a
Florida limited partnership. Global Texas Lender, LP provided a loan to Global Texas Portfolio, LP to finance the purchase price paid by Global Texas Portfolio, LP to acquire its 49% beneficial
interest in the shopping center portfolio. The terms of the partnership agreement of Global Texas Lender, LP are substantially similar to the terms of the partnership agreement of Global Texas, LP.
- 30 -
The transaction was based on a portfolio valuation of approximately $342 million including existing nonrecourse mortgage financing in the principal amount of approximately $252
million. The primary mortgage loan had a fixed interest rate of 5.73% and was refinanced in December 2015 with a mortgage for a $247.5 million with a fixed interest rate of 4.1% matures in January
2026.
At the closing of the transaction, which occurred on December 31, 2012, we made an aggregate capital contribution of approximately $4 million to OPTX Equity LLC and OPTX Lender
LLC in order to fund our share in the transaction.
The shopping centers portfolio includes more than two million square feet of leasable area and is located in Houston, Dallas, and San Antonio areas of Texas. The leasable area is
currently 94% occupied. For the year ended on December 31, 2017, Texas shopping centers portfolio annual rental income totaled to approximately $28.3 million.
Marquis Residences in Miami, Florida
On December 30, 2010, our wholly-owned subsidiary, Optibase Real Estate Miami LLC, had acquired 21 luxury condominium units in the Marquis Residences in Miami, Florida. The
condominium units were sold by Leviev Boymelgreen Marquis Developers, L.L.C., a Florida limited liability company. In consideration for the 21 condominium units, we paid a net purchase price
of approximately $8.6 million. In addition to the purchase price, we have invested approximately $823,000 in finishing the units.
The Marquis Residences is a 67-story tower with 292 luxury residential units ranging from 1,477 to 4,200 square feet, a restaurant, a hotel, a spa and fitness center.
To date, 17 of the 21 units are rented out and the remaining unit is being offered for rental or sale. We intend to hold the units for investment purposes and will consider to continue
renting or selling the units in accordance with our business considerations and market conditions.
21 units are pledged in connection with a financing agreement entered into by us, see Item 5.B “Operating and Financial Review and Prospects - Liquidity and Capital Resources”.
Penthouses Units in Miami, Florida
On April 9, 2013 and on August 22, 2013, our wholly-owned subsidiary, Optibase Real Estate Miami LLC, had acquired two luxury condominium penthouses located in the Marquis
Residence in Miami and one condominium penthouse located in the Ocean One condominium in Sunny Isles Beach, Florida. In consideration for the three penthouses, we paid a net purchase
price of approximately $4.8 million.
The Ocean One condominium in Sunny Isles Beach is a twin tower project with 241 luxury residential units ranging from 1,990 to 2,610 square feet, with penthouses containing more
square footage, and the amenities include, 700 feet of ocean frontage, a private beach club, a health and fitness center, a pool and spa and two tennis courts.
To date, one penthouse is still undergoing renovations and remodeling, while the other two unit’s renovation has been recently completed. We intend to hold the remaining units for
investment purposes and will consider renting or selling the units in accordance with our business considerations and market conditions.
Condominium Units in Miami Beach, Florida
On December 31, 2013, our two wholly-owned subsidiaries, Optibase FMC LLC and Optibase Real Estate Miami LLC, had acquired twelve luxury condominium units located in the
Flamingo-South Beach One Condominium and in the Continuum on South Beach Condominium, both located in Miami Beach, Florida, in consideration for the issuance of our 1.37 million newly
issued ordinary shares (of which approximately 67,000 ordinary shares were off set against the lease of one unit), representing, as of the date of the approval of the transaction by our board of
directors, a value of approximately $8.8 million. The condominium units were sold by private companies indirectly controlled by Capri, our controlling shareholder. At closing, and following the
approval of the transaction by our shareholders, we issued to Capri a net sum of 1,300,580 of our ordinary shares. The net fair value of the condominium units as recorded in our financial
statement as of the closing date was approximately $7.2 million, representing the fair value of the ordinary shares issued as of the closing date.
- 31 -
The eleven units at the Flamingo-South Beach One Condominium, or Flamingo Condominium, are located on various floors of the South Building of the Flamingo Condominium, and
ranging in size from 924 to 2,347 square feet. The Flamingo Condominium is a 15-story tower with 513 luxury residential units ranging in size from approximately 450 to approximately 2,347 square
feet. On October 20, 2014, we sold the eleven units located in the Flamingo Condominium, in consideration for an aggregated gross price of $6.4 million, and we recorded a capital gain of
approximately $2.7 million resulting from such transaction. For further details on the transaction to sell such eleven units, see Item 7.B. “Related Party Transactions” and Item 10.C. “Material
Contracts”.
The unit at the Continuum on South Beach Condominium, or Continuum, is located on the 33rd floor of the North Tower of the Continuum on South Beach Condominium located at 50 S.
Pointe Drive, Miami Beach, Florida. The Continuum on South Beach Condominium is a 37-story ocean-front tower with 203 luxury residential units ranging in size from 1,554 to 3,497 square feet.
Residences of the Continuum on South Beach Condominium enjoy the right to use the common areas of the residence, including swimming pool, tennis courts, spa and a sporting club. At the
closing of the acquisition of the Continuum Unit, the seller of the unit leased the Continuum Unit from us for a term of 36 months. We intend to hold the unit for investment purposes and will
consider to continue renting or selling the unit in accordance with our business considerations and market conditions.
On December 29, 2016, our shareholders approved, following the approval by our audit committee and board of directors, a new lease agreement to be entered into with an affiliate of
Capri, or the Tenant. The new lease will be in effect for a one-year term commencing on January 2, 2017, which will be automatically extended by a one-year term and up to a total of three years.
For further details, see Item 7.B. “Related Party Transaction”.
Four units are pledged in connection with a financing agreement entered into by us, that was refinanced in November 2017, see Item 5.B “Operating and Financial Review and Prospects
- Liquidity and Capital Resources” .For further information, see Item 7.B. “Related Party Transactions”.
German Commercial Properties Portfolio
On December 18, 2014, our wholly owned European subsidiary, Optibase Bavaria GmbH & Co. KG, or Optibase Bavaria, entered into a purchase agreement with Lincoln Dreizehnte
Deutche Grundstucksgellschaft mbH and Lincoln Land Passau GmbH, unrelated third parties, or the Sellers, to acquire a retail portfolio of 26 separate commercial properties in Bavaria, Germany,
and one commercial property in Saxony, Germany, or the German Portfolio. On June 2, 2015 the closing of the transaction occurred and at the first stage we acquired 25 supermarkets in Bavaria. In
consideration for the 25 supermarkets, we paid a net purchase price of €24 million. On July 8, 2015 we acquired the two remaining supermarkets for an additional purchase price of €4.75 million.
The German Portfolio represents a homogenous retail portfolio in established retail locations. It has approximately 37,000 square meters of total rental space and currently generates
annual net rental income of approximately EUR 2.9 million (app. $3.3 million). The leasable area is currently 93% occupied, and the properties have an average remaining lease term of
approximately five years.
The tenants currently operate on the properties includes 26 supermarkets, and one commercial building with partly office use. The largest tenant in the German Portfolio is EDEKA
Handelsgesellschaft Südbayern mbH, or Edeka, one of the largest supermarket chain in the German market, which currently leases 19 of the rental properties in the German Portfolio. In addition to
the supermarkets, smaller shops (such as bakeries and post offices) operate on several locations as subtenants of Edeka.
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The following table sets forth certain information regarding leases of tenants in the portfolio by property, as of December 31, 2017:
2018
2019
2020
2021
2022
Thereafter
Sub-total
Vacant
Total
Number of tenants
whose
leases will expire*
2
1
6
-
5
11
25
-
25
Total area covered
by these leases
Area covered
by these leases
(%)
Annual rent
at expiration
($000)
Percent of annual
rent at expiration
(%)
2,379
1,701
9,657
-
6,716
14,078
34,531
2,457
36,988
6.43%
4.60%
26.11%
0.00%
18.16%
38.06%
93.36%
6.64%
100%
268
200
888
-
604
1,404
3,364
-
3,364
7.98%
5.95%
26.39%
0.00%
17.95%
41.74%
100%
-
100%
* Number of tenants by property of which 19 are leased by Edeka.
For a summary of the principal terms of the financing agreement entered by us for the purchase of the portfolio, see Item 5.B “Operating and Financial Review and Prospects - Liquidity
and Capital Resources”.
South Riverside Plaza Office Tower, Chicago
On December 29, 2015, our wholly-owned subsidiary, Optibase Chicago 300 LLC, completed an investment in 300 River Holdings, LLC, or the Joint Venture Company, which beneficially
owns the rights to a 23-story Class A office building located at 300 South Riverside Plaza in Chicago under a 99 year ground lease expiring in 2114. We invested $12.9 million in exchange for a
thirty percent (30%) interest in the Joint Venture Company.
The property is located in Chicago’s premier West Loop submarket, along the Chicago River. The building, situated on the riverfront, offering 360 degree views at every level of the
building, including the following major tenants: Zurich American Insurance, DeVry, Inc., National Futures Association, Federal Deposit Insurance Corporation and Newark Corporation. On June
17, 2016, and in accordance with our initial investment agreement in 300 South Riverside Plaza, Chicago, we have invested an additional amount of $3 million which accrues interest of 12% per
annum which was distributed back to the Company on November 21, 2017.
JPMorgan Chase who was an anchor tenant in the building, occupying approximately 486,000 square feet, or 46% of the rentable area, has exercised its option to terminate its entire
office space at no penalty on September 2016. As a result, we have secured new leases with a variety of new tenants and we are currently seeking and negotiating additional alternative tenants
to fulfil the vacant space. To date, approximately 80% of the rentable square feet of the building are secured by various singed lease agreements.
Material Tenants
Our commercial properties in Switzerland are supported by anchor tenants who, due to size, reputation and other factors are considered as such. Our largest tenants in Switzerland are
LEM SA and Novimune SA, located in the CTN complex. As of December 31, 2017, these tenants occupied approximately 13,000 square meters and accounted for approximately $4.5 million of
rent income, or approximately 28% of our gross leasable area in Switzerland and approximately 36%, of our annual rent in Switzerland. For further details regarding the receipt of an application for
conciliation from LEM, see Item 8.A. “Consolidated Statements and Other Financial Information”.
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Our largest tenant in Germany is Edeka. As of December 31, 2017, Edeka occupied approximately 30,300 square meters and accounted for approximately $2.8 million of rent income, or
approximately 82% of our gross leasable area in Germany and approximately 85%, of our annual rent in Germany. Our other tenant in Germany is Buchbauer Handelsmärkte GmbH. Or Buchbauer.
As of December 31, 2017, Buchbauer occupied approximately 5,300 square meters and accounted for approximately $400,000 of rent income, or approximately 14% of our gross leasable area in
Germany and approximately 12%, of our annual rent. No other tenant accounted for over 10% of our annual rent (on a consolidated basis).
Competition
The real estate market is highly competitive and is characterized by a large number of competitors. The main factor affecting competition in this market is geographic location of property.
There are properties in close proximity to some of our properties that are similar in purpose and use, which has the effect of increasing competition for the leasing of those properties as well as
reducing the rental rates for those properties. Other factors affecting competition are the leasing price, the physical condition of the properties and their energy efficiency rate, the finishing of the
properties and the level of the management services provided to tenants. Furthermore, the overall economic and financial trends as reflected, among other things, in interest rates, may further
increase competition, leading to a reduction of rental fees and a decline in demand for properties. However, as most of our real estate is leased under medium to long term agreements, we believe
that our exposure is limited to most of the effects of slowdown in the real estate market, although a significant change in market conditions may adversely affect our ability to maintain current
rates of occupancy or current rent levels.
Remaining items of the Video Solution Business
In connection with the sale of our Video Solutions Business to Vitec, we transferred all rights related to the support of the IIA for the period ending on the date of the closing of the
Vitec Transaction to Vitec. Although we have no further obligation to pay royalties on revenues generated by our Video Solutions Business subsequent to its sale. We were undergoing an audit
by the IIA, for royalties paid before the sale of our Video Solution Business. The Company has sufficient provision to cover the expected outcome of such review process.
4.C. ORGANIZATIONAL STRUCTURE
As of December 31, 2017, we have been managing our activity through our two wholly-owned direct subsidiaries: Optibase Inc. which was incorporated in California, the United States
in 1991, Optibase Real Estate Europe SARL, or Optibase SARL, which was incorporated in Luxembourg in October 2009, and through our 51% held subsidiary OPCTN S.A., which was
incorporated in Luxembourg on February 24, 2011. Our subsidiaries hold the following companies: Optibase Inc. wholly owns Optibase Real Estate Miami LLC, Optibase 2Penn LLC, OPTX Equity
LLC, OPTX Lender LLC, Optibase FMC LLC, and Optibase 300 Chicago LLC, all limited liability companies which were incorporated in Delaware or Florida, United States. Optibase SARL wholly
owns Optibase RE1 SARL and Optibase RE2 SARL, which were incorporated in Luxemburg. Optibase SARL wholly owns Optibase Bavaria GmbH & Co. KG, a German partnership, and Optibase
Bavaria Holding GmbH, a German corporation. OPCTN S.A. wholly owns Eldista GmbH, which was incorporated in Switzerland.
Our real estate activity is managed through several subsidiaries held directly and indirectly by Optibase Ltd. or its abovementioned subsidiaries.
4.D. PROPERTY, PLANTS AND EQUIPMENT
Since December 2011, our headquarters were located in offices occupying approximately 1,399 square feet in Herzliya Pituach, Israel. Our lease for this space expired in December 2015.
From December 2015 until April 2016, our headquarters were located in offices occupying approximately 1,080 square feet in Herzliya Pituach, Israel. Currently, our new headquarters occupying
approximately 3,412 square feet in Herzliya Pituach. Our lease for this space expires in 2020.
Our European subsidiaries occupy offices totaling approximately 500 square feet in Luxembourg. The current leases do not have an expiration date and can be terminated at any time
with a three months prior notice.
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ITEM 4A. UNRESOLVED STAFF COMMENTS
None.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following discussion and analysis about our financial condition and results of operations contain forward-looking statements that involve risks and uncertainties. Our actual
results could differ materially from the results discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those set
forth under “Item 3.D. Risk Factors” above and “Item 5.D. Trend Information” below, as well as those discussed elsewhere in this annual report. You should read the following discussion
and analysis in conjunction with the “Selected Consolidated Financial Data” and the Consolidated Financial Statements included elsewhere in this annual report.
Overview
We invest in the fixed-income real estate field and hold properties and beneficial interest in real-estate assets and projects in various locations. Our revenues are comprised of rental
income we receive from tenants in our various properties. We derive additional income as dividends and interest from various real estate investments where we hold certain beneficial interests.
Our consolidated financial statements are presented in accordance with generally accepted accounting principles in the U.S., or U.S. GAAP.
The presentation currency of the financial statements is the U.S dollar.
The functional currency of the Company is the U.S Dollar.
The functional currencies of Optibase’s subsidiaries are CHF, EUR and U.S dollar. Assets and liabilities of these subsidiaries are translated at the year-end exchange rates and their statement of
operations items are translated using the average exchange rates for all periods presented. The resulting translation adjustments are recorded as a separate component of accumulated other
comprehensive income in shareholders' equity.
As of December 31, 2017, we had available cash, cash equivalents, long term investments, restricted cash and other financial investments net of approximately $23.1 million. As of March
20, 2018, we have available cash, cash equivalents, long term investments, restricted cash and other financial investments net of approximately $24.8 million. For information regarding the
investment of our available cash, see Item 5.B. “Operating and Financial Review and Prospects - Liquidity and Capital Resources” below.
Our business may be affected by the condition in Israel, see Item 3.D. “Risk Factors”.
Fixed income from real estate rent
Fixed income real-estate consists primarily of revenues derived from real estate properties, held through our subsidiaries, in Switzerland (Rümlang and Geneva), Miami and Germany.
Cost of real estate operations
Cost of real estate operations consist primarily of direct costs associated with operating the real estate properties such as building insurance, management company fees and property
tax.
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Real estate depreciation and amortization
Real estate depreciation and amortization consist primarily of depreciation expenses related to the value of properties net of amounts accounted for land, as well as amortization
expenses associated with intangible assets derived from the purchase of real estate properties.
General and administrative expenses
General and administrative expenses consist primarily of fees to outside consultants, legal and accounting fees, expenses related to the purchase of real estate assets, stock option
compensation charges and certain office maintenance costs.
Other operating cost
Other operating cost consists of acquisition related cost of $2.4 million related to the acquisition of the twenty-seven (27) supermarkets in Bavaria, Germany during 2015.
Gain on sale of operating properties
Gain on sale of operating properties consists of sale of eleven condominium units located in Miami Beach, Florida during 2014.
Other income
Other income, net, consists of dividend received and interest income on loan to associated company.
Financial expenses, Net
Financial expenses consist primarily of interest we paid in connection with bank loans, debt issuance, currency hedging transactions, and losses from realization of securities and
financial instruments. Financial income consists mainly of interest received on deposits and other financial assets held in our bank accounts and gains from realization of securities and financial
instruments. Our exchange differences occur primarily as a result of the change of the NIS, CHF and Euro value relative to the U.S. dollar.
Taxes on income
Israeli companies are generally subject to corporate tax on their taxable income. As of 2017, the corporate tax rate is 24% (in 2015 and 2016, the corporate tax rate was 26.5% and 25%,
respectively). In December 2016, the Israeli Parliament approved the Economic Efficiency Law (Legislative Amendments for Applying the Economic Policy for the 2017 and 2018 Budget Years),
2016 which reduces the corporate income tax rate to 24% (instead of 25%) effective from January 1, 2017 and to 23% effective from January 1, 2018.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "TCJA"). The TCJA makes broad and
complex changes to the Code. The changes include, but are not limited to:
1.
2.
3.
4.
A corporate income tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017 ("Rate Reduction");
The transition of U.S international taxation from a worldwide tax system to a territorial system by providing a 100 percent deduction to an eligible U.S. shareholder on foreign
sourced dividends received from a foreign subsidiary;
A one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017; and
Taxation of GILTI earned by foreign subsidiaries beginning after December 31, 2017. The GILTI tax imposes a tax on foreign income in excess of a deemed return on tangible assets
of foreign corporations.
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Taxable income of Luxemburg, Switzerland, Germany and the United States is subject to tax at the rate of approximately 29%, 24%, 16% and 34% respectively in 2017.
We have final tax assessments through the tax year 2013.
As of December 31, 2017, we had approximately $68 million of net operating loss carry-forwards for Israeli tax purposes. These net operating loss carry-forwards have no expiration date.
Optibase Inc. had U.S. federal net operating loss carry-forward of approximately $37 million that can be carried forward and offset against taxable income for 20 years, no later than 2037.
Utilization of U.S. net operating losses may be subject to the substantial annual limitation due to the “change in ownership” provisions of the Internal Revenue Code of 1986, and similar state
provisions. The annual limitation may result in the expiration of net operating losses before utilization.
Equity share in losses of associates, net
Associates in which we have significant influence over the financial and operating policies without having control are accounted for using the equity method of accounting, accordingly
we recorded during 2017 an equity income in associate of our holdings of Two Penn Center Plaza in Philadelphia, Pennsylvania and an equity loss in associate of our holdings of 300 South
Riverside Plaza in Chicago.
Net Income Attributable to Non-Controlling Interest.
Net income attributed to non-controlling interest following the acquisition of the CTN property in Geneva, Switzerland in March 2011. We have entered into the said transaction with
The Phoenix group, who owns 49% of the property. Thus, 49% of the net operating results of the property are attributed to them.
5.A. OPERATING RESULTS
The following table sets forth, for the years ended December 31, 2015, 2016 and 2017 statements of operations data as percentages of our total revenues:
Fixed income from real estate rent
Costs and expenses:
Cost of real estate operations
Real estate depreciation and amortization
General and administrative
Other operating expenses
Total costs and expenses
Operating income
Other income, net
Financial expenses, net
Income before taxes on income
Taxes on income
Equity share in losses of associates, net
Net income
Net income attributable to non-controlling interest
Net income (loss) attributable to Optibase Ltd.
- 37 -
2015
Year Ended December 31
2016
2017
100%
19.4
25.7
12.1
15.4
72.6
27.4
2.8
(11.8)
18.4
(10.5)
(0.2)
7.6
14.6
(7)
100%
19.3
26
16
-
61.3
38.7
6.8
(20.6)
24.9
(10)
(2)
12.9
11.7
1.2
100%
18.4
25.4
16.3
-
60.1
39.9
3.6
(16.7)
26.8
(9.7)
(10.1)
7.0
13.8
(6.8)
Results of Operations for the Years Ended 2017 and 2016
Fixed income from real estate rent. Our fixed income real estate rent increased in 2017 to $16.6 million, compared to $16.3 million in 2016.
Cost of real estate operations. Our cost of real estate operation decreased in 2017 to $3.1 million, compared to $3.2 million in 2016.
Real estate depreciation and amortization. Our real estate depreciation and amortization in 2017 and in 2016, totaled to $4.2.
General and Administrative Expenses. General and administrative expenses increased in 2017 to $2.7 million, compared to $2.6 million in 2016.
Operating Income. As a result of the foregoing, we recorded operating income of $6.6 million in 2017 compared to an operating income of $6.3 in 2016. The increase in our operating
income in 2017, is mainly attributed to increase in fixed income from real estate rent and due to decrease in cost of real estate operations, offset by an increase in general and administrative
expenses.
Other income (loss). We recorded other income of $597,000 in 2017, compared to other income of $1.1 million in 2016, related to dividend received and interest income on loan to an
associated company. The decrease in other income in 2017 is mainly attributed to the realization of two shopping centers of Texas portfolio during 2016.
Financial Expenses, Net. We recorded financial expenses, net of $2.8 million in 2017, compared with financial expenses, net of $3.4 million in 2017. The decrease can be mainly attributed
to one-time $335,000 interest refund from the Swiss tax authorities.
Taxes on Income. We and our subsidiaries account for income taxes in accordance with ASC Topic 740 “Income Taxes”, or ASC 740. Under the requirements of ASC 740, we reviewed
all of our tax positions and determined whether the position is more-likely-than-not be sustained upon examination by regulatory authorities. The tax expenses of $1.6 million in 2017 and in 2016,
mainly related to our Luxemburg and Germany subsidiaries.
Equity share in losses of associates, Net. We recorded an equity loss of $1.7 million in 2017, compared to an equity loss of $323,000 in 2016 associated with 2 Penn Philadelphia LP and
Optibase Chicago 300 LLC. For further details regarding 2 Penn Philadelphia LP and Optibase Chicago 300 LLC, see Item 7.B. “Related Party Transactions” and Item 10.C “Material Contracts”,
respectively.
Net Income. As a result of the foregoing, we recorded net income of $1.2 million in 2017, compared with a net income of $2.1 million in 2016.
Net Income Attributable to Non-Controlling Interest. Net income attributed to non-controlling interest was first recorded in 2011 following the acquisition of the CTN complex in March
2011. We have entered into the said transaction with The Phoenix, who owns 49% of the property. Thus, 49% of the net operating results of the property are attributed to them.
Net income (loss) attributable to Optibase Ltd. Net income (loss) attributed to Optibase Ltd., is the result of net income (loss) as affected by net income attributed to non-controlling
interest. As a result of the foregoing, we recorded net loss of $1.1 million in 2017, compared with a net income of $195,000 in 2016.
- 38 -
Results of Operations for the Years Ended 2016 and 2015
Fixed income from real estate rent. Our fixed income real estate rent increased in 2016 to $16.3 million compared to $15.3 million in 2015. The increase is mainly attributed to rental income
deriving from our German Portfolio purchased in June and July 2015.
Cost of real estate operations. Our cost of real estate operation increased in 2016 to $3.2 million compared to $3 million in 2015. Such costs increased mainly due to an increase in
building maintenance expenses related to the German Portfolio purchased in Germany in June and July 2015.
Real estate depreciation and amortization. Our real estate depreciation and amortization in 2016 increased to $4.2 million compared to $3.9 million in 2015. Such costs increased in 2016
mainly due to increase in depreciation expenses related to the German Portfolio.
General and Administrative Expenses. General and administrative expenses increased in 2016 to $2.6 million compared to $1.8 million in 2015. The increase can be mainly attributed to
increase in general and administrative expenses related to the German Portfolio.
Other operating cost. Other operating costs in 2015 consist of acquisition related costs of $2.4 million related to the acquisition of the German Portfolio and to a one-time, non-recurring
expenses.
Operating Income. As a result of the foregoing, we recorded operating income of $6.3 million in 2016 compared to an operating income of $4.2 in 2015. The increase in our operating
income in 2016 is mainly attributed to acquisition related costs of $2.4 million recorded in 2015 and due to an increase in rental income offset by an increase in operation expenses and
depreciation expenses.
Other income (loss). We recorded other income of $1.1 million in 2016 compared to other income of $429,000 in 2015, related to dividend received and interest income on loan to an
associated company.
Financial Expenses, Net. We recorded financial expenses, net of $3.4 million in 2016, compared with financial expenses, net of $1.8 million in 2015. The increase can be mainly attributed
to the interest payments made as part of Miami long term loan, Germany long term loan and bonds issuance transactions as well as foreign currency translation differences.
Taxes on Income. We and our subsidiaries account for income taxes in accordance with ASC Topic 740 “Income Taxes”, or ASC 740. Under the requirements of ASC 740, we reviewed
all of our tax positions and determined whether the position is more-likely-than-not be sustained upon examination by regulatory authorities. Accordingly, we recorded tax expenses of $1.6
million in 2016 and in 2015, mainly related to our Luxemburg and Germany subsidiaries.
Equity share in losses of associates, Net. We recorded an equity loss of $323,000 in 2016, compared to an equity loss of $31,000 in 2015 associated with 2 Penn Philadelphia LP and
Optibase Chicago 300 LLC. For further details regarding 2 Penn Philadelphia LP and Optibase Chicago 300 LLC, see Item 7.B. “Related Party Transactions” and Item 10.C “Material Contracts”,
respectively.
Net Income. As a result of the foregoing, we recorded net income of $2.1 million in 2016, compared with a net income of $1.2 million in 2015.
Net Income Attributable to Non-Controlling Interest. Net income attributed to non-controlling interest was first recorded in 2011 following the acquisition of the CTN complex in March
2011. We have entered into the said transaction with The Phoenix, who owns 49% of the property. Thus, 49% of the net operating results of the property are attributed to them.
Net income (loss) attributable to Optibase Ltd. Net income (loss) attributed to Optibase Ltd., is the result of net income as affected by net income attributed to non-controlling interest.
- 39 -
Critical Accounting Policies
Our consolidated financial statements are prepared in accordance with U.S. GAAP. These accounting principles require management to make certain estimates, judgments and
assumptions based upon information available at the time that they are made, historical experience and various other factors that are believed to be reasonable under the circumstances. These
estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenues and
expenses during the periods presented.
In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application. There are also areas
in which management’s judgment in selecting among available alternatives would not produce a materially different result. Our management reviewed these critical accounting policies and related
disclosures with our audit committee. See Note 2 to our Consolidated Financial Statements, which contain additional information regarding our accounting policies and other disclosures required
by U.S. GAAP.
Our management believes the significant accounting policies which affect management’s more significant judgments and estimates used in the preparation of our consolidated financial
statements and which are the most critical to aid in fully understanding and evaluating our reported financial results include the following:
v
v
v
v
Long-lived assets including intangible assets
Investment in companies
Contingencies; and
Income Taxes.
Long- Lived Assets including intangible assets
The Company and its subsidiaries long-lived assets are reviewed for impairment in accordance with ASC 360, “Property, Plant and Equipment”, whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset
to the future undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
The Company reviewed assets on a component-level basis, which is the lowest level of assets for which there are identifiable cash flows that can be distinguished operationally and for
financial reporting purposes. The carrying amount of the asset group was compared with the related expected undiscounted future cash flows to be generated by those assets over the estimated
remaining useful life of the primary asset. In cases where the expected future cash flows were less than the carrying amounts of the assets, those assets were considered impaired and written
down to their fair values. Fair value was established based on discounted cash flows.
Investment in companies
Investments in non-marketable equity securities of companies in which the Company does not have control or the ability to exercise significant influence over their operation and
financial policies are recorded at cost.
Management evaluates investments in non-marketable equity securities for evidence of other-than temporary declines in value. When relevant factors indicate a decline in value that is
other-than temporary the Company recognizes an impairment loss for the decline in value.
- 40 -
Contingencies
We periodically estimate the impact of various conditions, situations and/or circumstances involving uncertain outcomes to our financial condition and operating results. These events
are called “contingencies”, and the accounting treatment for such events is prescribed by the ASC 450 “Contingencies”. ASC 450 defines a contingency as “an existing condition, situation, or
set of circumstances involving uncertainty as to possible gain or loss to an enterprise that will ultimately be resolved when one or more future events occur or fail to occur”. Legal proceedings
are a form of such contingencies.
In accordance with ASC 450, accruals for exposures or contingencies are being provided when the expected outcome is probable. It is possible, however, that future results of
operations for any particular quarter or annual period could be materially affected by changes in our assumptions, the actual outcome of such proceedings or as a result of the effectiveness of
our strategies related to these proceedings.
Income Taxes
The Company and its subsidiaries accounts for income taxes in accordance with ASC Topic 740, “Income Taxes” or ASC 740, which prescribes the use of the liability method, whereby
deferred tax asset and liability account balances are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax
rates and laws that will be in effect when the differences are expected to reverse. The Company and its subsidiaries provide a valuation allowance, if necessary, to reduce deferred tax assets to
amounts more likely than not to be realized.
ASC 740 clarifies the accounting for uncertainties in income taxes by establishing minimum standards for the recognition and measurement of tax positions taken or expected to be taken
in a tax return. Under the requirements of ASC 740, the Company must review all of its tax positions and make a determination as to whether its position is more-likely-than-not to be sustained
upon examination by regulatory authorities. If a tax position meets the more-likely–than-not standard, then the related tax benefit is measured based on a cumulative probability analysis of the
amount that is more-likely-than-not to be realized upon ultimate settlement or disposition of the underlying issue. Our policy is to accrued interest and penalties related to unrecognized tax
benefits in our financial expenses.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued, Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers (Topic 606)”. The
guidance substantially converges final standards on revenue recognition between the FASB and the International Accounting Standards Board providing a framework on addressing revenue
recognition issues and, upon its effective date, replaces almost all exiting revenue recognition guidance, including industry-specific guidance, in current U.S. generally accepted accounting
principles.
The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to
which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps:
•
•
•
•
•
Step 1: Identify the contract(s) with a customer.
Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligations in the contract.
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
The Company examined the new revenue recognition and conclude that the Company is still within the scope of the standard ACS 840 and not the new revenue recognition ASC 606.
- 41 -
In February 2016, the FASB issued the ASU 2016-02, Leases (Topic 842). The main provision of this ASU is the recognition of lease assets and lease liabilities by lessees for those
leases classified as operating leases. The FASB decided to not fundamentally change lessor accounting. However, some changes have been made to lessor accounting to conform and align that
guidance with the lessee guidance and other areas within U.S. GAAP. The new leases standard requires a modified retrospective transition approach for all leases existing at, or entered into after,
the date of initial application, with an option to use certain transition relief. This update is effective for public entities with reporting periods beginning after December 15, 2018, including interim
periods within those years. Early adoption is permitted. The company is currently evaluating the impact, if any, of the adoption of this new standard, and does not anticipate that this adoption
will have a significant impact on its financial position, results of operations, or cash flows.
In January 2016, the FASB issued ASC 2016-01, Financial Instruments - Overall (Subtopic 825-10) - Recognition and Measurement of Financial Assets and Financial Liabilities. The
ASU makes the following targeted changes for financial assets and liabilities: i) requiring equity investments with readily determinable fair values to be measured at fair value with changes
recognized in net income; ii) simplifying the impairment assessment of equity securities without readily determinable fair values using a qualitative approach; iii) eliminating disclosure of the
method and significant assumptions used to fair value instruments measured at amortized cost on the balance sheet; iv) requiring use of the exit price notion when measuring the fair value of
instruments for disclosure purposes; v) for financial liabilities where the fair value option has been elected, requiring the portion of the fair value change related to instrument-specific credit risk
(which includes a Company's own credit risk) to be separately reported in other comprehensive income; vi) requiring the separate presentation of financial assets and liabilities by measurement
category and form of financial asset (liability) on the balance sheet or accompanying notes; and vii) clarifying that the evaluation of a valuation allowance on a deferred tax asset related to
available-for-sale securities should be performed in combination with the entity's other deferred tax assets. The ASU is effective for fiscal years beginning after December 15, 2017, including
interim periods within those years Early adoption of item (v) above is permitted for financial statements (both annual and interim periods) that have not yet been issued. The Company have not
determined when the Company will adopt item (v) above of this ASU. The Company will adopt the remaining provisions of the ASU on January 1, 2018. The Company are evaluating the impact
of this ASU on Ambac's financial statements.
5.B. LIQUIDITY AND CAPITAL RESOURCES
We have funded our operations primarily through private and public sales of our equity securities and banks credit. As of December 31, 2017, we had cash and cash equivalents of $20.3
million, and as of March 20, 2018, we have available cash, and cash equivalents of approximately $22.3 million.
Net cash provided by our operating activities was $7.9 million, $7.3 million and $4 million in December 31 of each of the years 2017, 2016 and 2015, respectively. Net cash provided for
operating activities in 2017 and in 2016 was primarily the result of net income for the period, as adjusted for depreciation and amortization and minority interests in losses of a subsidiary, increase
in accrued expenses and other accounts payable, offset by the increase in other accounts receivable and prepaid expenses and in trade receivables, and by decrease in deferred tax liabilities and
in land lease liabilities. Net cash provided for operating activities in 2015 was primarily the result of net income for the period, as adjusted for depreciation and amortization, decrease in other
accounts receivable and prepaid expenses, decrease in trade receivables, offset by the increase accrued expenses and other accounts payables, decrease in short term liabilities and in land lease
liabilities, and by decrease in deferred tax liabilities.
Net cash provided by investment activities in 2017 totaling $1.1 million reflects primarily the return of $3 million investment in 300 River Holdings, LLC a Joint Venture Company held by
our wholly-owned subsidiary Optibase Chicago 300 LLC offset by investment in building improvements. Net cash used for investment activities in 2016 totaling $5 million reflects primarily the
additional investment in 300 River Holdings, LLC a Joint Venture Company held by our wholly-owned subsidiary Optibase Chicago 300 LLC., And investment in building improvements. Net cash
used for investment activities in 2015 totaling $49.4 million reflects primarily the investments we have entered into during 2015 for the acquisition of a portfolio in Germany and the acquisition of
30% beneficial interest in Class A office building in Chicago, investment in long term deposits and investment in building improvements.
Net cash used for financial activities in 2017 totaling $5.4 million reflects loans and bonds repayment, dividend distribution to non-controlling interests partially offset by $5.1 million
proceeds from controlling shareholders' loan. Net cash used for financial activities in 2016 totaling $9.6 million reflects loans and bonds repayment, dividend distribution to non-controlling
interests and proceeds from shares capital issuance. Net cash provided for financial activities in 2015 totaling $47.2 million reflects proceeds from bonds offering, bank loan relates to loan
received for the acquisition of the portfolio in Germany and loan received for certain condominium units the Company own in Miami and Miami Beach, Florida partially offset by loans repayment
and dividend distribution to non-controlling interests.
- 42 -
Non-GAAP NOI increased by $351,000, or 2.7%, for the year ended December 31, 2017 compared to the year ended December 31, 2016. The increase in NOI was primarily driven by the
increase in fixed income from real estate rent and due to decrease in cost of real estate operations, and was offset by an increase in general and administrative expenses. For further details
regarding the definition of NOI please see Item 4.B.
Non-GAAP Recurrent FFO decreased by $612,000, or 13.4%, for the year ended December 31, 2017, compared to the year ended December 31, 2016. The decrease in FFO was mainly due
to increase in Equity share in losses of associates, related to the investment in 300 River Holdings, LLC offset by increase in fixed income from real estate rent and decrease in finance expenses,
net. For further details regarding the definition of Recurrent FFO please see Item 4.B.
During 2017, we invested our available cash solely in various bank deposits and money market funds with various banks. As of the date hereof, we do not have any material contractual
commitments related to capital expenditure.
In March 2017, our audit committee and board of directors approved, in accordance with the Israeli Companies Regulations (Relieves for Transactions with Interested Parties) of 2000,
the receipt of a $5.1 million loan, or the Loan, from our Controlling shareholder. The Loan was granted to the Company on March 28, 2017 for the purpose of strengthening the Company's
liquidity. The Loan does not bear any interest or linkage differentials and is unsecured. The Loan is due on April 1, 2019, however, we may prepay the Loan prior to such date at our sole
discretion without any penalty.
In November 2017, our subsidiary, Optibase Real Estate Miami, LLC, or Optibase Miami refinanced 25 residential apartment units in Miami, Florida, or the Property, with City National
Bank of Florida, or CNB. Under the refinancing, the existing loan on the Property from CNB, with a principal balance of $9.4 million, was replaced with a refinanced loan in the principal amount of
$9.4 million. The refinanced CNB loan bears interest at an annual floating rate equal to the 30-Day LIBOR plus 2.65% which may be increased to 30-Day LIBOR plus 3.25% if Optibase Miami and
Optibase, Inc. as its parent, fail to maintain depository accounts with CNB totaling $1.5 million. The principal of the refinanced loan is amortized on a monthly basis with principal payments of
approximately $19,000 per month plus accrued interest until the loan matures on July 8, 2020 when all remaining principal and interest become due and payable. The refinanced loan is secured by
a senior mortgage over the Property and is guaranteed by Optibase Inc. Prepayments of principal are allowed without penalty. The covenants under the new financing agreement are
substantially the same as under the previous loan on the Property. For additional information on the covenants, please see the table below.
In June 2017, Aberdeen Associates LLC, a Delaware limited liability company, or Aberdeen Lender, extended a $7 Million, 5-year fixed-rate loan facility, the Aberdeen Loan Facility, to
the Company’s subsidiary, Optibase Inc.. As the date hereof, Optibase Inc. has not drawn down any funds under the Aberdeen Loan Facility. The Aberdeen Loan Facility may be drawn down
in $250,000 increments, and beginning with the first such draw-down, will bear interest at an annual rate of 5% of the amount drawn, and is compounded and paid quarterly until the maturity on
June 1, 2022, at which point all outstanding principal and interest will become due and payable. The Aberdeen Loan Facility is secured by a pledge by Optibase Inc. of 100% of its membership
interest in Optibase Chicago 300, LLC. Prepayments of principal on the Aberdeen Loan Facility are allowed without penalty, on ten (10) days’ prior notice to the Aberdeen Lender.
In November 2017, Shinhan Bank, a Korean Bank, or Shinhan, extended a $175 Million, 5-year fixed-rate loan, the Shinhan Loan, to South Riverside Building LLC, or 300 Riverside Owner,
an entity in which Optibase owns a thirty percent (30%) beneficial interest. The Shinhan Loan bears interest at an annual rate of 5.50% and is compounded and paid monthly until the Shinhan
Loan matures in November, 2022, at which point all remaining principal and interest will become due and payable. The Shinhan Loan is secured by 300 South Riverside Plaza, a newly renovated,
22-story LEED Gold Certified office tower located in the West Loop of Chicago, IL, USA which is owned by 300 Riverside Owner. Optibase Ltd. received a repayment of its senior notes to 300
Riverside Owner’s parent company, 300 River Holdings LLC, in the amount of USD $3 million plus accrued interest from the proceeds of the Shinhan Loan.
- 43 -
The following table summarizes the principle terms of our material financing agreements of the Company in effect as of December 31, 2017:
Type of Facility Borrower
Non-convertible
Series A Bonds
issued
the
public in Israel
to
The
Company
Original Date
and Maturity
Date
Original Date-
August 9, 2015;
Maturity Date-
31,
December
2021
Original
Amount*
NIS 60
million
(app. $15
million)
Outstanding
Amount (as of
December 31,
2017)**
NIS 40 million
(app. $11.5
million)
Annual
Interest
6.7%
Principal
Securities
none
Payment Terms
Interest - payable
in
semi-annual
payments
Principal - payable
semi-annual
in
payments on June
30
on
and
December 31 of
each of the years
of 2016 through
(last
2021
on
payment
December
31,
2021)
Principal Covenants
Additional Information
in
of
on
all
Company's
•negative pledge regarding
the creation of a floating
charge
the
Company's assets, subject to
certain exceptions.
•no
an
distributions
amount greater than 35% of
the profits
•no
that
distributions
immediately following which
the
equity
(excluding minority interest)
will decrease below $50
million
•increase of interest rate in
case of certain decreases in
the bonds' rating.
•minimum equity (excluding
minority interest) will not be
less than $33 million
•equity (including minority
interest)
to balance sheet
ratio will not be less than 25%
•net financial debt to CAP
ratio will not be greater than
70%
•net
to
EBITDA ratio will not be
greater than 16.
financial
debt
The bonds are rated at a
rating of "Baa1/Stable" on a
local scale by Midroog Ltd.,
an affiliate of Moody’s.
Events of default
include,
among which, the existence
of a real concern that the
Company will not meet its
undertakings
material
the bondholders;
towards
breach of
the Company's
financial covenants during
fiscal
two
consecutives
default
cross
quarters;
provisions; the sale of the
majority of the Company's
assets, subject
to certain
exceptions; and occurrence
of certain 'change of control'
events.
on
restriction
No
the
issuance of any new series of
debt instruments, subject to
certain exceptions. Expansion
of the series is subject to
maintaining
rating
assigned to the bonds prior
to the expansion date and
continued compliance with
the financial covenants.
the
As of December 31, 2017, the
the
Company meets
required covenants.
all
- 44 -
Annual
Interest
Payment Terms
Principal
Securities
Principal Covenants
Additional Information
Type of Facility Borrower
Refinancing
agreement
the
complex
of
CTN
OPCTN,
S.A.
(Mezzanine
Borrower)
Outstanding
Amount (as of
December 31,
2017)**
CHF 2.5
million (app.
$2.6 million).
Original Date
and Maturity
Date
Original
Amount*
CHF 15
million
(app. $16.5
million).
Original Date-
October 3, 2011;
Maturity Date-
Up to 7.5 years
from the original
date.
LIBOR
+
(a)
either:
1.30%; or (b) a
of
maximum
the
2.50%
if
lender's
risk
assessment
requires such
a change.
due
Interest
quarterly,
beginning March
31, 2012.
A
senior
mortgage over
the property + a
pledge
of
Eldista's shares
CHF 2 million to
be paid per year
on
a quarterly
basis, beginning
31.12.2011.
Eldista
GmbH
(Senior
Borrower)
Original Date-
October 3, 2011;
Maturity Date-
2061
CHF 85
million
(app. $93.5
million).
CHF 85 million
(app. $87
million).
LIBOR
0.75%
annum.
+
per
due
Interest
quarterly,
beginning March
31, 2012.
Financing
agreement
(as
amended) of the
Edeka Portfolio
Optibase
Bavaria
GmbH & Co.
KG
Original Date-
May
2015;
Maturity Date-
May 31, 2020
CHF 2 million to
be paid per year
a quarterly
on
basis, beginning
31.12.2018.
Quarterly
of
amortization
€105,000
each
from June 30, 2015
until the maturity
date.
€19.3 million
(app. $23.2
million)
€21 million
(app. $23
million) of
which
€20.5
million
(app. $22.5
million)
has been
drawn
down
3 month Euro
Interbank
Offer Rate +
(a)
either:
1.75%; or (b)
if
certain
mortgage
requirements
under German
law are not
met, 1.89%.
a
is
There
Hedge
Agreement in
place securing
interest
an
a
rate
of
of
maximum
per
2.15%
annum.
charges
the
Land
over
Portfolio
properties;
Assignment of
rent,
insurance
right and claims
as well as claims
of
future
purchase
agreements;
all
Pledge of rent
accounts;
Enforceable
abstract promise
of debt;
Assignment of
right and claims
under
the
Hedge
Agreement.
be
the bank by
•Debt service cover
ratio
("DSCR") of at least 130%
(breach is a "Soft Default",
requiring surplus income from
the portfolio properties to be
used to remedy the breach) or
of at least 110% (breach is a
"Hard Default"
requiring
payment by Borrower to fully
remedy the breach- DSCR of
restored).
130% must be
proven
DSCR must
towards
the
Borrower every six months
from December 31, 2015.
•Loan to value of 70% in the
first three years and 65% in
the fourth and fifth years
(breach requires Borrower to
the
make
Borrower
the
breach). Portfolio was valued
at approximately €32.4 million
on December 3, 2014, and new
valuations may be done at
intervals of two years (first on
September 30, 2016) at the
cost of the Borrower or at any
other time at the Lender's
cost.
payment
to
by
remedy
As of December 31, 2017, the
Company meets
the
required covenants.
all
- 45 -
in
•Transfers/sales of property
are prohibited. Any sale will
result
loan being
the
repayable and a prepayment
fee of 0.1%, plus difference
between interest rate at time
of termination and interest
rate that bank can achieve for
residual
(LIBOR)
interest
term.
•Distributions
of
dividends/shareholder loans
are only permitted in line with
available yearly profit after
loan payments.
•Distributions
of
dividends/shareholder loans
are only permitted: (a) to
OPCTN
loan
to make
payments; and (b) otherwise
in line with available yearly
profit after loan payments.
its
for
the
•The Borrower should pay
certain release amounts (as
set out in the loan agreement)
if a mortgaged property is
sold prior to the maturity
date. The release amount is
the higher of (i) the minimum
re-payment amount agreed
for the sold property or (ii)
75% of the net sales proceeds
received
sold
property.
•Exit Fee for prepayment prior
to Maturity Date equal to
0.30% per remaining year of
the term plus compensation
for loss of interest to the
Lender.
•The Bank has a claim for
damages in the event of a
partial or full prepayment of
the loan amount.
•If the Borrower fulfils certain
requirements with respect to
expanding
the Lenggries
property on or by December
31, 2017, a part of
the
undrawn loan in the amount
of €525,884 will be paid out to
the
the
conditions are not met on or
by December 31, 2017 then
the loan will be reduced by
€525,884 and Borrower will
repay an amount of €74,116.
To date, the Company is
the bank
negotiating with
regarding an extension until
December 31, 2018.
•The Lender is authorized to
syndicate or transfer parts or
the entire loan at its own
cost.
Borrower.
If
Type of Facility Borrower
Financing
agreement
condominium
units in Miami
of
Optibase
Real Estate
Miami, LLC
Original Date
and Maturity
Date
Original
Amount*
Outstanding
Amount (as of
December 31,
2017)**
Annual
Interest
Payment Terms
Principal
Securities
Principal Covenants
Additional Information
$9.4
million
Original Date-
July 7, 2015;
Maturity Date-
July 8, 2018,
extended to July
8, 2020
$9.3 million Libor (30-day
rate) + either:
(a) 2.65%; or
(b) 3,25%
if
Borrower and
Guarantor fail
to maintain
depository
accounts with
the
Lender
totaling $1.5
million.
–
Interest
payable monthly
commencing
on
August 1, 2015.
Principal:
is
amortized on a
basis
monthly
principal
with
payments
of
approximately
$19,000 per month
loan
the
until
matures on July 8,
2020 when
all
remaining
principal
interest
due and payable.
and
become
senior
(i) A
mortgage
spread over 25
residential
condominium
units; and (ii)
from
Guaranty
Inc.,
Optibase,
which
under
Inc.
Optibase,
the
guarantees
of
obligations
the Borrower,
including
the
punctual
payment
of
amounts owed
under the loan
documents.
•Borrower to keep $1 million
in a Restricted Account, from
which interest payments are
deducted if such payments
are not paid in cash.
•Guarantor and the Borrower
must collectively maintain
unrestricted
and
unencumbered Liquid Assets
of at least $2 million including
any amounts held as Interest
the Loan
Reserve under
Agreement.
Guarantor not to transfer a
material portion of its assets,
other than in the ordinary
course of business, for fair
market
such
transfer will not have material
adverse effect on its ability to
perform
obligations.
Guarantor can make advances
to affiliates in ordinary course
of business without consent.
terms,
and
its
As of December 31, 2017, the
Company meets
the
required covenants.
all
- 46 -
at
to
sale
time
•The Mortgage will be
partially released so that a
sale of a Unit can occur,
provided: no Event of Default
exists
the
the
Borrower presents a contract
for
the Lender
executed by a buyer; the sale
is to a bona-fide third party
purchaser upon the terms and
conditions set out in Exhibit
B of the Loan Agreement.
•Lender may obtain a new or
updated Appraisal of
the
Project at Borrower’s expense
once annually, or more often
if an Event of Default exists
or
a
required
governmental or banking
agency or authority.
by
if
Type of Facility Borrower
Original Date
and Maturity
Date
Original
Amount*
Optibase RE
1 SARL
Financing
agreement
of
the property in
Rumlang
Original Date-
October
2009;
Maturity Date-
2059
CHF 18.8
million
($18.4
million)
Outstanding
Amount (as of
December 31,
2017)**
CHF 15.8
million (app.
$16.2 million)
Annual
Interest
Payment Terms
Principal
Securities
Principal Covenants
Additional Information
A
senior
mortgage over
the property +
Pledge over the
in
holdings
borrower.
•Undertaking not to grant
any
or
encumbrance
mortgage on
the Rümlang
property without the lender's
approval.
As of December 31, 2017, the
Company meets
the
required covenants.
all
(for a
Libor
period
determined by
borrower per
interest
each
for
payment
the
next
payment) +
0.8%
Interest - payable
in four quarterly
payments
annually;
The
principal
amount is payable
in four quarterly
amortization
payments
annually, each in
amount of
the
CHF
94,000
(approximately
$92,000 as of the
purchase date).
1's
•The lender may adjust the
margin at its sole discretion
on account of deterioration in
Optibase RE
credit
standing or the value of the
property.
•The principal payments may
be adjusted at the lender's
sole discretion if the lease of
major tenants is terminated
and no replacement tenant is
found within 6 months.
•Borrower may repay
the
mortgage at any time, subject
to a prior notice of three
months with no
subject
penalty.
• The lender holds the
right to accelerate future loan
payments, upon occurrence
of certain default conditions.
In November 2017, our subsidiary, Optibase Real Estate Miami, LLC, refinanced 25 residential apartment units in Miami, Florida, with City National Bank of Florida.
Translation of the amounts into US Dollar was made in accordance with the representative rate of exchange of the relevant currency into US Dollar as of the date the loan was taken.
(1)
*
** Translation of the amounts into US Dollar was made in accordance with the representative rate of exchange of the relevant currency into US Dollar as of December 31, 2017.
- 47 -
We believe that, considering the use of cash in our ongoing operations, together with the existing sources of liquidity described above, our working capital will be sufficient to meet our
present requirements and our needs for cash for at least the next 12 months. However, our liquidity and capital requirements are affected by many factors, some of which are based on the normal
ongoing operations of our businesses and some of which arise from uncertainties related to global economies and the markets that we target for our services. In addition, we routinely review
potential acquisitions, which may require additional funds than are currently available. Therefore, we would likely seek additional equity or debt financing, although we cannot assure you that
we would be successful in obtaining such financing on favorable terms or at all.
5.C. RESEARCH AND DEVELOPMENT
Irrelevant.
5.D. TREND INFORMATION
Starting in 2008 the global economic downturn caused a slowdown in the real estate market. In the later part of 2008 and through 2010, banks have lowered interest rates, but at the same
time were reluctant to provide financing or perform refinancing of existing debt. Although interest rates have increased during 2011, banks are still reluctant to provide financing or perform
refinancing of existing debt. Moreover, in the past few years, several European countries were experiencing difficulties refinancing their governmental debts. Such difficulties influenced the
European and entire world economy, and eventually brought to a sovereign debt crisis in Europe during 2011.
In 2012, the economy showed signs of improvement, but recovery has been slow and volatile. Furthermore, severe financial and structural strains on the banking and financial systems
have led to significant lack of trust and confidence in the global credit and financial system. Consumers and money managers have liquidated and may liquidate equity investments, and
consumers and banks have held and may hold cash and other lower-risk investments, resulting in significant declines in the equity capitalization of companies and failures of financial
institutions. The recent economic downturn resulted in many companies shifting to a more cautionary mode with respect to leasing of real estate properties. Potential tenants may be looking to
consolidate, reduce overhead and preserve operating capital. The downturn also impacted the financial condition of some our tenants and their ability to fulfill their lease commitments which, in
turn, impacted our ability in some of our regions to maintain or increase the occupancy level and/or rental rates of our properties.
Recent U.S. debt ceiling and budget deficit concerns have increased the possibility of additional downgrades of sovereign credit ratings and economic slowdowns. In August 2011,
Standard & Poor’s Ratings Services lowered its long-term sovereign credit rating on the U.S. from “AAA” to “AA+”. The impact of this or any further downgrades to the U.S. government’s
sovereign credit rating, or its perceived creditworthiness, is inherently unpredictable and could adversely affect the U.S. and global financial markets and economic conditions. These
developments, and the U.S. government’s credit concerns in general, could cause interest rates and borrowing costs to rise. In addition, the lowered credit rating could create broader financial
turmoil and uncertainty. In addition, during 2013, the pressure on properties’ pricing have eased somewhat and the U.S. real estate market was showing signs of stabilization and an increase
towards the end of the year. During 2014 and through 2015 the U.S. real estate market has shown signs of improvement and a consistent increase in assets prices as the demand for investments
increased significantly also driven by financial institutions increased willingness to finance new transactions along with low interest rates. Economically, that had been supported by moderate
job growth, record housing affordability and fewer distressed property sales. Throughout 2016 and to date, we have witnessed a decrease in demand for high end residential projects in the U.S.
market, while the demand for other quality projects both in the residential and the commercial markets is keeping stable and in certain cased showing a moderate increase.
- 48 -
In addition, the Swiss economy led to a slight increase in demand in the office property market in 2011. In particular, Switzerland remains an attractive location for international service
providers and corporate headquarters. There is also still a demand for high-quality, modern spaces, which ultimately allows for a certain stability on the rent level. However, while jobs were still
being created at the beginning of 2011, the Swiss economy slowed down and consumer sentiment dimmed somewhat in the second half of the year. Towards the end of the year, the demand for
office space slowed down due to announced and expected job losses. During 2015 and throughout 2016, as Swiss interest rates declined further, the Swiss real estate prices remained stable in
most segments, while other segments were showing signs of increase mainly due to the low interest rates and lack of investments alternatives. At the same time, there was no increase in the
demand for new rental spaces and the rental market appeared to be slowing down further, in particular the demand for prime office space and the price for such real estate properties. Although
economic conditions were promising in 2013, stagnating sales, depressed income and ongoing structural challenges meant that demand for retail floor space was modest. In addition, the two
most highly developed tenant markets, Zurich and Geneva, are still exposed to growing oversupply of office space. Despite the above, during 2014 and 2015, market values on direct investments
generally continued to rise, mainly due to low interest rates, and lack of investment alternatives, but have been stable during 2016 and 2017. As this was accompanied by moderate demand for
rents and stability in rental prices, the overall yields on such investments have decreased further. During 2015, 2016 and 2017 and to date, the Swiss Central Bank has set negative interest rates
for CHF deposits. This in-turn pushed investors to further invest in the real estate market while looking for investments alternatives to generate positive returns on their investments.
Over the course of 2015, 2016 and 2017, the German real estate market continued its expansion and growth. While the majority of European countries are still suffering from the world
economic downturn which have started back in 2008, the German economy and its real estate sector have shown significant signs of improvement supported by a decrease in interest rates and
an increase in availability of financing. In addition, an increasing demand by foreign investors also supported the increase in assets value as well as the gradual devaluation of the Euro against
the USD which made the German market also appealing for U.S. investors.
Our financial income is affected by changes in the 6-month Libor rate, see Item 3.D. “Risk Factors - Risks Relating to the Economy, Our Financial Condition and Shareholdings” above.
Since 2012 and during 2013, 2014 and 2016 except for 2015 and 2017, we have been profitable. During 2015, we operated at a loss mainly due to acquisition-related costs of $2.4 million
related to the acquisition of the twenty-seven (27) supermarkets in Bavaria. During 2017, we operated at a loss mainly due to equity losses related to the investment in 300 River Holdings, LLC,
which beneficially owns the rights to a 23-story Class A office building located at 300 South Riverside Plaza in Chicago, IL.
5.E. OFF-BALANCE SHEET ARRANGEMENTS
There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
5.F. TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
Set forth below are our contractual obligations and other commercial commitments as of December 31, 2017:
Contractual Obligations
Total
Long-Term Debt*
Capital Lease Obligations
Lease Obligations
Bonds*
Total Contractual Cash Obligations
* Excluding interest
144,240
19,364
459
11,532
175,595
- 49 -
Payments Due by Period
(USD in thousands)
Less than 1 year
3,165
331
156
2,883
6,535
1- 3 years
3-5 years
41,736
662
269
5,766
48,433
4,867
662
34
2,883
8,446
more than 5
years
94,472
17,709
-
-
112,181
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
6.A. DIRECTORS AND SENIOR MANAGEMENT
The following table sets forth information with respect to the individuals who are currently our directors and executive officers. All of these individuals are presently serving in the
respective capacities described below:
Alex Hilman
Amir Philips
Shlomo (Tom) Wyler
Yakir Ben-Naim
Orli Garti Seroussi (1)(2)(3)
Danny Lustiger(1)(3)
Chaim Labenski(1)(2)(3)
Reuwen Schwarz
Age
65
50
66
46
58
50
70
41
Position
Executive Chairman of the board of directors
Chief Executive Officer
Chief Executive Officer of Optibase Inc.
Chief Financial Officer
Director
Director
Director
Director
(1) Member of our audit committee, financial statements review committee and nominating committee.
(2) External director.
(3) Member of our compensation committee.
On December 21, 2017, our shareholders approved the re-election of Alex Hilman, Danny Lustiger and Reuwen Schwarz as directors of the Company. On December 29, 2017 our
shareholders approved the re-election of Orli Garti Seroussi and Chaim Labenski, as external directors of the Company. On November 9, 2017, our board of directors and our compensation
committee approved an amendment to the Company’s undertaking to indemnify its current and future directors and officers and the grant of amended letters of indemnification accordingly. On
December 21, 2017, following the approval of our board of directors and our compensation committee, our shareholders approved such amendment to the Company’s undertaking to indemnify:
(1) its current and future directors who are non-controlling shareholders of the Company (or are not persons to whom the grant by the Company of such indemnification undertaking creates a
personal interest to the Company's controlling shareholder); (2) Mr. Shlomo (Tom) Wyler, the Chief Executive Officer of the Company’s subsidiary Optibase Inc. who is affiliated with the
controlling shareholder of the Company; (3) Mr. Reuwen Schwarz, a member of the Company’s Board of Directors, who is affiliated with the controlling shareholder of the Company; and (4) Mr.
Amir Philips, the Company’s Chief Executive Officer; and the grant of amended letters of indemnification, accordingly. For further information, see item 6.B. “Compensation”. On May 16, 2016,
our shareholders approved an amendment to the compensation terms of Mr. Shlomo (Tom) Wyler as the Chief Executive Officer of Optibase Inc., our subsidiary and certain amendments to the
compensation terms of Mr. Amir Philips the Company's Chief Executive Officer.
Alex Hilman serves as Executive Chairman of our board of directors since September 2009. He has joined our board of directors in February 2002. Mr. Hilman is a certified accountant in
Israel (C.P.A ISR.), and a partner in Hilman & Co., accountancy firm which provides auditing, tax and business consulting services to corporations. Mr. Hilman serves as a board member in other
companies in Israel and abroad. Mr. Hilman was the president of the Israeli Institute of Certified Public Accountants in Israel, served on the board of IFAC (International Federation of
Accountants), and was a member of the Small & Medium Practices committee in IFAC. Mr. Hilman has published professional works on tax and accounting, among them, The Israel Tax Guide.
Mr. Hilman has also held professional and management positions at the ITA (the Israeli Tax Authorities) and lectured Taxation in Tel Aviv University. Mr. Hilman holds a B.A. in Accountancy
and Economics from Tel-Aviv University.
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Amir Philips serves as our Chief Executive Officer. Mr. Philips has been serving in this position since June 2011. Prior to this position, Mr. Philips served as our Chief Financial Officer
from May 2007, and as Vice President Finance of Optibase Inc. from July 2004. From 2000 until 2004, Mr. Philips held the position of Group Controller and Financial Manager at Optibase Ltd.
Before joining Optibase, Mr. Philips was an accountant and auditor at Lotker Stein Toledano and Co., currently a member of BDO Ziv Haft. Mr. Philips is a Certified Public Accountant in Israel.
He holds an MBA from the Kellogg-Recanati School of Business and a B.B. degree in Accounting and Business Management from the Israeli College of Management.
Shlomo (Tom) Wyler serves as the Chief Executive Officer of our subsidiary Optibase Inc. Until December 19, 2013, Mr. Wyler has served as a president and a member our board of
directors. Since his investment in us in September 2001 (then through Festin Management Corp.), Mr. Wyler has served in various senior executive positions. His other areas of involvement
include investment banking, foreign exchange, financial futures and real-estate. In the early 1990s, Mr. Wyler turned his efforts to real estate interests. Mr. Wyler holds a Masters degree in
Business Economics from the University of Zurich. Mr. Wyler is Reuwen Schwarz' father in law.
Yakir Ben-Naim serves as our Chief Financial Officer. Ms. Ben-Naim has been serving in this position since June 2011. From 2004 until May 2011, Ms. Ben-Naim held the position of
Corporate Controller and Financial Manager at Optibase Ltd. Before joining Optibase, Ms. Ben-Naim was a controller at V.Box Communications Ltd., and an accountant at Ernst & Young. Ms.
Ben-Naim is a Certified Public Accountant in Israel.
Orli Garti Seroussi joined our board of directors on January 31, 2008 as an external director. Ms. Garti-Seroussi serves as an Independent Business Consultant and as an external
director of Unet Credit Financial Services Ltd., Apio (Africa) Ltd. and of Gamatronic Ltd. From May 2017, Ms. Garti-Seroussi serves as a director of Meuhedet Healthcare Organization from May
2016, as a board member in the Israel Electricity Company Ltd. and as a council member of the Public Israeli Broadcast Corporation. During 2012 and 2013, Ms. Garti-Seroussi served as the
Deputy Director and CFO of the Jerusalem Cinematheque - Israel Film Archive. From August 2001 until June 2011, Ms. Garti-Seroussi served as the General Manager of the Bureau of Municipal
Corporation in the municipality of Tel-Aviv Jaffa. From June 1999 until July 2001 Ms. Garti-Seroussi served as manager of consulting department in Shif-Hazenfrats & Associations, CPA firm.
Prior to that, Ms. Garti-Seroussi served as Deputy Director of the Department of Market Regulation in the Israel Securities Authority and as an Auditor in the Tel Aviv Stock Exchange. Ms. Garti-
Seroussi holds an M.P.A from Harvard University and M.B.A degree and a B.A degree in economics and accounting from Tel Aviv University. Ms. Garti-Seroussi is a Certified Public
Accountant in Israel.
Danny Lustiger joined our board of directors in October 2009. Mr. Lustiger is the president and Chief Executive Officer of Cupron Scientific Ltd. and has over 22 years of experience in
various aspects of Hi-Tech industry at senior positions together with Real estate and infrastructure industries, experience at senior position in public companies. From 2007 until 2009, Mr.
Lustiger served as the Chief Financial officer of Shikun & Binui Holdings Ltd. From 1996 and until 2005, Mr. Lustiger served at different managerial positions at Optibase including Chief Financial
Officer. From 1993 to 1996 Mr. Lustiger held the position of an accountant and auditor at Igal Brightman & Co. (currently Brightman Almagor & Co., a member of Deloitte & Touche Tomatsu
International). Mr. Lustiger is a Certified Public Accountant in Israel. Mr. Lustiger holds a B.A. degree in Accounting and Economics and an MBA in Finance and International management from
the Tel-Aviv University.
Chaim Labenski joined our board of directors in December 2010. From 1977 to 1999, Mr. Labenski held a number of positions at Securities Division of Bank Hapoalim BM, including
being First Vice president and Head of Foreign Securities and was involved in consulting, securities research, trading and I.P.O coordination with global investment houses. Since 1999 he acts as
a private investor. Mr. Labenski holds a B.Sc degree in Civil Engineering from Aston University, U.K, a M.Sc degree in Engineering Management from Leeds University and D.B.A degree in
Business Administration from Manchester Business School.
Reuwen Schwarz joined our board of directors in July 2014. Mr. Schwarz serves as an independent contractor providing services to the Company since November 2013. Since 2012, Mr.
Schwarz serves as a real estate manager for a private company. From 2008 through 2012 Mr. Schwarz has served as a manager for Centris Capital AG. From 2006 through 2008 Mr. Schwarz has
served as a banker for Meinl Bank AG, Vienna. Mr. Schwarz holds a Magister (MA) degree from the University of Economic and Business Administration Vienna, Austria. Mr. Schwarz is Mr.
Wyler's son in law.
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6.B. COMPENSATION
The compensation terms for the Company’s directors and officers is derived from their employment and services agreements and comply with our Compensation Policy for Executive
Officers and Directors as last approved by the Company’s shareholders on December 19, 2013 and on December 29, 2016, or the Compensation Policy.
The table and summary below outline the compensation granted to the five highest compensated directors and officers of the Company during the year ended December 31, 2017. The
compensation detailed in the table below refers to actual compensation granted or paid to the director or officer during the year 2017.
Name and Position of director or officer
Salary or Monthly
Payment (1)
Value of Social
Benefits (2)
Bonuses
Value of Equity
Based
Compensation
Granted (3)
All Other
Compensation (4)
Total
Amir Philips,
Chief Executive Officer (5)
Shlomo (Tom) Wyler,
Chief Executive Officer of Optibase Inc. (6)
Yakir Ben-Naim,
Chief Financial Officer (7)
Alex Hilman,
Executive Chairman of our board of directors (8)
Reuwen Schwarz,
Director (9)
(U.S. dollars in thousands)
251.7
200
120
78
54.2
69.2
10.8
39.4
-
-
-
-
-
-
-
7.5
-
-
7.5
-
34
-
13.7
-
4.7
362.4
210.8
173.1
85.5
58.9
(1)
(2)
(3)
(4)
(5)
(6)
“Salary” means yearly gross base salary with respect to our Executive Officers (Mr. Philips, Mr. Wyler and Ms. Ben-Naim). “Monthly Payment” means the aggregate gross
monthly payments with respect to the members of our board of directors (Mr. Hilman and Mr. Schwarz) for the year 2017.
“Social Benefits” include payments to the National Insurance Institute, advanced education funds, managers’ insurance and pension funds; vacation pay; and recuperation
pay as mandated by Israeli law.
Consists of amounts recognized as share-based compensation (options and restricted shares) expense on our financial statements for the year ended December 31, 2017.
“All Other Compensation” includes, among other things, car-related expenses (including tax gross-up), telephone, basic health insurance, and holiday presents.
Mr. Philips’ employment terms as our Chief Executive Officer provide that Mr. Philips is entitled to a monthly base gross salary of NIS 75,000 (approximately $20,800). Mr.
Philips is further entitled to vacation days, sick days and convalescence pay in accordance with market practice and applicable law, monthly remuneration for a study fund,
contribution by us to an insurance policy and pension fund, and additional benefits, including communication expenses. In addition, Mr. Philips is entitled to reimbursement of
car-related expenses from us (including tax gross-up). Mr. Philips’ employment terms include an advance notice period of six months. During such advance notice period, Mr.
Philips will be entitled to all of the compensation elements, and to the continuation of vesting of any options or restricted shares granted to him. In May 2016, following the
approval by our compensation committee and board of directors, our shareholders approved the following amendments to the compensation terms of Mr. Philips: (i) the
monthly gross base salary will be updated to NIS 65,000 for a full time position, as of January 1, 2016 and to NIS 75,000 as of January 1, 2017; and (ii) the grant of a special
bonus in the amount of NIS 120,000.
For details on Mr. Wyler’s compensation terms as approved by our shareholders on December 19, 2013, see Item 7.B. “Related Party Transactions”, below. In May 2016,
following the approval by our compensation committee, audit committee and board of directors, our shareholders approved an amendment to Mr. Wyler's compensation terms
in a manner that Mr. Wyler's annual gross base salary shall be $200,000 for a full time position, as of January 1, 2016.
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(7)
(8)
(9)
(10)
(11)
(12)
Ms. Ben-Naim’s employment terms as our Chief Financial Officer provide that Ms. Ben-Naim is entitled to a monthly base gross salary of NIS 36,000 (approximately $10,000).
Ms. Ben-Naim is further entitled to vacation days, sick days and convalescence pay in accordance with market practice and applicable law, monthly remuneration for a study
fund, contribution by us to an insurance policy and pension fund, and additional benefits including communication expenses. In addition, Ms. Ben-Naim is entitled to
reimbursement of car-related expenses from us. Ms. Ben-Naim’s employment terms include an advance notice period of three months. During such advance notice period, Ms.
Ben-Naim may be entitled to all of the compensation elements, and to the continuation of vesting of her options or restricted shares, if granted. In March 2016, our
compensation committee and board of directors approved an amendment to Ms. Ben-Naim's compensation terms in a manner that Ms. Ben-Naim's monthly base gross salary
will be updated to NIS 36,000 for a full time position, as of January 1, 2016.
The compensation terms of Mr. Hilman as the Executive Chairman of our board of directors were approved by our shareholders on October 19, 2009. For details on Mr. Hilman’s
compensation terms, including options and restricted shares granted to him, see Item 7.B. “Related Party Transactions”, below.
Mr. Reuwen Schwarz entered into a service agreement with us, for the provision of real estate related consulting services to us, our subsidiaries and affiliates. Such agreement,
including the compensation terms of Mr. Schwarz in consideration for the services under the agreement, were approved by our shareholders on December 19, 2013 and on
December 29, 2016. For further details see Item 7.B. “Related Party Transactions”, below.
See footnote no. 3 above. We granted Mr. Philips 20,000 options and 16,000 restricted shares that are currently exercisable or exercisable within 60 days as of March 20, 2018.
See footnote no. 3 above. We granted Mr. Wyler 20,000 options and 2,400 restricted shares that are currently exercisable or exercisable within 60 days as of March 20, 2018.
See footnote no. 3 above. We granted Mr. Hilman 20,000 options and 16,800 restricted shares that are currently exercisable or exercisable within 60 days as of March 20, 2018.
In addition, all of our directors and officers are entitled to benefit from coverage under our directors’ and officers’ liability insurance policies and were granted letters of indemnification by
us. For further details see “Indemnification, exemption and insurance of Directors and Officers”, below.
Following the approval by our shareholders on December 19, 2013 and in accordance with our Compensation Policy (for further information, see Item 6.D. “The Compensation
Committee”), each of our directors (including external directors and independent directors, but excluding the executive chairman of our board of directors and directors who serve in other roles at
the Company) is entitled to a grant of compensation pursuant to the fixed amounts permitted to be paid to external directors (depending on our equity level), all in accordance with applicable
regulations promulgated under the Companies Law, or the 'External Directors' Compensation Regulations, as may be from time to time. This remuneration is paid plus value added tax (as
applicable). Directors are reimbursed for expenses incurred as part of their service as directors. None of the directors have agreements with us that provide for benefits upon termination of
service.
As of March 20, 2018, our directors and executive officers beneficially owned 267,865 shares (of which 46,640 ordinary shares held by a trustee for the benefit of our directors and
executive officers under our 2006 Plan, vested as of March 20, 2018 or within 60 days thereafter and 62,000 shares are issuable upon exercise of options that are currently vested or will vest within
60 days as of March 20, 2018). For further information, see Item 6.E. “Share Ownership”.
Indemnification, exemption and insurance of Directors and Officers
The Companies Law permits a company to insure its directors and officers, provide them with indemnification, either in advance or retroactively, and exempt its directors and officers
from liability resulting from their breach of their duty of care towards the company, all in accordance with the terms and conditions specified under Israeli law. Our articles of association include
clauses allowing us to provide our directors and officers with insurance, indemnification and to exempt them from liability subject to the terms and conditions set forth by the Companies Law, as
described below.
In addition, the Israeli Securities Law of 1968, or the Securities Law, includes provisions to make the enforcement of violations of the Securities Law and certain provisions of the
Companies Law more efficient by the Israel Securities Authority, or the ISA. Under the Securities Law, the ISA is allowed to initiate administrative proceedings against entities and individuals
with respect to such violations, and to impose various sanctions, including fines, payment of damages to the person or entities harmed as a result of such violations, limitations on the service of
any individual as director or officer and suspension or cancellation of certain permits granted to the entity. Under the Securities Law, a company is not allowed to indemnify or insure its directors
and officers in connection with administrative proceedings initiated against them by the ISA, except that a company is allowed to insure and indemnify its directors and officers for any of the
following: (i) financial liability imposed on any director or officer for payment to persons or entities harmed as a result of any violation for which an administrative proceedings has been initiated;
(ii) expenses incurred by any director or officer in connection with administrative proceedings, including reasonable litigation fees, and including attorney fees.
- 53 -
Subject to statutory limitations, our articles of association provide that we may insure the liability of our directors and offices to the fullest extent permitted by the Companies Law.
Without derogating from the aforesaid we may enter into a contract to insure the liability of our directors and officer for an obligation or payment imposed on such director or officer in
consequence of an act done in his capacity as a director or officer of Optibase, in any of the following cases:
v A breach of the duty of care vis-a-vis us or vis-a-vis another person;
v A breach of the fiduciary duty vis-a-vis us, provided that the director or officer acted in good faith and had a reasonable basis to believe that the act would not harm us;
v A monetary obligation imposed on him or her in favor of another person;
v Financial liability imposed on him or her for payment to persons or entities harmed as a result of violations in Administrative Proceedings, as detailed in section 52(54)(A)(1)(a) of the
Israeli Securities Law;
v Expenses incurred by him or her in connection with Administrative Proceedings (as defined above) he was involved in, including reasonable litigation fees, and including attorney
fees; or
v Any other matter in respect of which it is permitted or will be permitted under applicable law to insure the liability of our director or officer.
Our articles of association further provide that we may indemnify our directors and officers, to the fullest extent permitted by the Companies Law. Without derogating from the aforesaid,
we may indemnify our directors and officers for liability or expense imposed on them in consequence of an action made by them in the capacity of their position as directors or officers of
Optibase, as follows:
v Any financial liability he or she incurs or imposed on him or her in favor of another person in accordance with a judgment, including a judgment given in a settlement or a judgment
of an arbitrator, approved by a court.
v Reasonable litigation expenses, including legal fees, incurred by the director or officer or which he or she was ordered to pay by a court, within the framework of proceedings filed
against him or her by or on behalf of Optibase, or by a third party, or in a criminal proceeding in which he or she was acquitted, or in a criminal proceeding in which he or she was
convicted of a felony which does not require a finding of criminal intent.
v Reasonable litigation expenses, including legal fees he or she incurs due to an investigation or proceeding conducted against him or her by an authority authorized to conduct such
an investigation or proceeding, and which was ended without filing an indictment against him or her and without being subject to a financial obligation as a substitute for a criminal
proceeding, or that was ended without filing an indictment against him, but with the imposition of a financial obligation, as a substitute for a criminal proceeding relating to an
offence which does not require criminal intent, within the meaning of the relevant terms in the Companies Law.
v Financial liability he or she incurs for payment to persons or entities harmed as a result of violations in Administrative Proceedings, as detailed in section 52(54)(A)(1)(a) of the
Securities Law. For this purpose “Administrative Proceeding” shall mean a proceeding pursuant to Chapters H3 (Imposition of Monetary Sanction by the Israel Securities Authority),
H4 (Imposition of Administrative Enforcement Means by the Administrative Enforcement Committee) or I1 (Settlement for the Avoidance of Commencing Proceedings or Cessation
of Proceedings, Conditioned upon Conditions) of the Securities Law, as shall be amended from time to time.
v Expenses that he or she incurs in connection with Administrative Proceedings (as defined above) he was involved in, including reasonable litigation fees, and including attorney
fees.
v Any other obligation or expense in respect of which it is permitted or will be permitted under law to indemnify a director or officer of Optibase.
- 54 -
In addition, our articles of association provide that we may give an advance undertaking to indemnify a director and/or an officer in respect of all of the matters above, provided that
with respect to the first matter above, the undertaking is restricted to events, which in the opinion of our board of directors, are anticipated in light of our actual activity at the time of granting the
obligation to indemnify and is limited to a sum or measurement determined by our board of directors as reasonable under the circumstances. We may further indemnify an officer therein, save for
the events subject to any applicable law.
Our articles of association further provide that we may exempt a director in advance and retroactively for all or any of his or her liability for damage in consequence of a breach of the
duty of care vis-a-vis Optibase, to the fullest extent permitted by the Companies Law. Notwithstanding the foregoing, the Companies Law prohibits a company to exempt any of its directors and
officers in advance from their liability towards such company for the breach of its duty of care in distribution, as defined in the Companies Law, for such company’s shareholders (including
distribution of dividend and purchase of such company’s shares by the company or an entity held by it).
The above provisions with regard to insurance, exemption and indemnity are not and shall not limit the Company in any way with regard to its entering into an insurance contract and/or
with regard to the grant of indemnity and/or exemption in connection with a person who is not an officer of the Company, including employees, contractors or consultants of the Company, all
subject to any applicable law.
All of the above shall apply mutatis mutandis in respect of the grant of insurance, exemption and/or indemnification for persons serving on behalf of the Company as officers in
companies controlled by the Company, or in which the Company has an interest.
The Companies Law provides that companies may not give insurance, indemnification (including advance indemnification), or exempt their directors and/or officers from their liability in
the following events:
v a breach of the fiduciary duty, except for a breach of the fiduciary duty vis-à-vis the company with respect to indemnification and insurance if the director or officer acted in good
faith and had a reasonable basis to believe that the act would not harm the company;
v an intentional or reckless breach of the duty of care, except for if such breach was made in negligence;
v an act done with the intention of unduly deriving a personal profit; or
v Fine, civil penalty, a financial sanction or penalty imposed on the directors or officers.
We have a directors and officers liability insurance policy, as described below.
On December 29, 2016, following the approval by our compensation committee and board of directors, our shareholders approved an amendment to our Compensation policy which
include clauses allowing us to provide our directors and officers with insurance, indemnification and to exempt them from liability subject to the terms and conditions set forth by the Companies
Law; provided however, that insurance policies purchased under the Compensation Policy comply with all of the following conditions:
v the maximum coverage amount under each policy shall not exceed the higher of: (i) US $20 million; or (ii) 25% of our shareholders equity based on our most recent financial
statements at the time of approval by our compensation committee;
v the maximum yearly premium to be paid by us for each policy shall not exceed 1% of the aggregate coverage of such policy;
v the purchase of the policy (including any renewal or extension) shall be approved by our compensation committee (and, if required by law, by our board of directors) which shall
determine whether the coverage amount and the relevant premium sums are reasonable considering our exposures, the scope of coverage and market conditions and that the policy
reflects the current market conditions, and it shall not materially affect our profitability, assets or liabilities.
- 55 -
We currently have an insurance policy for our directors' and officers' liability, including as directors or officers of our subsidiaries, for the period commencing on November 1, 2017 and
ending on October 31, 2018, as approved by our compensation committee and board of directors. The coverage amount under such policy and the yearly premium to be paid by us for such
policy are US $19 million and US $142,000, respectively. The terms of such policy are in accordance with our Compensation Policy.
As approved by our shareholders on December 21, 2017, following the approval by our compensation committee and board of directors, we have undertaken to indemnify all of our
directors and officers, including Mr. Tom Wyler, the Chief Executive Officer of our subsidiary Optibase Inc., to the fullest extent permitted by the Companies Law and our articles of association
and entered into an indemnity letter with each of our directors and executive officers. The aggregate indemnification amount shall not exceed the higher of: (i) 25% of our shareholders’ equity, as
set forth in our financial statements prior to such payment; or (ii) $20 million. For further details regarding the approval of an amendment to the indemnification letters, see Item 6.A “Directors and
Senior Management”.
6.C. BOARD PRACTICES
Pursuant to our articles of association, our board of directors is required to consist of three to nine members. Directors are elected at the annual general meeting of our shareholders by a
vote of the holders of a majority of the voting power represented at such meeting. Each director holds office until the annual general meeting of shareholders following the annual general
meeting at which the director was elected or until his or her earlier resignation or removal. A director may be re-elected for subsequent terms. At present, our board of directors consists of five
members, including two external directors appointed in accordance with the Israeli law requirements, as detailed herein. Our articles of association provide that our directors may at any time and
from time to time, appoint any other person as a director, either to fill in a vacancy or to increase the number of members of our board of directors.
Under the Companies Law, each Israeli public company is required to determine the minimum number of directors with “accounting and financial expertise” that such company believes
is appropriate in light of the particulars of such company and its activities. A director with “accounting and financial expertise” is a person that, due to education, experience and qualifications, is
highly skilled and has an understanding of business-accounting issues and financial statements in a manner that enables him/her to understand in depth the company’s financial statements and
stimulate discussion regarding the manner of presentation of the financial data. Our board of directors resolved on March 30, 2006 and on June 27, 2010 that the minimum number of directors with
accounting and financial expertise appropriate for us in light of the size of the board of directors and nature and volume of the Company’s operations is one director (such director may serve as
an external director, see below).
External Directors
Under the Companies Law, Israeli public companies are required to appoint at least two external directors to serve on their board of directors (following Amendment 27 to the Companies
Law all of such external directors are no longer required to be Israeli residents if a company's shares are listed on a foreign stock exchange, such as our Company). On December 29, 2016, our
shareholders approved the re-appointment of Mr. Chaim Labenski and Ms. Orli Garti-Seroussi as our external directors for an additional three years term commencing on December 31, 2016 and
January 31, 2017, respectively. In addition, each committee of the board of directors entitled to exercise any powers of the board is required to include at least one external director. The audit
committee must include all the external directors, see “Committees of the Board of Directors” below.
- 56 -
Pursuant to the Companies Law, at least one external director is required to have “accounting and financial expertise” and the other is required to have “professional qualification” or
“accounting and financial expertise”. A director has “professional qualification” if he or she satisfies one of the following:
(i)
(ii)
(iii)
the director holds an academic degree in one of these areas: economics, business administration, accounting, law or public administration;
the director holds an academic degree or has other higher education, all in the main business sector of the company or in a relevant area for the board position; or
the director has at least five years’ experience in one or more of the following or an aggregate five years’ experience in at least two or more of these: (a) senior management
position in a corporation of significant business scope; (b) senior public office or senior position in the public sector; or (c) senior position in the main business sector of the
company.
(iv)
the evaluation of the professional qualification of a candidate shall be made by our board of directors and our nominating committee.
a director with “accounting and financial expertise” is a person that in light of his or her education, experience and skills has high skills and understanding of business-accounting
issues and financial reports which allow him or her to deeply understand the financial reports of the company and hold a discussion relating to the presentation of financial information. The
company’s board of directors will take into consideration in determining whether a director has “accounting and financial expertise”, among other things, his or her education, experience and
knowledge in any of the following:
(i)
(ii)
accounting issues and accounting control issues characteristic to the segment in which the company operates and to companies of the size and complexity of the company;
the functions of the external auditor and the obligations imposed on such auditor;
(iii)
preparation of financial reports and their approval in accordance with the Companies Law and the securities law.
A company whose shares are traded in certain exchanges outside of Israel, including The NASDAQ Global Market, such as our company, is not required to nominate at least one
external director who has accounting and financial expertise so long as another independent director for audit committee purposes who has such expertise serves on board of directors pursuant
to the applicable foreign securities laws. In such case, all external directors will have professional qualification.
Under Israeli law, a person may not serve as an external director if he or she is a relative of any of the controlling shareholders or at the date of the person’s appointment or within the
prior two years the person, or his or her relatives, partners, employers or entities under the person’s control or entities which he or she are subject to their control, have or had any affiliation with
us, with our controlling shareholder, or its relative or any entity controlling, controlled by or under common control with us. Under the Companies Law, “affiliation” includes an employment
relationship, a business or professional relationship maintained on a regular basis or control or service as an executive officer, excluding service as a director in anticipation of serving as an
external director in a company that is about to offer its shares to the public for the first time.
Furthermore, under Israeli law, a person may not serve as an external director if he or she, or his or her relatives, partners, employers or a person or entity he or she is subordinate to
directly or indirectly, or an entity controlled by the external director has business or professional relations (excluding insignificant relations) with a person or entity whose affiliation with such
external director is forbidden.
A person may not serve as an external director if that person’s position or other business activities create, or may create, a conflict of interest with the person’s service as an external
director or may otherwise interfere with the person’s ability to serve as an external director. If at the time any external director is appointed, all members of the board (who are not a controlling
shareholder or its relative) are the same gender, then the external director to be appointed must be of the other gender.
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External directors are elected by a majority vote at a shareholders’ meeting, so long as either:
(i)
(ii)
the majority of shares voted for the election includes the majority of the shares of non-controlling shareholders or with no personal interest excluding a personal interest not
resulting from relation with controlling shareholders, voted at the meeting (votes abstaining shall not be taken into account in counting the shareholders' votes); or
the total number of shares to total amount of shareholders listed in subsection (i) above, who voted against the election of the external director does not exceed two percent
(2%) of the aggregate voting rights of the company.
The Companies Law provides for an initial three-year term for an external director which may be extended, for two additional three-year terms subject to provision specified in the
Companies Law. In the case of a company whose shares are traded in certain exchanges outside of Israel, including The Nasdaq Global Market, such as our company, regulations promulgated
under the Companies Law provide that the service of an external director can be extended to additional three-year terms, if both the audit committee and the board of directors confirm that in light
of the expertise and contribution of the external director, the extension of such external director's term would be in the interest of the company. Election of external directors requires a special
majority, as described above and that the period which that person served as an external director together with the reasons for the extension given by the audit committee presented to the
shareholders prior to such approval. External directors may be removed only by the same special majority required for their election or by a court, and then only if the external directors cease to
meet the statutory qualifications for their appointment or if they violate their duty of loyalty to the company. In the event the number of external directors is less than two external directors, our
board of directors is required under the Companies Law to call a shareholders' meeting to appoint a new external director.
External directors may be compensated only in accordance with regulations adopted under the Companies Law.
Our board of directors has a majority of independent directors required pursuant to the NASDAQ Global Market rules.
Independent Directors
Under the Companies Law, the majority of the members of the audit committee must be independent directors. In addition, the Companies Law includes a corporate governance
recommendation according to which the majority of the members of the board of directors in a public company that does not have a controlling shareholder should be independent directors, and
in a company with a controlling shareholder at least third of the board of directors should be independent directors. A public company may classify an external director or an individual serving
as a director, as an independent director only if (i) the audit committee has determined that he or she is qualified to serve as an external director (with the exception that such director does not
have to have professional qualifications or accounting and financial expertise in order to serve as an independent director), and (ii) he or she is not serving as a director in the company for more
than consecutive nine years (only a period of two or more years, in which such person did not serve as a director in the company, shall be deemed to discontinue the nine year sequence).
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Committees of the Board of Directors
As of the date of this annual report, we have four committees of the board of directors, which includes our audit committee, our financial statements review committee, our nominating
committee and our compensation committee, as described below.
The Audit Committee
The Companies Law requires public companies to appoint an audit committee. The responsibilities of the audit committee include, among others, identifying irregularities and
deficiencies in the management of the company’s business and approval of related party transactions as required by law. An audit committee must consist of at least three members, and include
all of the company’s external directors. In addition, the majority of its members shall be independent directors in accordance with the requirements of The Companies Law. However, the chairman
of the board of directors, any director employed by the company or by its controlling shareholder or by any other entity controlled by such controlling shareholder or a director providing, on a
regular basis, services to the company, to any controlling shareholder or to other entity controlled by such controlling shareholder, or any director whose livelihood relies on any controlling
shareholder, may not be a member of the audit committee. Any controlling shareholder and any relative of a controlling shareholder may also not be a member of the audit committee. The
chairman of the audit committee must be an external director, who has not been serving as a chairman of the audit committee for more than nine years. An audit committee recommends approval
of transactions that are deemed interested party transactions, including directors’ compensation and transactions between a company and its controlling shareholder or transactions between a
company and another person in which its controlling shareholder has a personal interest. The audit committee must also determine whether a transaction constitute an extraordinary transaction.
Pursuant to Amendment 22 to the Companies Law, effective as of January 10, 2014, the responsibilities of the audit committee under the Companies Law also include the following matters: (i) to
ensure that a competitive procedure is conducted for related party transactions with a controlling shareholder (regardless of whether or not such transactions are deemed extraordinary
transactions), optionally based on criteria which may be determined by the audit committee annually in advance; and (ii) setting forth the approval process for transactions that are 'non-
negligible' (i.e. transactions with a controlling shareholder that are classified by the audit committee as non-negligible, even though they are not deemed extraordinary transactions), as well as
determining which types of transactions would require the approval of the audit committee, optionally based on criteria which may be determined annually in advance by the audit committee. An
audit committee may not approve an action or a transaction with an officer or director, a transaction in which an officer or director has a personal interest, a transaction with a controlling
shareholder and certain other transactions specified in the Companies Law, unless at the time of approval the audit committee meets all the criteria required under the Companies Law.
Subject to the exceptions specified in the Companies Law, any person who is not eligible to serve in the audit committee shall not participate in its meetings.
Legal quorum shall be constituted when the majority members of the audit committee shall be present at the meeting, provided that: (a) the majority of the present members are
independent directors; and, (b) at least one of the present members is an external director.
Under the Companies Law there are restrictions regarding engagement or benefits with a person who served as an external director (or his or her relative) for period of two years
commencing the time when such external director leaves office.
In accordance with the Sarbanes-Oxley Act of 2002 and NASDAQ requirements, our audit committee reviews our internal accounting procedures and consults with and reviews the
services provided by our independent auditors.
The rules of NASDAQ currently applicable to foreign private issuers, such as us, require us to establish an audit committee of at least three members, comprised solely of independent
directors. All of the members of the audit committee must be able to read and understand basic financial statements, and at least one member must have experience in finance or accounting,
requisite professional certification in accounting or comparable experience or background. The board has determined that Ms. Orli Garti-Seroussi is an audit committee financial expert as defined
by applicable Securities and Exchange Commission, or the “SEC” or “Commission” regulation. The responsibilities of the audit committee under the NASDAQ rules include the selection and
evaluation of the outside auditors and evaluation of their independence.
The members of our audit committee are Mr. Chaim Labenski, Mr. Danny Lustiger and Ms. Orli Garti-Seroussi. These include our two external directors as required under the Companies
Law, and we believe that all of the members of our audit committee are independent of management, and satisfy the requirements of Companies Law, the SEC’s rules and NASDAQ rules.
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The Financial Statements Review Committee
Our board of directors appointed a financial statement review committee, which consists of members with accounting and financial expertise or the ability to read and understand
financial statements, with at least one of the members having “accounting and financial expertise” (as defined above). According to a resolution of our board of directors, the audit committee has
been assigned the responsibilities and duties of a financial statement review committee, as permitted under relevant regulations promulgated under the Companies Law. From time to time as
necessary and required to approve our financial statements, the audit committee holds separate meetings, prior to the scheduled meetings of the entire board of directors regarding financial
statement approval.
The function of a financial statement review committee is to discuss and provide recommendations to its board of directors (including the report of any deficiency found) with respect to
the following issues: (i) estimations and assessments made in connection with the preparation of financial statements; (ii) internal controls related to the financial statements; (iii) completeness
and propriety of the disclosure in the financial statements; (iv) the accounting policies adopted and the accounting treatments implemented in material matters of the company; (v) value
evaluations, including the assumptions and assessments on which evaluations are based and the supporting data in the financial statements. Our independent auditors and our internal auditor
are invited to attend all meetings of the audit committee when it is acting in a role of the financial statement review committee or at which matters concerning the financial statements are
discussed.
The financial statement review committee is required to consist at least three members, all of its members must be directors, and the majority of its members are required to be directors
who meet certain independence requirements of the Companies Law. However, the chairman of the board of directors, any director employed by the company or by its controlling shareholder or
by any other entity controlled by such controlling shareholder or a director providing, on a regular basis, services to the company, to any controlling shareholder or to other entity controlled by
such controlling shareholder, or any director whose livelihood relies on any controlling shareholder, may not be a member of the financial statement review committee. In addition, any controlling
shareholder and any relative of a controlling shareholder may also not be a member of the financial statement review committee. All the committee members are required to give a declaration
before their appointment, and the chairperson of the committee must be an external director.
Legal quorum shall be constituted when the majority members of the financial statement review committee shall be present at the meeting, provided that: (a) the majority of the present
members are independent directors; and, (b) at least one of the present members is an external director.
The members of our financial statement review committee are Mr. Chaim Labenski, Mr. Danny Lustiger and Ms. Orli Garti-Seroussi. These include our two external directors as required
under the Companies Law, and we believe that all of the members of our financial statement review committee satisfy with the requirements of the Companies Law.
The Nominating Committee
The function of our nominating committee is described in the approved charter of the committee and includes responsibility for identifying individuals qualified to become a board
members and recommending director nominees to the board of directors for election at the general meeting of shareholders. The nominating committee is also responsible for developing and
recommending to the board of directors a set of corporate governance guidelines applicable to the Company, periodically reviewing such guidelines and recommending any changes thereto.
The members of our nominating committee are Mr. Chaim Labenski, Mr. Danny Lustiger and Ms. Orli Garti-Seroussi. We believe that all of the members of our nominating committee are
independent of management, and satisfy the requirements of the NASDAQ rules.
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The Compensation Committee
Under the Companies Law, a public company is required to appoint a compensation committee. The compensation committee must consist of at least three directors, must include all the
external directors, the majority of its members must be external directors, and its chairman must be an external director. In addition, all members of the compensation committee must meet the
requirements under the Companies Law for membership in the audit committee, as described above, and all of its members shall be compensated in accordance with section 244 of the Companies
Law.
Under the Companies Law and our compensation committee charter, our compensation committee is responsible, among others, for (i) recommending to the board of directors regarding
its approval of a compensation policy in accordance with the requirements of the Companies Law, and any other compensation policies, incentive-based compensation plans and equity-based
plans; (ii) overseeing the development and implementation of such compensation plans and policies that are appropriate in light of all relevant circumstances and recommending to the board of
directors regarding any amendments or modifications that the compensation committee deems appropriate; (iii) determining whether to approve transactions concerning the terms of engagement
and employment of our officers and directors that require compensation committee approval under the Companies Law or our compensation plans and policies; and (iv) taking any further actions
as the compensation committee is required or allowed to under the Companies Law or the compensation plans and policies.
The members of our compensation committee are Mr. Chaim Labenski, Mr. Danny Lustiger and Ms. Orli Garti-Seroussi.
Internal auditor
The Companies Law requires the board of directors of a public company to appoint an internal auditor pursuant to the audit committee’s proposal. The internal auditor must satisfy
certain independence requirements as required by the law. The role of the internal auditor is to examine, among other things, the compliance of the company's conduct with applicable law and
orderly business procedures. Our internal auditor is Mr. Doron Cohen of Fahn Kanne & Co., a member firm of Grant Thornton International Ltd.
Employment Agreements
Each of our executive officers entered into a written employment agreement with us that provides, among other things, that such officers be paid a monthly salary and bonuses. Each
such agreement can be terminated either by us, or by the employee, upon prior notice, which ranges between 30 to 120 days for most of the management team. The employment agreements also
provide that each executive officer will maintain confidentiality of matters relating to us and will not compete with us during the period of the officer’s employment and for a certain period
thereafter.
6.D. EMPLOYEES
Since the sale of our Video Solutions Business on July 1, 2010 and as of the date of this annual report, we have 12 employees, including employees in our subsidiaries, all of them
employed in our general and administrative, finance and human resources divisions. Out of whom 7 employees are employed in Israel, 4 are employed in the United States and 1 is employed in
Europe. All of our employees are currently employed pursuant to personal employment agreements.
6.E. SHARE OWNERSHIP
As of March 20, 2018, our current directors and executive officers (eight persons) beneficially owned an aggregate of 267,865 ordinary shares of our Company of which 46,640 ordinary
shares held by a trustee for the benefit of our directors and executive officers under our 2006 Plan, vested as of March 20, 2018 or within 60 days thereafter and 62,000 shares are issuable upon
exercise of options that may be currently exercisable or exercisable within 60 days of March 20, 2018. All of our directors or executive officers hold less than 1% of our shares except for Mr.
Shlomo (Tom) Wyler who holds, to the Company knowledge, approximately 179,218 ordinary shares of which 20,000 shares are issuable upon exercise of options that may be currently exercisable
or exercisable within 60 days of March 20, 2018, which is approximately 3.45% of the Company's outstanding shares. See Item 7.A. “Major Shareholders” for more information regarding Mr.
Wyler's holdings.
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Incentive Plans
As of March 20, 2018, options to purchase 62,000 of our ordinary shares were outstanding, with exercise prices ranging from $7.79 to $10 per share. As of March 20, 2018, 62,000 of the
options described above have vested or are exercisable within 60 days of such date. The expiration date of the aforementioned options is generally seven years from the date of their grant. As of
December 31, 2016 and 2017, the number of options reserved for issuance under our plans was 491,991 and 511,260, respectively.
As of March 20, 2018 or within 60 days thereafter, an aggregate of 183,690 ordinary shares has been reserved for issuance under the 2006 Plan. As of December 31, 2016 and 2017, the
number of restricted shares reserved for issuance under the 2006 Plan was 183,690.
The following table shows the number of options and restricted shares outstanding and reserved for issuance under each of our incentive plans, as of March 20, 2018 or within 60 days
thereafter.
1999 Israeli Plan
Plan
Plan
Number of options outstanding
Number of options reserved for issuance
62,000
511,260
Number of shares outstanding
Number of shares reserved for issuance
2006 Israeli Incentive Compensation Plan
-
183,690
The following is a description of our incentive plans currently in effect.
1999 Plans
In January 1999, our shareholders approved the adoption of an Israeli option plan, or the 1999 Israeli Plan, and a U.S. option plan, or the 1999 U.S. Plan, collectively the “1999 Plans”
both plans have a joint pool of underlying shares to be granted thereunder. The 1999 Plans were amended from time to time to include different tax tracks. The purpose of the 1999 Plans is to
attract and retain the best available personnel, to provide additional incentive to employees, directors and consultants and to promote the success of our business. In December 1999, our board
of directors adopted a resolution to amend the 1999 Plans in a manner that as of April 1, 2000, the number of shares made available for grant under the 1999 Plans will be automatically increased
annually, to equal 5% of our outstanding share capital at the relevant time. In May 2003 we amended our 1999 Israeli Plan to provide for the grant of options to Israeli optionees under the new
capital gains track provisions of the Israeli Tax Ordinance. As of March 20, 2018, or within 60 days thereafter, an aggregate of 511,260 ordinary shares has been reserved for issuance under the
1999 Israeli Plan, and 62,000 were granted and are outstanding. Unless specifically changed for a certain grantee, options vest monthly over a period of four years, starting one year after the date
of grant, subject to the continued employment of the grantee. The exercise price of the options is determined by our board of directors, subject to limitations. Generally, options granted under
each of the 1999 Plans will have a term of no more than seven years from the date of grant. All options are subject to earlier termination upon termination of the grantee’s employment or other
relationship with us, generally no less than three months from termination. We may make certain exceptions, from time to time, in the vesting and expiration terms of options granted to certain
grantees.
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2006 Israeli Incentive Compensation Plan
In May 2006, our board of directors approved the adoption of the 2006 Israeli Incentive Compensation Plan, or the 2006 Plan, the purpose of which is to secure the benefits arising from
ownership of share capital by our employees, officers and directors who are expected to contribute to the Company’s future growth and success. The 2006 Plan provides for the grant of options,
restricted shares and restricted share units in accordance with various Israeli tax tracks. We currently use the 2006 Plan for the grant of restricted shares only. The restricted shares are granted
for no consideration and with a vesting schedule of two years (50% each year). The restricted shares are granted in accordance with the Israeli capital gains tax track. Termination of employment
of a grantee for any reason will result in the forfeiture of such grantee’s unvested restricted shares. All restricted shares are subject to earlier termination upon termination of the grantee’s
employment or other relationship with us, generally no less than 90 days from termination. We may make certain exceptions, from time to time, in the vesting and expiration terms of the securities
granted to certain grantees. In November 2013, our board of directors approved the increase of number of shares under the 2006 Plan in additional 50,000 shares and in August 2014, our board of
directors approved the increase of number of shares under the 2006 Plan in additional 150,000 shares. As of March 20, 2018 or within 60 days thereafter, an aggregate of 183,690 ordinary shares
has been reserved for issuance under the 2006 Plan.
NASDAQ Listing Rules permit foreign private issuers to follow home country practices in regard to certain requirements, including the requirement to obtain shareholder approval in
connection with the establishment of certain incentive plans. In June and September 2006, we notified NASDAQ that we elected to follow home practices with regard to the adoption of, and the
amendment to, the 2006 Plan. Accordingly, the adoption of, and the amendments to, the 2006 Plan were not approved by our shareholders.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
7.A. MAJOR SHAREHOLDERS
The following table sets forth certain information known to us regarding the beneficial ownership of our outstanding ordinary shares as of March 20, 2018 of (i) each person or group
known by us to beneficially own 5% or more of the outstanding ordinary shares and (ii) the beneficial ownership of all officers and directors as a group, in each case as reported by such persons:
Name of Beneficial Owner
No. of Ordinary
Shares
Beneficially
Owned(1)
Percentage of
Ordinary Shares
Beneficially
Owned
The Capri Family Foundation (2)
Shareholding of all directors and officers as a group (eight persons)(3)
_________________________
(1) Number of shares and percentage ownership is based on 5,214,256 ordinary shares outstanding as of March 20, 2018. Such number excludes: (i) 29,895 ordinary shares held by us or for
our benefit. Beneficial ownership is determined in accordance with rules of the SEC and includes voting and investment power with respect to such shares. Shares subject to options that are
currently exercisable or exercisable within 60 days of March 20, 2018 are deemed to be outstanding and to be beneficially owned by the person holding such options for the purpose of
computing the percentage ownership of such person, but are not deemed to be outstanding and to be beneficially owned for the purpose of computing the percentage ownership of any
other person. All information with respect to the beneficial ownership of any principal shareholder has been furnished by such shareholder and, unless otherwise indicated below, we believe
that persons named in the table have sole voting and sole investment power with respect to all the shares shown as beneficially owned, subject to community property laws, where
applicable. The shares beneficially owned by the directors include the ordinary shares owned by their family members to which such directors disclaim beneficial ownership.
(2) The information is accurate as of March 18, 2015, and based on Amendment No. 6 to Schedule 13D filed with the SEC on March 18, 2015, by The Capri Family Foundation. According to
such Amendment No. 6 to Schedule 13D, Capri directly owns 3,796,284 of our ordinary shares. The core activity of Capri is the holding of investments. In addition, the beneficiaries of Capri
are the children of Mr. Tom Wyler, the Chief Executive Officer of our subsidiary, Optibase Inc.
(3) Includes 159,225 ordinary shares , 46,640 ordinary shares held by a trustee for the benefit of our directors and executive officers under our 2006 Plan, which have vested on March 20,
2018 or within 60 days thereafter and 62,000 ordinary shares issuable upon exercise of options exercisable within 60 days of March 20, 2018. Other than Shlomo (Tom) Wyler, all of our
directors or executive officers hold less than 1% of our shares.
3,796,284
267,865
73.28%
5.11%
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Significant changes in the ownership of our shares.
The following table specifies significant changes in the ownership of our shares held by The Capri Family Foundation. This information is based on Schedules 13D filed by The Capri
Family Foundation during the period beginning on January 1, 2015, regarding ownership of our shares, and to date:
Beneficial Owner
The Capri Family Foundation
Date of filing
March 18, 2015
No. Of Shares Beneficially Held
3,796,284**
**
The information is based on Amendment No. 6 to Schedule 13D filed with the SEC on March 18, 2015, by Capri, in connection with the acquisition of an additional 71,229
ordinary shares by Capri, as follows: (a) on January 30, 2015, Capri acquired an additional 52,483 ordinary shares in a private transaction with an unrelated third party at a price
of $6.71 per share; and (b) on February 25, 2015, Capri acquired an additional 18,746 ordinary shares on the Nasdaq Global Market, at a price of $6.40 per share.
All of our shares have the same voting rights.
On March 20, 2018, registered holders in the United States hold approximately 54% of our ordinary shares. To the best of our knowledge, except as described above, we are not owned
or controlled directly or indirectly by any government or by any other corporation. We are not aware of any arrangement, the operation of which may at a subsequent date result in a change in
control of us.
7.B. RELATED PARTY TRANSACTIONS
For a description of the insurance, indemnification and exemption granted to our directors and officers, see Item 6.B. “Compensation” above.
For a description of the grant of options to our directors and officers, see Item 6.E. “Share Ownership”, above. In addition, each member of our board of directors is granted
compensation pursuant to the fixed amounts permitted to be paid to external directors (depending on our equity level), all in accordance with the 'External Directors' Compensation Regulations,
as may be from time to time, for his/her service as a director. For additional information see Item 6.B. “Compensation” above.
On October 19, 2009, our shareholders approved the compensation of Mr. Alex Hilman, a director of the Company, who was appointed on September 1, 2009 as Executive Chairman of
the board of directors. The principal terms of such compensation are as follows: a monthly payment of NIS 20,000 plus applicable value added tax, against the receipt of a tax invoice. The
Company will also reimburse Mr. Hilman for his reasonable expenses directly incurred by him in the performance of his duties against the production of appropriate receipts. In addition, Mr.
Hilman was granted on October 19, 2009, 20,000 options exercisable into 20,000 ordinary shares NIS 0.65 nominal value each of the Company under the Company's 1999 Israeli Share Option Plan.
The options were granted under the Section 102 of the Israeli Tax Ordinance, through the capital gains tax track. The exercise price of each option is $5.96. The options vest over a period of four
years in equal parts, and may be exercisable until their 10th anniversary. All other terms of the options are as stated in the Company's 1999 Israeli Share Option Plan.
On May 6, 2010, our shareholders approved the grant of 50,000 options exercisable into 10,000 ordinary shares NIS 0.65 nominal value each of the Company under the Company's 1999
Israeli Share Option Plan to Mr. Danny Lustiger as a director of the Company. The options were granted under Section 102 of the Israeli Tax Ordinance, through the capital gains tax track. The
exercise price of each option is $10. The options vest over a period of four years in four equal parts, and may be exercisable until their 10th anniversary. All other terms of the options are as stated
in the Company's 1999 Israeli Share Option Plan. Mr. Lustiger was also entitled to 800 restricted shares, which vest over two years in two equal parts, and which were granted pursuant to the
Company's 2006 Israeli Incentive Compensation Plan.
On December 29, 2010, our shareholders approved the grant by the Company of 2,400 restricted shares of the Company, in three equal consecutive annual grants, to each of Mr. Alex
Hilman, Ms. Dana Tamir-Tavor and Mr. Danny Lustiger, or the Recipients, who served at that time as directors of the Company, under the Company's 2006 Israeli Incentive Compensation Plan.
The restricted shares were granted to the Recipients for no consideration, and vest after a two-year period (50% each year) from their date of grant, subject to the continued employment or
service of the Recipients in the Company.
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On November 17, 2011, and following the approval by our audit committee and board of directors, our shareholders approved a grant of 20,000 options exercisable into 20,000 ordinary
shares NIS 0.65 nominal value each of the Company to Mr. Hilman, the Executive Chairman of the board of directors, under the Company's 1999 Israeli Share Option Plan, without consideration.
The Options were granted to a trustee for the benefit of Mr. Hilman in accordance with the requirements of the capital gains tax track chosen by the Company. The exercise price of each option is
$10. The options vest during a four-year period as of their date of grant (25% each year), and may not be exercised following their 10th anniversary. All other terms of the options are as stated in
the Company's 1999 Israeli Share Option Plan. Along with the approval of the grant of options to Mr. Hilman, the Company's shareholders approved a similar grant of 20,000 options exercisable
into 20,000 ordinary shares to Mr. Shlomo (Tom) Wyler, the Chief Executive Officer of our subsidiary, Optibase Inc., who then served as our president and member of our board of directors,
under the Company's 1999 Israeli Share Option Plan. The terms of grant of such options to Mr. Wyler are identical to the terms of grant of the options to Mr. Hilman as described above, except
that the tax track available to Mr. Wyler, who considered to be our controlling shareholder as of the date grant of such options, is different from the capital gains tax track afforded to all other
directors and officers of the Company. Under this tax track, we will also not be able to recognize expenses pertaining to this grant.
On December 19, 2013, and following the approval by our compensation committee and board of directors, our shareholders approved the grant of our 12,000 restricted shares, in three
equal consecutive annual grants (commencing on January 1, 2014), to each of Mr. Alex Hilman, the executive chairman of our board of directors, and Mr. Amir Philips, our chief executive officer,
or the Recipients, under the Company's 2006 Israeli Incentive Compensation Plan. The restricted shares were granted to the Recipients for no consideration, and vest after a two-year period (50%
each year) from their date of grant, subject to the continued employment or service of the Recipients in the Company.
On December 19, 2013, and following the approval by our audit committee, compensation committee and board of directors, our shareholders approved the compensation terms of Mr.
Shlomo (Tom) Wyler, for his service as Chief Executive Officer of our subsidiary Optibase Inc. According to the terms approved by our shareholders, Mr. Wyler serves as Chief Executive Officer
of Optibase Inc. and is responsible for the implementation of our strategy in North America, recognizing new local opportunities, forming strategic alliances and overseeing the ongoing
management of our current U.S. real estate portfolio. The yearly gross base salary in consideration for Mr. Wyler's services as Chief Executive Officer of Optibase Inc. will be $170,000 for a full
time position as well as reimbursement of health insurance expenses of up to $24,000 per year, and including reimbursement of reasonable work-related expenses incurred as part of his activities
as Chief Executive Officer of Optibase Inc., of up to $50,000 per year. The employment of Mr. Wyler is for a three-year term commencing on January 1, 2014. Mr. Wyler's service as our president
and member of our board of directors ended as of December 19, 2013. On May 16, 2016, following the approval by our compensation committee, audit committee and board of directors, our
shareholders approved an amendment to Mr. Wyler's compensation terms in a manner that Mr. Wyler's annual gross base salary was set at $200,000 for a full time position, as of January 1, 2016.
Mr. Wyler was also granted reimbursement of health insurance expenses of up to $24,000 per year, as well as reimbursement of reasonable work-related expenses incurred as part of his activities
as Chief Executive Officer of Optibase Inc., of up to $50,000 per year.
On December 19, 2013, and following the approval by our audit committee and board of directors, our shareholders approved the service agreement between the Company and Mr.
Reuwen Schwarz, currently serves also as a member of our board of directors, for the provision of real estate related consulting services to us, our subsidiaries and affiliates. Mr. Schwarz is a
relative of the beneficiaries of Capri, our controlling shareholder. According to term of the service agreement with Mr. Schwarz, he will provide us with real estate related consulting services,
including: (i) searching, introducing and advising us on real estate transactions, (ii) advising and negotiating with banks and financing institutions, (iii) advising us on our financing agreements,
all as requested by us from time to time and at our sole discretion. Such services will be provided by Mr. Schwarz at the request of the Company. Mr. Schwarz will render such services faithfully
and diligently for the benefit of the Company, and will devote all necessary time and attention for the performance of the services. Mr. Schwarz will also use his best efforts to implement the
policies established by us in the performance of such services. In consideration for such services, we will pay Mr. Schwarz a monthly fee of EURO 4,000 (approximately $5,350) plus applicable
value added tax (if applicable). Mr. Schwarz will also be reimbursed for expenses incurred as part of the services provided by him which shall not exceed EURO 12,000 (approximately $16,060) per
year. In the event the service agreement with Mr. Schwarz is terminated during a certain month, Mr. Schwarz will be entitled to a pro rata fee based on the number of days that has lapsed until the
termination date of the service agreement. Mr. Schwarz may either provide the services by himself or through a corporation under his control, provided that the consideration under the service
agreement remains unchanged. The service agreement with Mr. Schwarz will be in effect retroactively from November 1, 2013 for a period of three years. On December 29, 2016, and following the
approval by our audit committee and board of directors, our shareholders approved the extension of Mr. Schwarz' service agreement, which will be in effect retroactively from November 1, 2016
for a period of three years. Each of Mr. Schwarz and us may terminate the service agreement by giving a prior written notice of 30 days. During such advance notice period, Mr. Schwarz will be
required to continue the provision of the services provided by him under the agreement (unless we have instructed him otherwise) and in any event Mr. Schwarz will be entitled to receive the
consideration for such period, except for cause.
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On October 22, 2014, our shareholders approved, following the approval by our compensation committee, audit committee and board of directors, the following amendments to our
prospective undertaking to indemnify our current and future directors, including our Chief Executive Officer and including directors and officers who are affiliated with our controlling
shareholder, and the grant of amended letters of indemnification accordingly: (a) inclusion of additional events upon the occurrence of which the Company may indemnify its current and future
directors and officers; and (b) increase of the aggregate and accumulated indemnification amount that the Company may pay its directors and officers, to an amount that shall not exceed the
higher of: (i) 25% of the shareholders’ equity of the Company, as set forth in the Company’s most recent consolidated financial statements prior to such payment; (ii) 10 million U.S. Dollars. On
December 21, 2017, our shareholders approved, following the approval by our compensation committee, audit committee and board of directors, the following amendment to our prospective
undertaking to indemnify our current and future directors, including our Chief Executive Officer and including directors and officers who are affiliated with our controlling shareholder, and the
grant of amended letters of indemnification accordingly: an increase of the aggregate and accumulated indemnification amount that the Company may pay its directors and officers, to an amount
that shall not exceed the higher of: (i) 25% of the shareholders’ equity of the Company, as set forth in the Company’s most recent consolidated financial statements prior to such payment; (ii) 20
million U.S. Dollars.
On October 22, 2014, our shareholders approved, following the approval by our compensation committee and board of directors, the grant of the following compensation to Mr. Amir
Philips, our Chief Executive Officer, and to amend the compensation terms of Mr. Philips, as follows: (a) the grant of a special bonus in the amount of $50,000 to Mr. Philips; and (b) the extension
of Mr. Philips’ existing four (4) months advanced notice period under his employment agreement with the Company to an advance notice period of six (6) months. On May 16, 2016, our
shareholders approved, following the approval by our compensation committee and board of directors, certain amendments to the compensation terms of Mr. Philips and the grant of special
bonus as follows: (a) Mr. Philips' monthly gross base salary was updated to NIS 65,000 for a full time position, as of January 1, 2016 and would increase to NIS 75,000 as of January 1, 2017; and
(b) Mr. Philips was awarded a special bonus in the amount of NIS 120,000. The new compensation terms shall be in effect for a three year term as of January 1, 2016.
On May 26, 2015 we utilized a guaranty given by our controlling shareholder to a financing institution that allowed us to withdraw from such financing institution a total of €5 million
that were used to partially finance the closing of the portfolio acquisition transaction in Germany. The funds were drawn in a form of a monthly credit facility bearing a yearly rate of
approximately 76 basis points (0.76%). On July 24, 2015 the Company covered the monthly credit facility in full.
On December 29, 2016, our shareholders approved the reappointment of Ms. Garti-Seroussi and Mr. Labenski as external directors of the Company for an additional three years term
commencing on January 31, 2017 and on December 31, 2016, respectively, including the compensation terms for their service as external directors of the Company, in the compensation terms
specified in Item 6.B. “Compensation” above.
In March 2017, our audit committee and board of directors approved the receipt of a loan from our Controlling shareholder. The Loan was granted to the Company on March 28, 2017.
For further details see Item 5.B. “Operating and Financial Review and Prospects - Liquidity and Capital Resources” above.
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Condominium Units in Miami Beach, Florida
On December 19, 2013, following the approval of our audit committee and board of directors, our shareholders approved the purchase by two wholly owned subsidiaries of the Company
of twelve luxury condominium units located in Miami Beach, Florida, or the Units, in consideration for the issuance of our 1.37 million newly issued ordinary shares (of which approximately
67,000 ordinary shares were off set against the lease of one unit), representing, as of the date of the approval of the transaction by our board of directors, a value of approximately $8.8 million.
The Units were sold by private companies indirectly controlled by Capri, our controlling shareholder. At closing, and following the approval of the transaction by our shareholders, we issued to
Capri a net sum of 1,300,580 of our ordinary shares, as detailed below. The net fair value of the condominium units as recorded in our financial statement as of the closing date was approximately
$7.2 million, representing the fair value of the ordinary shares issued as of the closing date. Set forth below is additional information with respect to the transaction to purchase the Units.
The Flamingo Condominium Units
Our wholly-owned subsidiary, Optibase FMC LLC, a Delaware limited liability company, or Optibase FMC, has entered into two purchase and sale agreements, or the Flamingo
Agreements, to acquire eleven luxury condominium units, or the Flamingo Units, including ten parking spaces in the Flamingo-South Beach One Condominium located at 1500 Bar Road in Miami
Beach, Florida, or the Flamingo Condominium. The sellers of the Flamingo Units, or the Sellers, are two private companies indirectly controlled by Capri, our controlling shareholder.
The Flamingo Units are located on various floors of the South Building of the Flamingo Condominium, and ranging in size from 924 to 2,347 square feet. The Flamingo Condominium is a
15-story tower with 513 luxury residential units ranging in size from approximately 450 to approximately 2,347 square feet.
The purchase price agreed upon by the parties in consideration for the Flamingo Units was $3,870,750 in the aggregate, and was be paid by the Company in 600,115 newly issued
ordinary shares of the Company issued to the Sellers, at a price per share of $6.45. The price per share was set based on a calculation of average closing price of our ordinary shares on the
Nasdaq Global Market during the 30 trading days preceding the signing date of the Flamingo Agreements.
On September 17, 2014, following the approval of our audit committee and board of directors, we entered into a transaction to sell the eleven Flamingo Units, to an unrelated third party,
in consideration for an aggregate price of approximately $6.4 million to be paid to us. The transaction was conditioned on the purchaser’s execution of a purchase and sale agreement to acquire
an additional nineteen (19) condominium units located in the Flamingo Condominium from a company affiliated with our controlling shareholder. Therefore, in the interest of caution, we treated
the transaction as a transaction between a public company and another party, in which the company’s controlling shareholder has personal interest, as defined under the Companies Law. The
transaction was subject to a twenty (20) day inspection period during which the purchaser had the right to terminate the purchase and sale agreement. The closing of the transaction occurred on
October 20, 2014. At the closing of the transaction, the purchaser paid to us an aggregated gross price of $6.4 million, in consideration for the Flamingo Units. We recorded a capital gain of
approximately $2.7 million resulting from such transaction.
The Continuum Unit
The Company's wholly-owned subsidiary, Optibase Real Estate Miami LLC, a Florida limited liability company, or Optibase Miami, has entered into an agreement, or the Continuum
Agreement, to acquire a luxury condominium unit (including 2 parking spaces) in the Continuum on South Beach Condominium, or the Continuum Unit, located in Miami Beach, Florida. The
seller of the Continuum Unit, or the Seller, is indirectly controlled by Capri, our controlling shareholder.
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The Continuum Unit is located on the 33rd floor of the North Tower of the Continuum on South Beach Condominium located at 50 S. Pointe Drive, Miami Beach, Florida. The Continuum
on South Beach Condominium is a 37-story ocean-front tower with 203 luxury residential units ranging in size from 1,554 to 3,497 square feet. Residences of the Continuum on South Beach
Condominium enjoy the right to use the common areas of the residence, including swimming pool, tennis courts, spa and a sporting club.
The purchase price under the Continuum Agreement is $4.95 million, to be paid by the Company in 767,442 newly issued ordinary shares of the Company to be issued to the Seller, at a
price per share of $6.45. The price per share was set based on a calculation of average closing price of our ordinary shares on the Nasdaq Global Market during the 30 trading days, respectively,
preceding the signing date of the Continuum Agreement. We were not required to pay any deposits in connection with the Continuum Agreement.
Beginning at the closing of Optibase Miami's acquisition of the Continuum Unit, the Seller leased the Continuum Unit from us for a term of 36 months. The rent for the entire period of
the lease, or the Rent, was prepaid at a rate of $12,000 per month including sales tax (for a total rent of $432,000 including sales tax). The Rent was paid by the Seller at the closing date of the
transaction in 66,977 ordinary shares of the Company, at a price of $6.45 per share (which were offset the number of Shares to be issued by us as detailed above).
The acquisitions pursuant to the Flamingo Agreements and the Continuum Agreement closed on December 31, 2013. Accordingly, at the closing of the transactions, and upon
instructions provided to us by the sellers of the Units, we issued to Capri on December 31, 2013 a net sum of 1,300,580 of our ordinary shares as consideration for the purchase of the Units,
represented, as of the closing date of the agreement, approximately 25.4% of our issued share capital on a fully diluted basis. The net fair value of the condominium units as recorded in our
financial statement as of the closing date was approximately $7.2 million, representing the fair value of the ordinary shares issued as of the closing date.
On December 29, 2016, our shareholders approved, following the approval by our audit committee and board of directors, a new lease agreement to be entered into with an affiliate of
Capri, or the Tenant. The new lease will be in effect for a one-year term commencing on January 2, 2017, which will be automatically extended by a one-year term and up to a total of three years.
The Tenant may decide not to extend the New Lease provided that it has given notice to that effect to the Company at least 45 days before the end of each year. The monthly rent to be paid by
the Tenant to the Company is $25,000, including sales tax, the Rent. The Rent will be increased by 3% every year.
Registration Rights Agreement
On October 22, 2014, our shareholders approved, following the approval by our audit committee and board of directors, the entrance by us into a registration rights agreement with Mr.
Shlomo (Tom) Wyler and Capri, or the Holders, for the filing of a registration statement in order to register for resale all of our ordinary shares of held by them. The following is a short summary
of the principal terms of the agreement:
Demand registration rights
At any time after nine months following the approval of the agreement by our shareholders, at the request of the holders of at least 5% of the ordinary shares outstanding on the
effective date of the agreement, we must register any or all of the Holders’ ordinary shares as follows: (i) in the event that we are not eligible under applicable securities laws to file a registration
statement on Form F-3, we are required to effect up to two such registrations, but only if the minimum anticipated gross aggregate offering price of the shares to be registered exceeds $5 million,
and (ii) in the event that we are eligible under applicable securities laws to file a registration statement on Form F-3, we are required to effect an unlimited number of registrations, but only (a) if
the minimum gross anticipated aggregate offering price of the shares to be registered exceeds $5 million, and (b) up to two within a period of twelve months. Such registration must also include
any additional registrable securities requested to be included in such registration by any other holders who are party to the agreement or entitled thereunder.
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Our obligation to effect a registration is subject to certain qualifications and limitations, including our right to postpone a registration during the period that is 90 days before our good
faith estimate of the date of filing of, and ending up to 180 days after the effective date of, a registration statement initiated by us and for which the piggyback rights described below will apply,
our right to postpone a registration for a period of up to 60 days in the event of our furnishing a certificate signed by our Chief Executive Officer that states that in the good faith judgment of our
board of directors, it would be materially detrimental to us or our shareholders for such registration statement to either become effective or remain effective, because such action would (i)
materially interfere with a significant acquisition, corporate reorganization, or other similar transaction involving us or (ii) require premature disclosure of material information that we have a bona
fide business purpose for preserving as confidential. However, we may not invoke this postponement right for more than an aggregate of 90 days in any 12 month period.
Piggyback registration rights
The Holders have the right to request that we include their registrable securities in any registration statement that we file (other than a registration statement on Form S-8, S-4 or other
equivalent form). The right of a Holder to include shares in the registration related thereto is conditioned upon the shareholder accepting the terms of the underwriting, if any, as agreed between
us and the underwriters and then only in such quantity as the underwriters in their sole discretion determine will not jeopardize the success of our offering. However, we have agreed not to grant
any other shareholders priority to have their securities registered prior the securities of a Holder.
Expenses
All expenses incurred in effecting a registration provided for under the agreement, including, without limitation, all registration and filing fees, printing expenses, reasonable fees and
disbursements of counsel for us and for one U.S. counsel and one Israeli counsel, underwriting expenses (other than share transfer taxes, selling Holder underwriting discounts or commissions),
road show expenses, expenses of any audits incident to or required by any such registration, shall be paid by us.
Indemnification
The agreement further includes mutual indemnification obligations between the parties, according to which, subject to applicable law, each party to the agreement shall indemnify and
hold harmless the other party, from and against any and all losses, claims, expenses, damages or liabilities, joint or several as the same are incurred to which they, or any of them, may become
subject under the Securities Act, the Securities Exchange Act of 1934, as amended, other federal or state statutory law or regulation, at common law, or otherwise, insofar as such losses, claims,
expenses, damages or liabilities (or action in respect thereof) arise out of or are based upon any of the events specified in the agreement.
Termination of Registration Rights
The Holders’ right to request registration or to include registrable securities held by them in any registration pursuant to the agreement, shall terminate upon the earlier of (a) seven (7)
years following the effective date of the agreement or (b) when all of their registrable securities can be sold without restriction pursuant to Rule 144 under the Securities Act and without the
requirement for us to be in compliance with the current public information requirements under Rule 144 as confirmed by an unqualified opinion by counsel of us.
Commercial Office Building in Philadelphia
On October 12, 2012, following the approval of our audit committee and board of directors, and the approval of our shareholders during an annual general meeting of our shareholders
held on August 16, 2012, our wholly-owned subsidiary, Optibase 2 Penn, LLC, became a limited partner of 2 Penn Philadelphia LP, a Pennsylvania limited partnership, or the Partnership, which
acquired an approximately 20% indirect beneficial interest in the owner of a Class A 20-story commercial office building in Philadelphia known as Two Penn Center Plaza, or the 2 Penn Property,
and entered into the Limited Partnership Agreement of the Partnership, or the 2 Penn LPA. As of December 31, 2017, the Company indirect beneficial interest in the 2 Penn Property is 22.16%.
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The general partner of the partnership and certain other limited partners of the Partnership, are persons or entities affiliated with Mr. Shlomo (Tom) Wyler, the Chief Executive Officer of
our subsidiary, Optibase Inc., who was then our president and member of our board of directors and considered the controlling shareholder of the Company, as detailed herein. The 2 Penn LPA
sets forth the terms and conditions of the investment in the Partnership. According to the 2 Penn LPA our subsidiary acquired approximately 26% of the limited partnership interests in the
Partnership in consideration for approximately $4 million.
The Partnership owns a beneficial interest in the owner of the 2 Penn Property by being issued a 85.76% partnership interest in Two Penn Investor LP, a Pennsylvania limited
partnership, or the 2 Penn Investor, which acquired 88% (As of December 31, 2017 - 99%) of the limited partnership interests in Crown Two Penn Center Associates Limited Partnership, or the
Property Owner, and Two Penn General LLC from Crown Penn Associates, L.P., or Crown Penn. Two Penn General LLC, a Delaware limited liability company controlled by Mr. Alex Schwartz
acquired a 1% general partner interest in the Property Owner from Two Penn Center GP Corp., a Pennsylvania corporation, or the Existing General Partner, for the aggregate sum of approximately
$12.8 million.
In connection with the closing of the sale agreement transaction, 2 Penn Investor provided a loan to Crown Penn in the original principal amount of approximately $1.6 million, or the
Purchaser Loan. The Purchaser Loan will bear interest at a rate of 12% per annum and will mature in slightly more than 3 years and will be secured by a pledge of Crown Penn’s remaining 11% of
the interests in the Partnership.
The 2 Penn Property has existing mortgage financing of approximately $51.7 million from UBS Real Estate Securities Inc., or UBS. The mortgage loan has a fixed interest rate of 5.61% and
matures in May 2021, and requires monthly payments of principal and interest of approximately $300,000. The acquisition of the partnership interests in the Property Owner from Existing General
Partner and Crown Penn and the performance of the transactions as a whole were conditioned on UBS consenting to the change in ownership of the Property Owner.
Below is a description of the main provisions of the 2 Penn LPA setting forth the terms and conditions of our subsidiary’s investment in the Partnership:
Purpose of the Partnership
The stated purpose of the Partnership is solely to acquire, own, operate and ultimately sell beneficial interests in the 2 Penn Investor (which directly owns partnership interests in the
Property Owner) and transact any lawful business that is necessary to accomplish this.
Capital Contributions
The partners will contribute initial capital contributions to the Partnership in the aggregate amount of approximately $15.5 million (of which our subsidiary's share is approximately $4
million). The Partnership will contribute the initial capital contribution to 2 Penn Investor which will use the funds to acquire the limited partnership interests in the Property Owner, to provide the
Purchaser Loan, to pay closing costs for the transaction, and to establish reserves for improvements to the 2 Penn Property.
Additional capital contributions may be requested of limited partners at any time that Two Penn Philadelphia GP LLC (which is the general partner of the Partnership, controlled by Mr.
Alex Schwartz, who is affiliated with Mr. Wyler as set forth below, or the General Partner) determines that the Partnership requires additional funds. The General Partner may request loans or
capital contributions from the limited partners, provided that if the General Partner requests loans or capital calls exceeding $2 million during any four-year period it must obtain the approval of
partners owning at least 65% of the interests in the Partnership.
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If a limited partner does not provide its capital contributions, the other limited partners will have the option to fund the failed contribution in proportion to their relative percentage
interests. The portion of the deficiency funded shall be treated as a loan from the lending non-defaulting partners to the defaulting limited partner and shall bear a floating interest rate equal to
the prime rate of PNC Bank plus 9% (which shall be compounded annually to the extent not paid). The loan shall be repaid directly on a first priority basis out of any subsequent distributions to
the defaulting limited partner. A limited partner's liability for a default loan shall be limited to its share of future distributions from the Partnership.
Limited Partner Approval Rights
The General Partner has full management authority over the Partnership, subject to certain major decisions which require the approval of partners owning 65% of the interests in the
Partnership. These decisions include: (a) sale or transfer of any asset of the Partnership or granting approval for the sale of the 2 Penn Property; (b) borrowing money from itself or third parties
for Partnership purposes or to mortgage, pledge or assign any of the Partnerships assets; (c) requesting capital contributions or borrowing money from the partners in an amount exceeding $2
million during any four year period; (d) admission of any new partners; (e) removal of the General Partner; (f) termination and dissolution of the Partnership; (g) amendment of the Partnership
agreement; (h) merger or consolidation into or with another entity; (i) amendment of the Partnership certificate in a material manner; or (j) entering into a new line of business.
Fees Paid to the General Partner
The General Partner or its affiliates may receive an annual management fee of four percent (4%) of gross revenues from the Property from the Property Owner in connection with
management of the 2 Penn Property and shall be entitled to be reimbursed for expenses incurred in the management of the Partnership business. The General Partner and its affiliates may not
receive any other fees or payments from the Partnership, 2 Penn Investor or from the Property Owner without the consent of limited partners owning at least 65% of the interests in the
Partnership.
Distributions
All revenue of the Partnership, less the operating expenses and any reserves established by the GP, or Net Cash Flow, will be distributed as follows:
(a) First, to repay partners who loaned sums to other limited partners who defaulted on their capital contributions;
(b) Second, to partners that have made voluntary loans to the Partnership;
(c) Third, to repay the partners their capital contributions; and
(d) Fourth, to the partners in accordance with their percentage interests in the Partnership.
The General Partner has undertaken to cause Two Penn Investor and Crown 2 Penn LLC to distribute all net cash flow received from the 2 Penn Property to their limited partners. Other
than with the consent of partners holding at least 65% of the interests in the Partnership, Crown 2 Penn LLC may only withhold net cash flow in order to: (1) establish reserves not exceeding one
million dollars ($1 million) for future expenses of the 2 Penn Property, (2) reserve funds to service debt or loan document obligations of the Property Owner, and (3) avoid the violation of
applicable laws and avoid the imposition of transfer taxes.
Transfer Restrictions
General Partner Consent to Transfer of the Company’s Percentage Interest: After a three year and one month so long as there has not been a change in the controlling shareholder of the
Company, our subsidiary shall be permitted to transfer all or part of its interests in the Partnership without obtaining the General Partner's prior consent unless:
(1) the proposed transferee is subject to trade restrictions under US law,
(2) the transfer would violate federal or state securities laws, or
(3) the transfer would violate terms of debt obligations which the Property Owner has incurred.
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LP Consent to GP Transfer: The General Partner must receive the consent of partners owning at least sixty five percent (65%) of the interests in the Partnership to transfer the General Partner
interest. Any transfer of the General Partner must be to a person who or which agrees to serve as a replacement General Partner. So long as the Company is a limited partner, unless otherwise
consented to by Partners owning at least 65% of the Partnership interests, the General Partner will ensure that, as long as it is controlled by Alex Schwartz (a) at least 20% of the percentage
interests of the Partnership will at all times be held or controlled by Alex Schwartz and his family members and (b) the general partners of Two Penn Investor and the Property Owner shall be
solely controlled by Alex Schwartz.
Right of First Offer: Transfers by partners of their interests in the Partnership are generally subject to a right of first offer in favor of the other partners. The selling party must first offer the
portion of its percentage interest that it is looking to sell to the General Partner and other limited partners, before selling such portion to a third party. If the other partners do not send the selling
party a notice of acceptance within the prescribed time or do not agree to purchase all of the percentage interest contained in the offer, the selling party shall have the right to sell such
percentage interest to a third party.
Tag Along: If the General Partner or Alex Schwartz receive an offer to sell all or a portion of their percentage interests, after which Alex and his family members or entities under his control would
collectively own less than 20% of the percentage interests, the other Partners shall have the right to sell to the offering third party the same portion of their percentage interests that such third
party is willing to purchase from the General Partner and/or Alex Schwartz, on the same terms. If the third party refuses to purchase the other Partners' percentage interests, the General Partner
and/or Alex Schwartz may not sell.
Bring Along: If the Partners receive a bona fide offer from a third party to acquire all of the percentage interests of the Partnership and the General Partner and partners holding at least 65% of
the interests in the Partnership agree to accept the offer, then the other limited partners will be obligated to sell their percentage interests on the same terms as the other Partners.
Removal of the General Partner
For as long as Alex Schwartz is controlling the General Partner, a vote by partners holding 65% or more of the interests in the Partnership is necessary to remove the General Partner. If
the General Partner is no longer controlled by Alex Schwartz, a vote of partners owning at least 51% of the interests in the Partnership is required to remove the General Partner. Appointment of a
new General Partner requires the consent of 51% of the limited partners. If the General Partner is removed, the replacement General Partner must buy-out the General Partner’s interest at fair
market value.
Amendment of the LPA
Amendment of the LPA requires approval of limited partners owning at least 65% of the Partnership interests provided that any change affecting a Partner's rights must be approved by
the affected Partner.
Undertaking Ensuring Limited Partner Rights
Together with the signing of the LPA, Alex Schwartz, the General Partner and the general partner of Two Penn Investor will sign an undertaking according to which they shall (1) not
permit Two Penn Investor or the Property Owner to take any of the actions set forth in the Section entitled “Limited Partner Approval Rights” above without obtaining the prior written consent
of 65% of the limited partners of the Partnership, and (2) not to permit Two Penn Investor or the Property Owner to withhold distributions other than as set forth in the Section entitled
“Distributions” above without the consent of partners owning at least 65% of the interests in the Partnership, and (3) not to permit a change in the ownership of the general partner of the 2 Penn
Investor or the Property Owner as long as Alex Schwartz controls the General Partner interest.
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Indemnification
The Partnership will indemnify the General Partner and its members from any claim, judgment or liability and from any loss or expense which may be imposed on the General Partner as a
result of (i) an act performed by the General Partner on behalf of the Partnership or (ii) the inaction of the General Partner or from (iii) any liabilities arising under federal and state securities laws
so long as the General Partner acts in good faith in the best interest of the Partnership and the conduct of the General Partner does not constitute gross negligence or willful misconduct.
7.C. INTERESTS OF EXPERTS AND COUNSEL
Not applicable.
ITEM 8. FINANCIAL INFORMATION
8.A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
See Item 18 “Financial Statements” for a list of financial statements filed as part of this annual report on Form 20-F.
Legal proceedings
Receipt of a Motion to Approve a Derivative Claim
On October 26, 2014, we received a letter on behalf of two purported shareholders of us, or the Shareholders, demanding us to file a derivative claim against our controlling shareholder
and our directors and officers, according to procedures of the Companies Law and requesting discovery of our internal documents. The demand alleges, among other things, breach of fiduciary
duties by our directors and officers with respect to the approval of the transaction to acquire luxury condominium units in Miami Beach, Florida, or the Transaction. In accordance with the
Companies Law, we informed the Shareholders in December 2014 of the way in which we wish to proceed with respect to the demand. At the Shareholders’ request, we presented the
Shareholders with certain materials in connection with the Transaction for their review.
On May 12, 2015 we have been served with a motion to approve the filing of a derivative claim (on behalf of the Company) against our controlling shareholder, directors and CEO and
against certain former controlling shareholder and directors, or the Motion, and a copy of the derviative claim, or the Claim, which were submitted with the Centeral (Lod) District Court, by two
purported shareholders of the Company, or the Applicants.
The Claim alleges, among other things, a breach of fiduciary duties by the our directors, officers and controlling shareholder, and an exploitation of a business opportunity by the our
current and former controlling shareholder with respect to certain private placements of the Company's shares to our controlling shareholder conducted in June 2008, May 2011 and December
2013. The Claim further alleges, that such private placements constitute a prohibited distribution as the shares were issued for an unfair consideration. As a result of the above, the Applicants
request the Court to allow them to continue with this derivative claim and ultimately to require all the defendants to pay the Company an aggregate amount of approximately $41.9 million, as well
as required our shareholder (current and former) to pay us approximately $2.9 million plus interest (for the exploitation of a business opportunity). The Applicants further require reimbursement
of expenses, legal fees and award to the Applicants.
On November 8, 2015, we have submitted our response to the Motion and Claim together with an expert opinion. We have raised several arguments against the Motion including, inter
alia, preliminary claims to dismiss the Motion in-limine. On November 13, 2015, the directors, CEO and former directors submitted their response to the Motion.
On September 6, 2016, the Applicants submitted to the District Court their answer to our response to the motion to approve the filing of a derivative claim, together with an expert
opinion.
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On October 30, 2016, a pre-trial hearing was held during which the Court gave instruction regarding the scope of disclosure that we need to discover.
On March 14, 2017 we, our directors, CEO and former directors’ submitted an expert opinion as a response to the expert opinion submitted by the Applicants.
On May 29, 2017 our controlling shareholder submitted an expert opinion as a response to the expert opinion submitted by the Applicants.
The first cross-examination hearing was held on October 31, 2017. Additional hearings was held on November 19, 2018, December 5, 2017 and February 25, 2018.
The next cross-examination hearing is scheduled for October 7, 2018.
At this stage, we cannot provide an assessment as to the chances of the claim and the exposure to the Company.
Demand to Receive Certain Data in Connection with an Option Agreement
On May 19, 2015, we have received a letter on behalf of Swiss Pro Capital Limited, a company organized under the laws of Switzerland, demanding the Company to provide Swiss Pro
with certain relevant data in connection with an option agreement dated March 1, 2010, or the Agreement (for further details on the Agreement see Item 10.C. “Material Contracts”). According to
the Agreement, Swiss Pro was granted an option to purchase 20% of the shares of Optibase RE 1 s.a.r.l, the owner of the Rümlang property. We have sent a preliminary response letter on or
about June 30, 2015 stating that a detailed response letter will be sent later on. On August 18, 2015 we have sent a detailed letter in which we rejected all allegations against us. On December 24,
2015 Swiss Pro sent another letter repeating its arguments and we have sent our response to the letter on or about December 31, 2015. On May 25, 2016 Swiss Pro sent another letter in which
they asked for exercise of the granted option. On June 29, 2016, we responded to this letter and detailed the required sum for exercise of the granted option, however, we have not yet received a
response. The Option Agreement has expired in October, 2017, within eight years from the entrance into the agreement,
At this preliminary stage we cannot provide an assessment as to the chances of the arguments raised by Swiss Pro and the exposure to the Company.
Receipt of a Claim from Tenant in the CTN Complex
On April 16, 2015, our subsidiary Eldista GmbH, filed a claim to the court in Switzerland in an amount of approximately CHF 1 million (app. $1 million) due to damages and unpaid amounts
from a specific tenant. Shortly thereafter, the tenant filed a counterclaim against Eldista GmbH in an amount of approximately CHF 157,000 (app. $171,200) for damages allegedly caused to it. The
court suggested the parties to transfer to mediation proceedings which failed. The court handed down a partial judgment on 31, October 2016, dismissing against the judgment. The appeal is
currently pending before the court of appeal of Geneva.
At this stage, we cannot assess whether the court will receive Elista's or the tenant's arguments.
Receipt of a Claim from Tenant in the CTN Complex
On March 1 2017, our subsidiary Eldista Gmbh, received a notice from its largest tenant in Switzerland, LEM Switzerland SA, or LEM, regarding the deposit of the monthly rent for
March 2017 amounting to approximately CHF 279,400 (app. $276,800 vat inclusive) with Banque cantonale de Genève under the control of the Pouvoir judiciaire of the Canton of Geneva, as a
preliminary process for filing a claim with the Commission de Conciliation en Matière de Baux et Loyers of the Canton of Geneva, or the Commission. LEM claims that there are serious defects
affecting the rented premises, which merit LEM with a reimbursement of approximately CHF 2.4 million (app, $2.4 million) (excluding VAT) as well as approximately CHF 69,200 (app. $68,500) as
indemnification for consequential damages for the years 2014 and 2015. LEM also reserves its claims regarding damages suffered before year 2014.
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On April 5, 2017 LEM withdrew the deposit of the monthly rent for March 2017 with Banque cantonale de Genève under the control of the Pouvoir judiciaire of the Canton of Geneva and
released the amount to the Company. Thus, paying the full payment of the rent.
In July 2017, LEM filed an application, pursuant to which LEM mainly demands the elimination of certain alleged defects in the CTN Complex and that LEM be authorized to carry out the
works at the expense of Eldista Gmbh if the works are not executed within a specific time frame as well as a 20%-reduction in rent from February 2012 and until the completion of the works. LEM
demands that Eldista Gmbh be ordered to reimburse a monthly amount of CHF 47,600 as rent overpayment from February 2012 (representing the 20% reduction in rent) until (i) the completion of
the works or (ii) the month of the entry into force of the judgment, whichever occurs first and that Eldista Gmbh be ordered to pay an amount of app, CHF 147,000 (subject to amplification) plus
interest as of May 5, 2017 as consequential damages. LEM further demands to be reserved the right to claim the reimbursement of overpaid ancillary fees. According to the application, the
dispute amounts to a total of CHF 3.54 million (app. $ 3.68 million). On October 23, 2017 the Tenant filed a claim with the first instance court, requesting a rent reduction and related damages
amounting to a minimum capital amount of CHF 3,833 (approximately $ 3,926 as of December 31, 2017), based on various defects allegedly affecting the rented premises. On February 16, 2018
Eldista submitted a reply brief to the court, the Tenant will have until April 9, 2018 to submit a complementary brief and Eldista until May 14, 2018. The Company has sufficient provision to cover
the expected outcome of this claim.
Dividend Policy
We have not declared or paid any cash dividends on our ordinary shares in the past. We do not expect to pay cash dividends on our ordinary shares in the foreseeable future and
intend to retain our future earnings, if any, to finance the development of our business.
A dividend policy, if adopted, will be determined by our board of directors and will depend, among other factors, upon our earnings, financial condition, capital requirements, the impact
of the distribution of dividends on our financial condition and tax liabilities, and such other conditions as our board of directors may deem relevant. Under Israeli law, an Israeli company may pay
dividends only out of its retained earnings as determined for statutory purposes. Under our articles of association the distribution of dividends will be made by a resolution of our board of
directors. See “Description of Share Capital” and “Israeli Taxation and Investment Programs”.
Cash dividends paid by an Israeli company are normally subject to a withholding tax, except for dividends paid to an Israeli company in which case no tax is withheld unless the
dividend is in respect of earnings from an Approved Enterprise. In addition, because we have received certain benefits under Israeli laws relating to Approved Enterprises, the payment of
dividends by us may be subject to certain Israeli taxes to which we would not otherwise be subject. The tax-exempt income attributable to the Approved Enterprise can be distributed to
shareholders without subjecting us to taxes only upon our complete liquidation. If we decide to distribute cash dividends out of income that has been exempted from tax, the income out of which
the dividend is distributed will be subject to corporate tax. See “Israeli Taxation and Investment Programs”. In the event that cash dividends are declared in the future, such dividends will be paid
in NIS or in foreign currency subject to any statutory limitations. Under current Israeli regulations, any dividends or other distributions paid in respect of ordinary shares will be freely repatriable
in such non-Israeli currencies at the rate of exchange prevailing at the time of conversion, provided that Israeli income tax has been paid on, or withheld from, such payments. Because exchange
rates between the NIS and the dollar fluctuate continuously, a U.S. shareholder will bear the risks of currency fluctuations during the period between the date such dividend is declared and paid
by us in NIS and the date conversion is made by such shareholder into U.S. dollars.
ITEM 8.B. SIGNIFICANT CHANGES
Since the date of our financial statements for the year ended December 31, 2017, as part of the motion to approve the filing of a derivative claim, on February 25, 2018, additional hearings
was held. The next cross-examination hearing is scheduled for October 7, 2018.
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ITEM 9. THE OFFER AND LISTING
9.A. OFFER AND LISTING DETAILS
Our ordinary shares are traded on The NASDAQ Global Market under the symbol OBAS since our initial public offering on April 7, 1999. On April 29, 2015, our ordinary shares were
registered for trading on the Tel Aviv Stock Exchange.
The following table sets forth, for the periods indicated, the high and low closing sale prices per share of our ordinary shares as reported by The NASDAQ Global Market and by the Tel
Aviv Stock Exchange.
Year
2013
2014
2015
2016
2017
2016
2017
2018
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
First Quarter (Until March 20, 2018)
Most Recent Six Months
October 2017
November 2017
December 2017
January 2018
February 2018
March 2018 (Until March 20, 2018)
Nasdaq
TASE
High
Low
High
Low
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
6.9
8.21
9.29
9.2
10.3
$
$
$
$
$
8.2
8
8.45
9.2
$
$
$
$
9.35
10.30
10.00
8.90
$
$
$
$
4.51
5.15
6.03
6.21
6.6
6.75
6.21
6.65
7.5
7.20
7.70
6.60
6.90
NIS 36.8
NIS 30.54
NIS 39.24
NIS 30.54
NIS 29.5
NIS 29.55
NIS 30
NIS 39.19
NIS 39.24
NIS 38.19
NIS 31.88
8.68
$
7.42
NIS 29.64
High
Low
8.90
8.75
8.70
8.68
8.25
8.20
$
$
$
$
$
$
6.90
7.70
7.55
7.65
7.42
7.85
High
NIS 31.88
NIS 30.66
NIS 30.00
NIS 29.64
NIS 27.80
NIS 27.88
-
-
-
-
NIS 27.2
NIS 26.01
NIS 23.5
NIS 26.01
NIS 26.61
NIS 29.49
NIS 28.01
NIS 26.63
NIS 28.05
NIS 24.61
NIS 23.50
NIS 24.09
Low
NIS 23.50
NIS 27.30
NIS 27.05
NIS 27.07
NIS 24.09
NIS 25.00
On March 20, 2018, the reported closing sale price of our ordinary shares on The NASDAQ Global Market, was $7.85 per share and on the Tel Aviv Stock Exchange, was NIS 27.88 per
share.
9.B. PLAN OF DISTRIBUTION
Not applicable.
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9.C. MARKETS
Our ordinary shares have been listed on The NASDAQ Global Market since April 7, 1999, under the symbol “OBAS”. On April 2015 we have listed our ordinary shares for trading on the
Tel Aviv Stock Exchange under the symbol “OBAS”.
9.D. SELLING SHAREHOLDERS
Not applicable.
9.E. DILUTION
Not applicable.
9.F. EXPENSES OF THE ISSUE
Not applicable.
ITEM 10. ADDITIONAL INFORMATION
10.A. SHARE CAPITAL
Not applicable.
10.B. MEMORANDUM AND ARTICLES OF ASSOCIATION
Purposes and Objects of the Company
We are a public company registered under the Companies Law as Optibase Ltd., registration number 52-003707-8.
Pursuant to our articles of association, our objectives are to engage in any lawful business and our purpose is to act pursuant to business considerations to make profits. A
consideration to the Company's purpose and objectives can be found in Chapter 1 to the Company's articles of association.
Our articles of association also state that we may contribute a reasonable amount for an appropriate cause, even if the contribution is not within the framework of our business
considerations.
The Powers of the Directors
The power of our directors to vote on a proposal, arrangement or contract in which the director is interested is limited by the relevant provisions of the Companies Law. In addition, the
power of our directors to vote on compensation to themselves or any members of their body is limited in that such decision requires the approval of the compensation committee, the board of
directors and the shareholders at a general meeting, see “Approval of Certain Transactions” below.
Under Israeli law each director must act with an independent and sole discretion. Director who does not act this way is in breach of his fiduciary duties.
The powers of our directors to borrow are not limited, except in the same manner as any other transaction by the Company.
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Rights Attached to Shares
Our registered share capital is NIS 3,900,000 divided into a single class of 6,000,000 ordinary shares, par value NIS 0.65 per share, of which 5,214,256 ordinary shares were issued and
outstanding as of March 20, 2018. All outstanding ordinary shares are validly issued, fully paid and non-assessable. The rights attached to the Ordinary Shares are as follows:
Dividend rights
Holders of Ordinary Shares are entitled to the full amount of any cash or share dividend subsequently declared. The board of directors may propose a dividend only out of profits, in
accordance with the provisions of the Companies Law. Declaration of a dividend requires the approval of our board of directors. Please see Item 10.E. “Taxation” below.
One year after a dividend has been declared and is still unclaimed, the board of directors is entitled to invest or utilize the unclaimed amount of dividend in any manner to our benefit
until it is claimed. We are not obligated to pay interest or linkage differentials on an unclaimed dividend.
Voting rights
Holders of ordinary shares have one vote for each ordinary share held on all matters submitted to a vote of shareholders. Such voting rights may be affected by the grant of any special
voting rights to the holders of a class of shares with preferential rights that may be authorized in the future. Currently there are no shares of capital stock outstanding with special voting rights.
The quorum required for an ordinary meeting of shareholders consists of at least two shareholders present in person or by proxy who hold or represent, in the aggregate, at least thirty three and
one third percent (33.3%) of our voting rights. In the event that a quorum is not present within half an hour of the scheduled time, the shareholders' meeting will be adjourned to the same day of
the following week, at the same time and place, or such time and place as the board of directors may determine by a notice to the shareholders. If at such adjourned meeting a quorum is not
present at the time of opening of such meeting, two shareholders, at least, present in person or by proxy, shall constitute a quorum.
An ordinary resolution, such as a resolution for the election of directors, or the appointment of auditors, requires the approval by the holders of a majority of the voting rights
represented at the meeting, in person, by proxy or through a voting instrument and voting thereon. Under our articles of association, if a resolution to amend the articles of association is
recommended by our board of directors, such recommended resolution’s adoption in a general meeting of the shareholders requires an ordinary majority. In any other case, such a resolution
requires approval of a special majority of more than three quarters of the votes of the shareholders entitled to vote themselves, by proxy or through a voting instrument.
The directors (who are not external directors) are appointed by decision of an ordinary majority at a general meeting. The directors have the right at any time, in a resolution approved by
at least a majority of our directors, to appoint any person as a director, subject to the maximum number of directors specified in our articles of association, to fill in a place which has randomly
been vacated, or as an addition to the board of directors. Any such director so appointed shall hold office until the next annual general meeting and may be reelected.
Under our articles of association our directors (who are not external directors) are elected by an ordinary majority of the shareholders at each duly convened annual meeting, and they
serve until the next annual meeting, provided that external directors shall be elected in accordance with the Companies Law. In each annual meeting the directors that were elected at the previous
annual meeting are deemed to have resigned from their office. A resigning director may be reelected.
Under the NASDAQ corporate governance rules, foreign private issuers are exempt from many of the requirements if they instead elect to be exempted from such requirements, provided
they are not prohibited by home country practices and disclose where they have elected to do so.
Rights in the Company’s profits
All of our ordinary shares have the rights to share in our profits distributed as a dividend and any other permitted distribution.
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Rights in the event of liquidation
All of our ordinary shares confer equal rights among them with respect to amounts distributed to shareholders in the event of liquidation.
Changing Rights Attached to Shares
According to our articles of association, our share capital may be divided into different classes of shares or the rights of such shares may be altered by an ordinary majority resolution
passed by the general meetings of the holders of each class of shares separately, or after obtaining the written consent of the holders of all of the classes of shares. As of the date hereof, we
only have one class of shares.
Annual and Extraordinary Meetings
Our board of directors must convene an annual meeting of shareholders every year by no later than the end of fifteen months from the last annual meeting. Notice of at least twenty-one
days prior to the date of the meeting is required. An extraordinary meeting may be convened by the board of directors, as it decides or upon a demand of any two directors or 25% of the
directors, whichever is lower, or by one or more shareholders holding in the aggregate at least 5% of the voting rights in the Company. Where the board of directors is requisitioned to call a
special meeting, it shall do so within twenty-one days, for a date that shall not be later than thirty-five days from the date on which the notice of the special meeting is published. Notice of a
general meeting shall be given to all shareholders entitled to attend and vote at such meeting. No separate notice is to be given to registered shareholders of the Company. Notices may be
provided by the Company in person, in mail, transmission by fax or in electronic form. A notice to a shareholder may alternatively be served, as general notice to all shareholders, in accordance
with the rules and regulations of any applicable securities authority with jurisdiction over the Company or in accordance with the rules of any stock market upon which the Company's shares are
traded.
Limitations on the Rights to Own Securities in the U.S.
Our memorandum and articles of association do not restrict in any way the ownership of our shares by non-residents of Israel, and neither the memorandum and articles of association
nor Israeli law restricts the voting rights of non-residents of Israel, except that under Israeli law, any transfer or issue of shares of a company to a resident of an enemy state of Israel is prohibited
and shall have no effect, unless authorized by the Israeli Minister of Finance.
Limitations on Change in Control and Disclosure Duties
Our memorandum and articles of association do not restrict the change of control nor do they impose any disclosure duties beyond the requirements set out in Israeli law. For restriction
of change of control provision under Israeli law, see Item 3.D. “Risk Factors”, under the heading “Risks Relating to Operations in Israel – Anti-takeover Provisions” above.
Changes in Our Capital
Changes in our capital are subject to the approval of the shareholders at a general meeting by an ordinary majority of shareholders participating and voting in the general meeting.
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Fiduciary Duty and Duty of Care of Directors and Officers
The Companies Law codifies the duties directors and officers owe to a company. An “Officer” includes a company’s general manager, general business manager, executive vice
president, vice president, any other person assuming the responsibilities of any of the foregoing positions without regard to such person’s title and other directors or managers directly
subordinate to the general manager. The directors’ and officers’ principal duties to the company are a duty of care and a fiduciary duty to act in good faith for the company’s benefit which
include:
v
v
v
v
the avoidance of any conflict of interest between the director’s or officer’s position with the company and any other position he or she fulfills or with his or her personal affairs;
the avoidance of any act in competition with the company’s business;
the avoidance of exploiting any of the company’s business opportunities in order to gain a personal advantage for himself or for others; and
the disclosure to the company of any information and documentation relating to the company’s affairs obtained by the director or officer due to his or her position with the
company.
The Companies Law requires that directors, officers or a controlling shareholder of a public company disclose to the company any personal interest that he or she may have, including
all related material facts or documents in connection with any existing or proposed transaction by the company. The disclosure must be made without delay and no later than the first board of
directors meeting at which the transaction is first discussed.
Approval of Certain Transactions
Generally, under the Companies Law, engagement terms of directors, including the grant of an exemption from liability, purchase of directors’ and officers’ insurance, or grant of
indemnification (whether prospective or retroactive) and engagement terms of such director with a company in other positions require the approval of the audit committee, the board of directors
and the shareholders of the company. In addition, transactions between a public company and its director or officer, or a transaction between such company and other person in which such
director or officer has a personal interest must be approved by such company’s board of directors, and if such transaction is considered an extraordinary transaction (as defined below) it must
receive the approval of such company’s audit committee as well. The determination whether such transaction is considered extraordinary or not is required to be made by audit committee.
The Companies Law also requires that any extraordinary transaction between a public company and its controlling shareholder or an extraordinary transaction between such company
and other person in which such company’s controlling shareholder has a personal interest must be approved by the audit committee, the board of directors and the shareholders of the company
by an ordinary majority, provided that (i) such majority vote at the shareholders meeting shall include a majority of the total votes of shareholders having no personal interest in the transaction,
participating at the voting (excluding abstaining votes); or (ii) the total number of votes of shareholders mentioned in clause (i) above who voted against such transaction does not exceed two
percent (2%) of the total voting rights in the company. An “extraordinary transaction” is defined in the Companies Law as any of the following: (i) a transaction not in the ordinary course of
business; (ii) a transaction that is not on market terms; or (iii) a transaction that is likely to have a material impact on the company’s profitability, assets or liability. Such an extraordinary
transaction which shall last for a period exceeding three years shall be approved again by such company’s audit committee, board of directors and general meeting of shareholders by the special
majority described above once in every three years.
The Companies Law further provides that the engagement terms of a controlling shareholder or its relative (including by an entity controlled by such controlling shareholder or its
relative) with the company, either as an officer or an employee, must also be approved by such company’s compensation committee, board of directors and general meeting by the special
majority described above. Such an engagement which shall last for a period exceeding three years shall be approved again by such company’s audit committee, board of directors and general
meeting by the special majority described above once in every three years. However, an engagement described in the beginning of this paragraph only which may be approved for a period
exceeding three years, provided that the audit committee approved the engagement term to be reasonable under the circumstances.
The Companies Law prohibits any person who has a personal interest in a matter to participate in the discussion and voting pertaining to such matter in the company’s board of
directors or audit committee except for in circumstances when the majority of the board of directors’ (or the audit committee – as the case may be) has a personal interest in the matter. In case the
majority has a personal interest in such matter then such matter must also be approved by the company’s shareholders. An officer who has a personal interest may be present for the
presentation of the transaction if the chairman of the audit committee or the chairman of the board of directors as the case may be, determined that such officer’s presence is required for the
presentation of the said transaction.
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Compensation of Officers and Directors
Pursuant to the Companies Law, Israeli Public Companies are required to establish a compensation committee and adopt a compensation policy regarding the compensation and terms of
employment of their directors and officers. For information on the composition, roles and objectives of the compensation committee pursuant to the Companies Law and our compensation
committee charter, see Item 6.C. “Board Practices – Committees of the Board of Directors – The Compensation Committee”.
The compensation policy must be approved by the company's board of directors after reviewing the recommendations of the compensation committee. The compensation policy also
requires the approval of the general meeting of the shareholders, which approval must satisfy one of the following (which we refer to hereinafter as the Majority Requirement): (i) the majority
should include at least a majority of the shares of the voting shareholders who are non-controlling shareholders or do not have a personal interest in the approval of the compensation policy (in
counting the total votes of such shareholders, abstentions shall not be taken into account) or (ii) the total number of votes against the proposal among the shareholders mentioned in paragraph
(i) does not exceed two percent of the aggregate voting power in the company. Under certain circumstances and subject to certain exceptions, the board of directors may approve the
compensation policy despite the objection of the shareholders, provided that the compensation committee and the board of directors determines that it is for the benefit of the company,
following an additional discussion and based on detailed arguments. The Companies Law provides that the compensation policy must be re-approved every three years, in the manner described
above. Moreover, the board of directors is responsible for reviewing from time to time the compensation policy and deciding whether or not there are any circumstances that require an
adjustment to the company's compensation policy.
Pursuant to the Companies Law any transaction with an executive office (except directors and the CEO of the company) with respect to such officer's compensation arrangements and
terms of engagement, requires the approval of the compensation committee and the board of directors. Transactions between Israeli Public Companies and their chief executive officer, with
respect to his or her compensation arrangement and terms of engagement, require the approval of the compensation committee, the board of directors and the shareholder's meeting, provided
that the approval of the shareholders' meeting must satisfy the Majority Requirement. Notwithstanding the above, the compensation committee and the board of directors may, under special
circumstances, approve such transaction with the CEO even if the shareholders' meeting objected to its approval. With respect to transactions relating to the compensation arrangement and
terms of engagements of directors in public companies (including companies that have issued only debentures to the public), the Companies Law provides that such transaction shall be subject
to the approval of the compensation committee, the board of directors and the shareholders' meeting.
Such transactions for the approval of compensation arrangements with officers and directors of Israeli Public Companies must be consistent with the provisions of the company's
compensation policy, provided that the compensation committee and the board of directors may, under special circumstances, approve such transaction that is not in accordance with the
company's compensation policy, if the conditions under the Companies Law are met and the company's shareholders approved the transaction in the Majority Requirement. Notwithstanding the
above, with respect to the approval of compensation terms of an executive officer (except directors and the CEO of the company), the compensation committee and the board of directors may,
under special circumstances, approve such transaction even if the shareholders' meeting objected to its approval, provided that (i) both the compensation committee and the board of directors
re-discussed the transactions and decided to approve it despite the shareholder's objection, based on detailed arguments, and (ii) the company is not a Public Pyramid Held Company. Non
material amendments of transactions relating to the compensation arrangement or terms of engagement of executive officer (including the CEO), require only the approval of the compensation
committee.
On December 29, 2016, and following the approval by our compensation committee and our board of directors, our shareholders approved a new compensation policy and such policy is
in affect for a 3-year term.
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On January 11, 2013, the SEC approved the amended NASDAQ listing standards on compensation committees and advisers. Among others, the amended NASDAQ listing standards
include provisions relating to the establishment of a compensation committee, the compensation committee charter, compensation committee members' independence requirements, and
arrangements relating to advisers retained by the compensation committee. Under the amended rules, the compensation committee adviser and compensation committee authority requirements
become effective on July 1, 2013. However, NASDAQ listed companies will have, until their first annual meeting after January 15, 2014, or, if earlier, October 31, 2014, to comply with other
standards, including the compensation committee member independence standards and the requirement to have a compensation committee and charter (including any charter amendment to
reflect the compensation committee authority requirements). NASDAQ listed companies must certify compliance with the listing standards within 30 days after the applicable implementation
deadline. In addition, under the amended rules, foreign private issuers are exempt from compliance with the amended listing standards if home country practice is followed and the listed company
discloses with the SEC the reasons why it does not have an independent compensation committee. Our compensation committee charter was updated in accordance with said amendments.
Anti-Takeover Provisions; Mergers and Acquisitions
Special Tender Offer. The Companies Law provides that an acquisition of shares of an Israeli public company must be made by means of a special tender offer if, as a result of the
acquisition, the purchaser would become a holder of at least 25% of the voting rights in the company. This rule does not apply if there is already another holder of at least 25% of the voting
rights in the company. Similarly, the Companies Law provides that an acquisition of shares in a public company must be made by means of a tender offer if, as a result of the acquisition, the
purchaser would become a holder of more than 45% of the voting rights in the company and no other shareholder of the company holds more than 45% of the voting rights in the company.
These requirements do not apply if the acquisition (i) occurs in the context of a private placement by the company that received shareholder approval, (ii) was from a shareholder holding at least
25% of the voting rights in the company and resulted in the acquirer becoming a holder of at least 25% of the voting rights in the company, or (iii) was from a holder of more than 45% of the
voting rights in the company and resulted in the acquirer becoming a holder of more than 45% of the voting rights in the company. The special tender offer may be consummated only if (a) at
least 5% of the voting power attached to the company’s outstanding shares will be acquired by the offeror and (b) the number of shares tendered in the offer exceeds the number of shares
whose holders objected to the offer.
In the event that a special tender offer is made, a company’s board of directors is required to express its opinion on the advisability of the offer or shall abstain from expressing any
opinion if it is unable to do so, provided that it gives the reasons for its abstention. An executive officer in a target company who, in his or her capacity as an executive officer, performs an action
the purpose of which is to cause the failure of an existing or foreseeable special tender offer or is to impair the chances of its acceptance, is liable to the potential purchaser and shareholders for
damages, unless such executive officer acted in good faith and had reasonable grounds to believe he or she was acting for the benefit of the company. However, executive officer of the target
company may negotiate with the potential purchaser in order to improve the terms of the special tender offer, and may further negotiate with third parties in order to obtain a competing offer.
A special tender offer may not be consummated unless a majority of the shareholders who announced their stand on such offer have accepted it (in counting the total votes of such
shareholders, shares held by the controlling shareholder, shareholders who have personal interest in the offer, or shareholder who own 25% or more of the voting rights in the company, shall not
be taken into account). If a special tender offer was accepted by a majority of the shareholders who announced their stand on such offer, then shareholders who did not announce their stand or
who had objected to the offer may accept the offer within four days of the last day set for the acceptance of the offer.
In the event that a special tender offer is accepted, the purchaser or any person or entity controlling it at the time of the offer or under common control with the purchaser or such
controlling person or entity shall refrain from making a subsequent tender offer for the purchase of shares of the target company and cannot execute a merger with the target company for a
period of one year from the date of the offer, unless the purchaser or such person or entity undertook to effect such an offer or merger in the initial special tender offer.
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Full Tender Offer. A person wishing to acquire shares or a class of shares of an Israeli public company and who would, as a result, hold over 90% of the target company’s issued and
outstanding share capital or that certain class of shares is required by the Companies Law to make a tender offer to all of the company’s shareholders for the purchase of all of the issued and
outstanding shares of the company or class of shares. If either (i) the shareholders who do not accept the offer hold less than 5% of the issued and outstanding share capital of the company or
of the applicable class, and more than half of the shareholders who do not have a personal interest in the offer accept the offer, or (ii) the shareholder who do not accept the offer hold less than
2% of the issued and outstanding share capital of the company or of the applicable class, then all of the shares that the acquirer offered to purchase will be transferred to the acquirer by
operation of law. However, a shareholder that had its shares so transferred, whether it accepted the tender offer or not, may, within six months from the date of acceptance of the tender offer,
petition the court to determine that tender offer was for less than fair value and that the fair value should be paid as determined by the court. If the shareholders who did not accept the tender
offer hold at least 5% of the issued and outstanding share capital of the company or of the applicable class of shares, the acquirer may not acquire shares of the company that will increase its
holdings to more than 90% of the company’s issued and outstanding share capital or of the applicable class from shareholders who accepted the tender offer.
Merger. The Companies Law permits merger transactions if approved by each party’s board of directors and, unless certain requirements described under the Companies Law are met, a
majority of each party’s shares voted on the proposed merger at a shareholders’ meeting called with at least 35 days’ prior notice.
For purposes of the shareholder vote, unless a court rules otherwise, the merger will not be deemed approved if a majority of the shares represented at the shareholders meeting that are
held by parties other than the other party to the merger, or by any person who holds 25% or more of the outstanding shares or the right to appoint 25% or more of the directors of the other party,
vote against the merger. If the transaction would have been approved but for the separate approval of each class or the exclusion of the votes of certain shareholders as provided above, a court
may still approve the merger upon the request of holders of at least 25% of the voting rights of a company if the court holds that the merger is fair and reasonable, taking into account the value
of the parties to the merger and the consideration offered to the shareholders.
Upon the request of a creditor of either party to the proposed merger, the court may delay or prevent the merger if it concludes that there exists a reasonable concern that, as a result of
the merger, the surviving company will be unable to satisfy the obligations of any of the parties to the merger, and may further give instructions to secure the rights of creditors.
In addition, a merger may not be completed unless at least 50 days have passed from the date that a proposal for approval of the merger was filed by each party with the Israeli Registrar
of Companies and 30 days have passed from the date the merger was approved by the shareholders of each of the merging companies.
Anti-Takeover Measures Under Israeli Law. The Companies Law allows us to create and issue shares having rights different from those attached to our ordinary shares, including
shares providing certain preferred rights, distributions or other matters and shares having preemptive rights. As of the date of this annual report, we do not have any authorized or issued shares
other than our ordinary shares. In the future, if we do create and issue a class of shares other than ordinary shares, such class of shares, depending on the specific rights that may be attached to
them, may delay or prevent a takeover or otherwise prevent our shareholders from realizing a potential premium over the market value of their ordinary shares. The authorization of a new class of
shares will require an amendment to our articles of association which requires the prior approval of the holders of a majority of our ordinary shares at a general meeting.
Tax Law. Israeli tax law treats some acquisitions, such as a stock-for-stock swap between an Israeli company and a foreign company, less favorably than U.S. tax law. For example, Israeli
tax law may subject a shareholder who exchanges his ordinary shares for shares in a foreign corporation to immediate taxation. Please see Item 10E. “Taxation”.
The Centralization Law. The Israeli parliament (the Knesset) approved the new Promotion of Competition and Reduction of Centralization Law, 5774-2013, or the Centralization Law,
which, among others, imposes new constraints and stricter corporate governance rules on pyramid conglomerates, and forces separation between equity holdings in significant non-financial
corporate businesses and equity holdings in significant financial businesses. The Centralization Law has entered into force on December 11, 2013.
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10.C. MATERIAL CONTRACTS
Swiss Pro Capital Limited
On March 1, 2010, the Company’s subsidiary in Luxembourg Optibase RE 1 SARL or Optibase RE 1 entered into an Option Agreement, or the Option Agreement, with a Cypriot
company, Swiss Pro, with respect to a commercial building acquired by the Company in October, 2009 in Rümlang, Switzerland. Through its beneficial owner, Swiss Pro introduced Optibase to
the Rümlang property and facilitated Optibase’s acquisition and financing of the property. Under the Option Agreement, Optibase RE 1 granted Swiss Pro an option to purchase twenty percent
(20%) of the share capital of Optibase RE 1. Swiss Pro undertook to pay a purchase price for the option of CHF 315,000 for the option. The exercise price under the Option Agreement is
calculated based on twenty percent (20%) Optibase’s acquisition costs for the Rümlang Property plus interest and an adjustment for proceeds that are distributed to the shareholders of Optibase
RE 1. The shares that would be issued to Swiss Pro upon exercise of the option will not have voting rights and would be subject to transfer restrictions in favor of Optibase. The option granted
under the Option Agreement will expire within eight years from the entrance into the agreement, i.e.: in October, 2017.
Shareholders Agreement with The Phoenix
In connection with the purchase of the office complex in Geneva, Switzerland, we and The Phoenix entered on February 8, 2011 into a Shareholders Agreement regarding our joint
shareholdings in OPCTN. The Shareholders Agreement provides that Optibase will manage the day-to-day operations of OPCTN and Eldista but that certain actions of OPCTN and Eldista are
subject to the joint approval of and The Phoenix. These actions include amendments to organizational documents, changes to business activity, financing arrangements, related party
agreements, lease agreements exceeding twenty five percent of the leasable area of the Property, and requesting investments from shareholders in excess of CHF one million in a given year and
CHF 2.5 million in aggregate.
The Shareholders Agreement also provides that Optibase and The Phoenix will fund operating expenses and necessary capital expenditures for the Property that are not adequately
funded by operating income, up to an amount of CHF two million per event or CHF five million per event if the capital expenditures are recommended by a third-party building engineering
company. If we or The Phoenix do not provide our respective share of these expenses, the Shareholders Agreement provides that the OPCTN shareholdings (and shareholders loans) of the non-
funding shareholder ownership will be diluted.
The Shareholders Agreement prohibited us and The Phoenix from transferring shares in OPCTN until March 2012 and provides that any transfer of shares thereafter (other than to a
related party) is subject to the reasonable approval of Optibase and The Phoenix. In addition, the Shareholders Agreement includes right of first offer, tag along and drag along rights in favor of
both Optibase and The Phoenix. The agreement provides that Optibase will make day-to-day decisions and provides The Phoenix with customary protective rights.
German Commercial Properties Portfolio
On December 18, 2014, our wholly owned European subsidiary, Optibase Bavaria GmbH & Co. KG, or Optibase Bavaria, entered into a purchase agreement with Lincoln Dreizehnte
Deutche Grundstucksgellschaft GmbH and Lincoln Land Passau GmbH, unrelated third parties, or the Sellers, to acquire a retail portfolio of twenty-six (26) separate commercial properties in
Bavaria, Germany, and one (1) commercial property in Saxony, Germany, or the Transaction Portfolio. On June 2, 2015 Optibase Bavaria completed the acquisition of twenty-five (25) supermarkets
from the Seller and on July 8, 2015 Optibase Bavaria completed the acquisition of two (2) supermarkets. The two acquisitions completes the purchase of twenty-seven (27) supermarkets.
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Purchase Price
The total purchase price paid by us to the Sellers at the closings of the transaction, was EUR 28.75 million (app. $31.5 million) (EUR 24 million for the twenty-five supermarkets and
additional EUR 4.75 million for the two supermarkets), or the Purchase Price. In addition to the Purchase Price, we incurred acquisition costs, including real estate transfer taxes, of approximately
EUR 2.1 million (app. $2.4 million).
We financed a portion of the Purchase Price with the proceeds of a EUR 20 million senior mortgage loan from DG HYP secured by the Transaction Portfolio (as detailed above), and the
remaining part through a contribution of equity in part from working capital and in part by obtaining additional financing.
Properties
In general, the Transaction Portfolio, which represents a homogenous retail portfolio in established retail locations, has approximately 37,000 square meters of total rental space and
currently generates annual net rental income of more than EUR 3 million (approximately $3.6 million). The properties have an average occupancy rate of more than 90% of the total rental area, and
an average remaining lease term of approximately seven years.
Upon the acquisition of the Transaction Portfolio, Optibase Bavaria was assigned the Sellers’ rights and obligations under the leases. The tenants currently operating on Transaction
Portfolio include 26 supermarket, and one commercial building with mixed retail and office uses. The largest tenant in the Transaction Portfolio is EDEKA Handelsgesellschaft Südbayern mbH, or
Edeka, one of the largest supermarket chain in the German market, currently leases 19 of the rental properties in the Transaction Portfolio. In addition to the hypermarkets and supermarkets,
smaller shops (such as bakeries and post offices) operate on several locations as subtenants of Edeka.
Leases
Optibase Bavaria accepted the assignment of the Sellers’ rights and obligations under the leasehold estate agreements in respect of the properties, as of the effective date of the
purchase agreement, and the Sellers were released from all rights and claims of the tenants and future tenants relating to the period after the respective closing dates. Optibase Bavaria retained
EUR 295,979 of the Purchase Price (i.e. one gross monthly payment from all the lease agreements acquired) to apply to any amounts which tenants erroneously pay to the Sellers. All rental
deposits paid by the tenants up until the effective date were transferred by the Sellers to Optibase Bavaria.
Property-Related Agreements
Upon the closing of the Transaction Portfolio, Optibase Bavaria assumed the Sellers’ rights and obligations under certain services and property management agreements.
Under the terms of a Property Management Agreement, McCafferty Asset Management GmbH, or the Manager, manages the Transaction Portfolio for Optibase Bavaria. The property
management agreement provides for payment of a yearly property management fee equal to two and one half percent (2.5%) of the net rental income of the Transaction Portfolio. Under the terms
of an Asset Management Agreement between Optibase Bavaria and the Manager, the Manager provides asset management services for the Transaction Portfolio and is paid two and one half
percent (2.5%) of the net rental income of the Transaction Portfolio, payable monthly in arrears within 10 business days of receipt of the invoice of a statement showing a detailed calculation of
the fee.
Insurance
Optibase Bavaria obtained its own insurance for the Transaction Portfolio from the closing dates of the Transaction Portfolio.
South Riverside Plaza Office Tower, Chicago
On December 29, 2015 our wholly owned Delaware subsidiary, Optibase Chicago 300 LLC, or Optibase Chicago, completed an investment of 30% interest in 300 River Holdings, LLC, or
the Joint Venture Company, which beneficially owns the rights to a 23-story Class A office building, located at 300 South Riverside Plaza in Chicago, or the Property. The Property is under a
99 year ground lease expiring in 2114.
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The remaining 70% of the Joint Venture Company is owned by 300 River Plaza One LLC.As part of this transaction, WKEM Riverside Member LLC, or the Outgoing Member, redeemed
its 30% interest in the Joint Venture Company.
Investment Amount
We have invested $12.9 million, or the Invested Amount, in exchange for a thirty percent (30%) interest in the Joint Venture Company. In addition to the Investment Amount, we
incurred acquisition costs of approximately $242,000.
On June 17, 2016, and in accordance with our initial investment agreement in 300 South Riverside Plaza, Chicago, we have invested an additional amount of $3 million which accrues
interest of 12% per annum which was distributed back to the Company on November 21, 2017.
Property
In general, the Property is a 23-story, trophy Class A office building located in Chicago’s premier West Loop submarket and encompasses approximately 1.1 million square feet of total
rental space, of which 98% was occupied at the purchase date. As of the purchase date, the Property generated annual net rental income of $17.4 million.
The largest tenant in the Property was JP Morgan, which at the date of the purchase leased 486,000 square feet or 46% of the Property. In addition, there are also smaller tenants and
retail tenants. JP Morgan has exercised its option to terminate its entire office space at no penalty after September 2016.
Management
The Joint Venture Partner serves as the Managing and generally has the authority to make decisions on behalf of the Company, subject to certain approval rights of Optibase Chicago
set forth in the Operating Agreement of the Joint Venture Company.
Debt
As a part of the transaction, the Joint Venture Company executed a promissory notes in favor of the Joint Venture Partner in the amount of $42 million with no maturity date and in favor
of the Outgoing Member in the amount of $18 million with a maturity date of 7 years. The interest rate for both notes compounds annually and is equal to four percent (4%) for the first three (3)
years, five percent (5%) for the fourth (4th) year, six percent (6%) for the fifth (5th) year, and twelve percent (12%) from and following the sixth (6th) year. All payments to be made under the note
will be made from and subject to net cash flow of the Joint Venture Company.
The Joint Venture Company will also seek to fund anticipated tenant improvements through the issuance of up to $40 million of promissory notes, or the Senior Notes, of which
Optibase will have the right (but not the obligation) to fund up to 30%. Such promissory notes will rank ahead of the abovementioned promissory notes in favor of the Joint Venture Partner and
the Outgoing Member. It is anticipate that the Senior Notes will have a term of six (6) years and an interest rate of twelve percent (12%) per annum, compounding annually.
On June 17, 2016, and in accordance with our initial investment agreement in 300 South Riverside Plaza, Chicago, we have invested an additional amount of $3 million which accrues
interest of 12% per annum which was distributed back to the Company on November 21, 2017.
Financing Agreements
For a summary of the principal terms of our material financing agreements, see Item 5.B "Operating and Financial Review and Prospects - Liquidity and Capital Resources".
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10.D. EXCHANGE CONTROLS
Israeli law and regulations do not impose any material foreign exchange restrictions on non- Israeli holders of our ordinary shares. In May 1998, a new “general permit” was issued under
the Israeli Currency Control Law, 1978, which removed most of the restrictions that previously existed under the law and enabled Israeli citizens to freely invest outside of Israel and freely
convert Israeli currency into non- Israeli currencies.
Dividends, if any, paid to holders of our ordinary shares, and any amounts payable upon our dissolution, liquidation or winding up, as well as the proceeds of any sale in Israel of our
ordinary shares to an Israeli resident, may be paid in non- Israeli currency or, if paid in Israeli currency, may be converted into freely repatriable dollars at the rate of exchange prevailing at the
time of conversion.
Under Israeli law (and our memorandum and articles of association), persons who are neither residents nor nationals of Israel may freely hold, vote and transfer ordinary shares in the
same manner as Israeli residents or nationals. Subject to anti-terror legislations, there are no limitations on the rights of non-resident or foreign owners to hold or vote ordinary shares imposed
under Israeli law or under our articles of association.
10.E. TAXATION
The following is a discussion of tax consequences material to us and our Israeli and U.S. shareholders. To the extent the discussion is based on new tax legislation, which has not been
subject to judicial or administrative interpretation, we cannot assure you that the tax authorities or the courts will accept the views expressed in this section. The discussion is not intended,
and should not be construed, as legal or professional tax advice and does not exhaust all possible tax considerations. Holders of our ordinary shares should consult their own tax advisors as to
the United States, Israeli or other tax consequences of the purchase, ownership and disposition of ordinary shares, including, in particular, the effect of any non-U.S., state or local taxes.
Israeli taxation
General Corporate Tax Structure in Israel
Israeli companies are generally subject to corporate tax on their taxable income. As of 2017, the corporate tax rate is 24% (in 2015 and 2016, the corporate tax rate was 26.5% and 25%,
respectively). In December 2016, the Israeli Parliament approved the Economic Efficiency Law (Legislative Amendments for Applying the Economic Policy for the 2017 and 2018 Budget Years),
which reduces the corporate income tax rate to 24% (instead of 25%) effective from January 1, 2017 and to 23% effective from January 1, 2018.
Israeli Tax Consequences for Our Shareholders
The following description is not intended to constitute a complete analysis of all tax consequences relating to the acquisition, ownership and disposition of our ordinary shares. You
should consult your own tax advisor concerning the tax consequences of your particular situation, as well as any tax consequences that may arise under the laws of any state, local, foreign or
other taxing jurisdiction.
Certain Israeli Tax Consequences
This summary does not discuss all the aspects of Israeli tax law that may be relevant to a particular investor in light of his or her personal investment circumstances or to some types of
investors subject to special treatment under Israeli law. Examples of such investors include residents of Israel or traders in securities who are subject to special tax regimes not covered in this
discussion. Because parts of this discussion are based on new tax legislation that has not yet been subject to judicial or administrative interpretation, we cannot assure you that the appropriate
tax authorities or the courts will accept the views expressed in this discussion. The discussion below is subject to change, including due to amendments under Israeli law or changes to the
applicable judicial or administrative interpretations of Israeli law, which change could affect the tax consequences described below.
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Capital Gains Taxes Applicable to Non Israeli Resident Shareholders.
A non Israeli resident who derives capital gains from the sale of shares in an Israeli resident company that were purchased after the company was listed for trading on a stock exchange
outside of Israel should be exempt from Israeli tax so long as the shares were not held through a permanent establishment that the nonresident maintains in Israel. However, non Israeli
corporations will not be entitled to the foregoing exemption if Israeli residents: (i) have a controlling interest of 25% or more in such non Israeli corporation or (ii) are the beneficiaries of, or are
entitled to, 25% or more of the revenues or profits of such non Israeli corporation, whether directly or indirectly. Such exemption is not applicable to a person whose gains from selling or
otherwise disposing of the shares are deemed to be a business income.
Additionally, a sale of shares by a non Israeli resident may be exempt from Israeli capital gains tax under the provisions of an applicable tax treaty. For example, under the United States
Israel Tax Treaty, the disposition of shares by a shareholder who (i) is a U.S. resident (for purposes of the treaty), (ii) holds the shares as a capital asset, and (iii) is entitled to claim the benefits
afforded to such person by the treaty, is generally exempt from Israeli capital gains tax. Such exemption will not apply if: (i) the capital gain arising from the disposition can be attributed to a
permanent establishment in Israel; (ii) the shareholder holds, directly or indirectly, shares representing 10% or more of the voting capital during any part of the 12 month period preceding the
disposition, subject to certain conditions; or (iii) such U.S. resident is an individual and was present in Israel for a period or periods aggregating to 183 days or more during the relevant taxable
year. In such case, the sale, exchange or disposition of our ordinary shares would be subject to Israeli tax, to the extent applicable; however, under the United States Israel Tax Treaty, the
taxpayer would be permitted to claim a credit for such taxes against the U.S. federal income tax imposed with respect to such sale, exchange or disposition, subject to the limitations under U.S.
law applicable to foreign tax credits. The United States Israel Tax Treaty does not relate to U.S. state or local taxes.
In some instances where our shareholders may be liable for Israeli tax on the sale of their ordinary shares, the payment of the consideration may be subject to the withholding of Israeli
tax at source. Shareholders may be required to demonstrate that they are exempt from tax on their capital gains in order to avoid withholding at source at the time of sale. Specifically, in
transactions involving a sale of all of the shares of an Israeli resident company, in the form of a merger or otherwise, the Israel Tax Authority may require from shareholders who are not liable for
Israeli tax to sign declarations in forms specified by this authority or obtain a specific exemption from the Israel Tax Authority to confirm their status as non Israeli resident, and, in the absence of
such declarations or exemptions, may require the purchaser of the shares to withhold taxes at source.
Taxation of Non Israeli Shareholders on Receipt of Dividends.
Non-Israeli residents are generally subject to Israeli income tax on the receipt of dividends paid on our ordinary shares at the rate of 25%, unless relief is provided in a treaty between
Israel and the shareholder’s country of residence. With respect to a person who is a “substantial shareholder” at the time of receiving the dividend or on any time during the preceding twelve
months, the applicable tax rate is 30%. A “substantial shareholder” is generally a person who alone or together with such person’s relative or another person who collaborates with such person
on a permanent basis, holds, directly or indirectly, at least 10% of any of the “means of control” of the corporation. “Means of control” generally include the right to vote, receive profits,
nominate a director or an executive officer, receive assets upon liquidation, or order someone who holds any of the aforesaid rights how to act, regardless of the source of such right. However, a
distribution of dividends to non-Israeli residents is subject to withholding tax at source at a rate of 15% if the dividend is distributed from income attributed to an Approved Enterprise or a
Benefited Enterprise or 20% if the dividend is distributed from income attributed to a Preferred Enterprise, unless a reduced tax rate is provided under an applicable tax treaty. Dividends paid on
publicly traded shares, which are registered with and held by a nominee company, to non-Israeli residents are generally subject to Israeli withholding tax at a rate of 25%, unless a different rate is
provided under an applicable tax treaty, provided that a certificate from the Israel Tax Authority allowing for a reduced withholding tax rate is obtained in advance. Under the United States-Israel
Tax Treaty, the maximum rate of tax withheld at source in Israel on dividends paid to a holder of our ordinary shares who is a U.S. resident (for purposes of the United States-Israel Tax Treaty) is
25%.
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U.S. residents who are subject to Israeli withholding tax on a dividend may be entitled to a credit or deduction for United States federal income tax purposes in the amount of the taxes
withheld, subject to detailed rules contained in U.S. tax legislation.
Excess Tax.
Beginning on January 1, 2013, individuals who are subject to tax in Israel are also subject to an additional tax at a rate of 2% on annual income exceeding 803,520 for 2016 (and as of 2017,
the additional tax will be at a rate of 3% on annual income exceeding NIS 640,000), which amount is linked to the annual change in the Israeli consumer price index, including, but not limited to,
dividends, interest and capital gain.
United States Federal Income Tax Consequences
The following is a summary of certain material U.S. federal income tax consequences that apply to U.S. Holders who hold ordinary shares as capital assets. This summary is based on the
United States Internal Revenue Code of 1986 or the Code, as amended, Treasury regulations promulgated thereunder, judicial and administrative interpretations thereof, and the U.S.-Israel Tax
Treaty, all as in effect on the date hereof and all of which are subject to change either prospectively or retroactively. This summary does not address all tax considerations that may be relevant
with respect to an investment in ordinary shares. This summary does not account for the specific circumstances of any particular investor, such as:
v
v
v
v
v
v
v
v
v
broker-dealers,
financial institutions,
certain insurance companies,
investors liable for alternative minimum tax,
tax-exempt organizations,
non-resident aliens of the U.S. or taxpayers whose functional currency is not the U.S. dollar,
persons who hold the ordinary shares through partnerships or other pass-through entities,
investors that actually or constructively own 10 percent or more of our voting shares, and
investors holding ordinary shares as part of a straddle or a hedging or conversion transaction.
This summary does not address the effect of any U.S. Federal taxation other than U.S. Federal income taxation. In addition, this summary does not include any discussion of state, local
or foreign taxation. You are urged to consult your tax advisors regarding the non-U. S. and United States federal, state and local tax considerations of an investment in ordinary shares.
v
v
v
v
v
For purposes of this summary, a U.S. Holder is:
an individual who is a citizen or, a resident of the United States for U.S. federal income tax purposes;
a partnership, corporation or other entity created or organized in or under the laws of the United States or any political subdivision thereof;
an estate whose income is subject to U.S. federal income tax regardless of its source;
a trust if: (a) a court within the United States is able to exercise primary supervision over administration of the trust, and (b) one or more United States persons have the authority to control
all substantial decisions of the trust; or
a trust, if the trust were in existence and qualified as a “United States person,” within the meaning of the Code, on August 20, 1996 under the law as then in effect and elected to continue to
be so treated.
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Additional Tax on Investment Income
In addition to the income taxes described above, U.S. holders that are individuals, estates or trusts and whose income exceeds certain thresholds will be subject to a 3.8% Medicare
contribution tax on net investment income, which includes dividends and capital gains.
Taxation of Dividends
The gross amount of any distributions received with respect to ordinary shares, including the amount of any Israeli taxes withheld therefrom, will constitute dividends for U.S. Federal
income tax purposes, to the extent of our current and accumulated earnings and profits as determined for U.S. federal income tax principles. You will be required to include this amount of
dividends in gross income as ordinary income. Distributions in excess of our earnings and profits will be treated as a non-taxable return of capital to the extent of your tax basis in the ordinary
shares and any amount in excess of your tax basis, will be treated as gain from the sale of ordinary shares. See Item 10.D. “Exchange Controls” under the heading “Disposition of Ordinary
Shares” below for the discussion on the taxation of capital gains. Dividends will not qualify for the dividends-received deduction generally available to U.S. corporations under Section 243 of the
Code.
Certain dividend income received by individual U.S. Holders, may be eligible for a reduced rate of taxation. Such dividend income will be taxed at the applicable long-term capital gains
rate (currently, a maximum rate of 20%) if the dividend is received from a “qualified foreign corporation,” and the shareholder of such foreign corporation holds such stock for at least 61 days
during the 121-day period that begins on the date that is 60 days before the ex-dividend date for the stock. The holding period is tolled for any days on which the shareholder has reduced his
risk of loss. A “qualified foreign corporation” is one that is eligible for the benefits of a comprehensive income tax treaty with the United States. A foreign corporation will be treated as qualified
with respect to any dividend paid, if its stock is readily tradable on an established securities market in the United States. Dividend income will not qualify for the reduced rate of taxation if the
corporation is a passive foreign investment company, or PFIC (see below), for the year in which the dividend is distributed or for the previous year.
Dividends that we pay in NIS, including the amount of any Israeli taxes withheld therefrom, will be included in your income in a U.S. dollar amount calculated by reference to the
exchange rate in effect on the day such dividends are received. A U.S. Holder who receives payment in NIS and converts NIS into U.S. dollars at an exchange rate other than the rate in effect on
such day may have a foreign currency exchange gain or loss that would be treated as U.S. source ordinary income or loss. U.S. Holders should consult their own tax advisors concerning the U.S.
tax consequences of acquiring, holding and disposing of NIS.
Any Israeli withholding tax imposed on such dividends will be a foreign income tax eligible for credit against a U.S. Holder’s U.S. federal income tax liability, subject to certain limitations
set out in the Code (or, alternatively, for deduction against income in determining such tax liability). The limitations set out in the Code include computational rules under which non-U.S. tax
credits allowable with respect to specific classes of income cannot exceed the U.S. federal income taxes otherwise payable with respect to each such class of income. Dividends generally will be
treated as foreign-source passive income for United States foreign tax credit purposes. Foreign income taxes exceeding the credit limitation for the year of payment or accrual may be carried back
for the first preceding taxable years and forward for the first ten taxable years in order to reduce U.S. federal income taxes, subject to the credit limitation applicable in each of such years. A U.S.
Holder will be denied a foreign tax credit with respect to Israeli income tax withheld from dividends received on the ordinary shares to the extent such U.S. Holder has not held the ordinary shares
for at least 16 days of the 31-day period beginning on the date which is 15 days before the ex-dividend date or to the extent such U.S. Holder is under an obligation to make related payments with
respect to substantially similar or related property. Any days during which a U.S. Holder has substantially diminished its risk of loss on the ordinary shares are not counted toward meeting the
16-day holding period required by the statute. The rules relating to the determination of the foreign tax credit are complex, and you should consult with your personal tax advisors to determine
whether and to what extent you would be entitled to this credit.
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Dispositions of Ordinary Shares
If you sell or otherwise dispose of ordinary shares, you will recognize gain or loss for U.S. Federal income tax purposes in an amount equal to the difference between the amount realized
on the sale or other disposition and the adjusted tax basis in ordinary shares. Subject to the discussion below under the heading “Passive Foreign Investment Companies,” such gain or loss
generally will be capital gain or loss and will be long-term capital gain or loss if you have held the ordinary shares for more than one year at the time of the sale or other disposition. In general,
any gain that you recognize on the sale or other disposition of ordinary shares will be U.S.-source for purposes of the foreign tax credit limitation; losses will generally be allocated against U.S.
source income. Deduction of capital losses is subject to certain limitations under the Code.
In the case of a cash basis U.S. Holder who receives NIS in connection with the sale or disposition of ordinary shares, the amount realized will be based on the U.S. dollar value of the
NIS received with respect to the ordinary shares as determined on the settlement date of such exchange. A U.S. Holder who receives payment in NIS and converts NIS into United States dollars
at a conversion rate other than the rate in effect on the settlement date may have a foreign currency exchange gain or loss that would be treated as U.S. source ordinary income or loss.
Passive Foreign Investment Companies, or PFIC
There is a substantial risk that we are a passive foreign investment company, or PFIC, for U.S. federal income tax purposes. Our treatment as a PFIC could result in a reduction in the
after-tax return to the U.S. Holders of our ordinary shares and may cause a reduction in the value of such shares.
For U.S. federal income tax purposes, we will be classified as a PFIC for any taxable year in which either (i) 75% or more of our gross income is passive income, or (ii) the average
percentage of the value of all of our assets for the taxable year which produce or are held for the production of passive income is at least 50%. For this purpose, cash and real estate properties are
considered to be an asset which produces passive income. Passive income includes, among others, dividends, interest, certain types of royalties and rents, annuities, net foreign exchange gains
and losses and the excess of gains over losses from the disposition of assets which produce passive income. As a result of our substantial cash position and the decline in the value of our
stock, we may be a PFIC under a literal application of the asset test that looks solely to market value. If we are a PFIC for U.S. federal income tax purposes, U.S. Holders of our ordinary shares
would be required, in certain circumstances, to pay an interest charge together with tax calculated at maximum rates on certain “excess distributions,” including any gain on the sale of ordinary
shares.
The consequences described above can be mitigated if the U.S. Holder makes an election to treat us as a qualified electing fund, or QEF. A shareholder making the QEF election is
required for each taxable year to include in income a pro rata share of the ordinary earnings and net capital gain of the QEF, subject to a separate election to defer payment of taxes, which deferral
is subject to an interest charge. We have agreed to supply U.S. Holders with the information needed to report income and gain pursuant to a QEF election. The QEF election is made on a
shareholder-by-shareholder basis and can be revoked only with the consent of the Internal Revenue Service, or IRS.
As an alternative to making the QEF election, the U.S. Holder of PFIC stock which is publicly traded could mitigate the consequences of the PFIC rules by electing to mark the stock to
market annually, recognizing as ordinary income or loss each year an amount equal to the difference as of the close of the taxable year between the fair market value of the PFIC stock and the
U.S. Holder's adjusted tax basis in the PFIC stock. Losses would be allowed only to the extent of net mark-to-market gain previously included by the U.S. Holder under the election for prior
taxable years. All U.S. Holders are advised to consult their own tax advisers about the PFIC rules generally and about the advisability, procedures and timing of their making any of the available
tax elections, including the QEF or mark-to-market elections.
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Backup Withholding and Information Reporting
Payments in respect of ordinary shares may be subject to information reporting to the U.S. Internal Revenue Service and to a 28 percent U.S. backup withholding tax. Backup
withholding will not apply, however, if you (i) are a corporation or come within certain exempt categories, and demonstrate the fact when so required, or (ii) furnish a correct taxpayer
identification number and make any other required certification. Backup withholding is not an additional tax. Amounts withheld under the backup withholding rules may be credited against a U.S.
Holder’s U.S. tax liability, and a U.S. Holder may obtain a refund of any excess amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the IRS. Any
U.S. holder who holds 10% or more in vote or value of our ordinary shares may be subject to certain additional United States information reporting requirements.
U.S. Gift and Estate Tax
An individual U.S. Holder of ordinary shares will be subject to U.S. gift and estate taxes with respect to ordinary shares in the same manner and to the same extent as with respect to
other types of personal property.
Other Income Tax
Taxable income of the Company's subsidiary in Luxemburg, Switzerland and the United States is subject to tax at the rate of approximately 29%, 24% and 34% respectively in 2017.
10.F. DIVIDEND AND PAYING AGENTS
Not applicable.
10.G. STATEMENT BY EXPERTS
Not applicable.
10.H. DOCUMENTS ON DISPLAY
Reports and other information of Optibase filed electronically with the SEC may be found at www.sec.gov. They can also be inspected without charge and copied at prescribed rates at
the public reference facilities maintained by the SEC Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Copies of this material are also available by mail from the Public
Reference Room at 100 F Street, NE, Washington, D.C. 20549, at prescribed rates.
10.I. SUBSIDIARY INFORMATION
Not applicable.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Most of our revenues are generated in CHF but a portion of our expenses is incurred in NIS and in U.S. dollars. Therefore, our results of operations may be seriously harmed by inflation
in Israel and currency fluctuations. In addition, following the closing of the Transaction Portfolio in Germany as detailed in Item 10.C. “Material Contracts” above, our results of operations will be
exposed to fluctuations in the exchange rate of NIS against the U.S. dollar and against the EUR as well.
The deflation rate in Israel was approximately (1)% and (0.2)% in 2015 and 2016, respectively, and an inflation rate of approximately 0.4% in 2017. The changes of the NIS against the
dollar was a devaluation of approximately (0.3)% in 2015 and appreciation of approximately 1.5% and 9.8% in 2016 and 2017, respectively. The change of the CHF against the dollar was a
devaluation of approximately (0.2)% and (2.8)% in 2015 and 2016, respectively, and an appreciation of approximately 4.4% in 2017. The change of the Euro against the dollar was a devaluation of
approximately (10)% and (3.6)% in 2015 and 2016, respectively, and an appreciation of approximately 13.7% in 2017.
- 92 -
Our operations could be adversely affected if we are unable to guard against currency fluctuations in the future. Accordingly, we may enter into currency hedging transactions to
decrease the risk of financial exposure from fluctuations in the exchange rate of NIS against the U.S. dollar and against the CHF and against the EUR. These measures, however, may not
adequately protect us from material adverse effects due to the impact of inflation in Israel.
The presentation currency of the financial statements is the U.S. dollar.
Our functional currency is the U.S Dollar.
The functional currencies of Optibase’s subsidiaries are CHF, EUR and U.S dollar. Assets and liabilities of these subsidiaries are translated at the year-end exchange rates and their
statement of operations items are translated using the average exchange rates for all periods presented. The resulting translation adjustments are recorded as a separate component of
accumulated other comprehensive income in shareholders' equity.
In February 2016, we entered into a hedging of cross currency interest rate swap transaction for the total amount of approximately NIS 34.2 million at fixed interest rate of 6.7% in
exchange for approximately $8.7 million at fixed interest rate of 7.95% with semi-annually payments commencing on June 2016 through December 2021, the termination date.
Interest Rate and Rating Risks
Our exposure to market risk for changes in interest rates in Switzerland relates primarily to our long term loan taken for the purchase of our real-estate property in Switzerland and
denominated in Swiss Franks (CHF). Changes in Swiss interest rates, could affect our financial results.
Investments Risks
As of December 31, 2017, our available net cash was $20.3 million. As of December 31, 2017, our available cash was invested in various bank deposits and money market funds with
various banks. Our available cash is subject to the credit risk of the banks with which the funds are deposited and as such we may suffer losses if those banks fail to repay those deposits.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable. For a description of our Series A Bonds see “Item 5.B: Operating and Financial Review and Prospects - Liquidity and Capital Resources”.
- 93 -
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
Not applicable.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
Not applicable.
ITEM 15. CONTROLS AND PROCEDURES
(a) Our management, including our chief executive officer and chief financial officer, has evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2017.
Based on such review, our chief executive officer and chief financial officer have concluded that we have in place effective controls and procedures designed to ensure that information required
to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to our management, including our principal
executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure, and is recorded, processed, summarized
and reported, within the time periods specified in the SEC’s rules and forms.
(b) Our management, under the supervision of our chief executive officer and chief financial officer, is responsible for establishing and maintaining adequate internal control over our
financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934, as amended. The Company’s internal control over financial reporting is defined as a process
designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. Internal control over financial reporting includes policies and procedures that:
•
•
•
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and asset dispositions;
provide reasonable assurance that transactions are recorded as necessary to permit the preparation of our financial statements in accordance with generally accepted accounting
principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on our financial
statements.
Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we evaluated the effectiveness of our internal
control over financial reporting as of December 31, 2017 based on the framework for Internal Control-Integrated Framework (1992) set forth by The Committee of Sponsoring Organizations of the
Treadway Commission. Based on this evaluation, our management concluded that the Company’s internal controls over financial reporting were effective as of December 31, 2017.
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting, because we are neither a “large
accelerated filer” nor an “accelerated filer” as those terms are defined in the Securities Exchange Act.
- 94 -
(c) There were no changes in our internal controls over financial reporting identified with the evaluation thereof that occurred during the period covered by this annual report that have
materially affected, or are reasonable likely to materially affect our internal control over financial reporting.
ITEM 16. [RESERVED]
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
The board of directors has determined that Ms. Orli Garti-Seroussi is an “audit committee financial expert” and that she is independent under the applicable Securities and Exchange
Commission and NASDAQ listing rules.
ITEM 16B. CODE OF ETHICS
We have adopted a Code of Business Conduct and Ethics for our employees, including our chief executive officer and senior financial officers. The Code of Business Conduct and
Ethics is attached as Exhibit 11.1 to this annual report, and published on our website in the address: http://www.optibase-holdings.com.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Kost, Forer Gabbay & Kasierer, a member of Ernst & Young Global, or Ernst & Young has served as our independent public accountants for each of the fiscal years in the three-year
period ended December 31, 2017, for which audited financial statements appear in this annual report on Form 20-F.
The following table presents the aggregate fees for professional services and other services rendered by Kost, Forer Gabbay & Kasierer in Israel and by Ernst & Young in Switzerland
and in the United States, to Optibase in 2016 and 2017 (in thousands of dollars):
Audit fees (1)
Audit-related fees (2)
Tax fees (3)
Total
2016
2017
95
5
56
156
111
5
42
158
_______________________
(1) Audit fees consist of fees billed for the annual audit services engagement and other audit services, which are those services that only the external auditor can reasonably provide, and
include the group audit; statutory audits; comfort letters and consents; attest services; and assistance with and review of documents filed with the SEC.
(2) Audit-related fees consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements or that are
traditionally performed by the external auditor, and include consultations concerning financial accounting and reporting standards; internal control reviews of new systems, programs and
projects; review of security controls and operational effectiveness of systems; review of plans and control for shared service centers, due diligence related to acquisitions; accounting
assistance and audits in connection with proposed or completed acquisitions; and employee benefit plan audits.
(3) Tax fees include fees billed for tax compliance services, including the preparation of original and amended tax returns and claims for refund; tax consultations, such as assistance and
representation in connection with tax audits and appeals, tax advice related to mergers and acquisitions, transfer pricing, and requests for rulings or technical advice from taxing authority;
tax planning services; and expatriate tax planning and services.
- 95 -
Audit Committee Pre-approval Policies and Procedures
Our audit committee's main role is to assist the board of directors in fulfilling its responsibility for oversight of the quality and integrity of the accounting, auditing and reporting
practices of the Company. Our audit committee oversees the appointment, compensation, and oversight of the public accounting firm engaged to prepare or issue an audit report on the financial
statements of the Company. Our audit committee's specific responsibilities in carrying out its oversight role include the approval of all audit and non-audit services to be provided by the external
auditor and quarterly review the firm's non-audit services and related fees. These services may include audit services, audit-related services, tax services and other services, as described above.
It is the policy of our audit committee to approve in advance the particular services or categories of services to be provided to the Company periodically. Additional services may be pre-
approved by our audit committee on an individual basis during the year.
During 2016 and 2017, our audit committee approved all the audit-related fees, tax fees or other fees provided to us by Kost, Forer Gabbay & Kasierer in Israel or by Ernst & Young in
Switzerland and in the United States.
ITEM 16D. EXEMPTION FROM THE LISTING STANDARDS FOR AUDIT COMMITTEE
We have not and do not expect to apply for any exemptions from the NASDAQ listing standards for audit committees.
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
Not applicable.
ITEM 16F. CHANGES IN REGISTRANT’S CERTIFYING ACCOUNTANT
None.
ITEM 16G. CORPORATE GOVERNANCE
There are no significant ways in which the Company’s corporate governance practices differ from those followed by domestic companies listed on the Nasdaq Global Market.
ITEM 16H. MINE SAFETY DISCLOSURE
Not Applicable.
- 96 -
ITEM 17. FINANCIAL STATEMENTS
Not Applicable.
ITEM 18. FINANCIAL STATEMENTS
PART III
The financial statements required by this item are found at the end of this annual report, beginning on page F-1. The financial statements of 300 RIVER HOLDINGS, LLC are also
provided pursuant to Rule 3-09 of Regulation S-X.:
Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income
Statements of Changes in Shareholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Consolidated Financial Statements
Consolidated Financial Statements of 300 RIVER HOLDINGS, LLC
ITEM 19. EXHIBITS
See Exhibit Index.
- 97 -
Page
F-2
F-3 - F-4
F-5
F-6
F-7
F-8 - F-9
F-10 - F-43
Page
F-44 –F-58
OPTIBASE LTD. AND ITS SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2017
U.S. DOLLARS IN THOUSANDS
INDEX
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income
Statements of Changes in Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Page
F-2
F-3 - F-4
F-5
F-6
F-7
F-8 - F-9
F-10 - F-43
Kost Forer Gabbay & Kasierer
144 Menachem Begin Road, Building A
Tel-Aviv 6492102, Israel
Tel: +972-3-6232525
Fax: +972-3-5622555
ey.com
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of
Optibase LTD
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Optibase Ltd. and its subsidiaries (the "Company") as of December 31, 2017 and 2016, the related consolidated
statements of operations, comprehensive income, change in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2017, and the related notes
(collectively referred to as the "financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2017
and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.
We did not audit the financial statements of 300 RIVER HOLDINGS LLC ,an associate accounted for using the equity method, amounted to approximately $ 10,287 thousand as of
December 31, 2017, and the Company's share in its net loss amounted to approximately $ 1,797 thousand for the year ended December 31, 2017. Those statements were audited by other auditors,
whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for 300 RIVER HOLDINGS LLC, is based solely on the report of the other auditor.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits.
We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over
financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the
effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond
to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a
reasonable basis for our opinion.
KOST FORER GABBAY & KASIERER or /s/ KOST FORER GABBAY & KASIERER
A Member of Ernst & Young Global
We have served as the Company's auditor since at least 1997, but we are unable to determine the specific year.
Tel-Aviv, Israel
March 28, 2018
F - 2
CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Restricted cash
Trade receivables (net of allowance for doubtful accounts of $ 161 and $ 154 at December 31, 2017 and 2016, respectively)
Other accounts receivable and prepaid expenses
$
Total current assets
LONG-TERM INVESTMENTS:
Long-term deposits
Investments in companies and associates
Total long-term investments
PROPERTY AND OTHER ASSETS, NET
Real estate property, net
Other assets, net
Total property, equipment and other assets
Total assets
The accompanying notes are an integral part of the consolidated financial statements.
F - 3
OPTIBASE LTD.
AND ITS SUBSIDIARIES
December 31,
2017
2016
$
20,268
292
332
506
21,398
3,483
17,556
21,039
216,726
140
216,866
16,024
-
220
528
16,772
2,785
22,892
25,677
207,690
245
207,935
$
259,303
$
250,384
CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands (except share and per share data)
CURRENT LIABILITIES:
Current maturities of long-term loans and bonds
Other accounts payable and accrued expenses
Total liabilities attributed to discontinued operations
Total current liabilities
COMMITMENTS AND CONTINGENT LIABILITIES
LONG-TERM LIABILITIES:
Deferred tax liabilities
Land lease liability, net
Other Long-Term Liabilities
Loan from controlling shareholder
Long-term loans, net of current maturities
Long-term bonds, net of current maturities
Total long-term liabilities
SHAREHOLDERS' EQUITY:
Share capital -
Ordinary shares of NIS 0.65 par value -
Authorized: 6,000,000 shares at December 31, 2017 and 2016; Issued: 5,214,256 shares at December 31, 2017 and 2016;
Outstanding: 5,180,361 and 5,172,361 shares at December 31, 2017 and 2016, respectively
Additional paid-in capital
Treasury shares: 33,895 and 41,895 shares at December 31, 2017 and 2016, respectively
Other reserves
Accumulated deficit
Total shareholders' equity of Optibase Ltd.
Non-controlling interests
Total shareholders' equity
Total liabilities and shareholders' equity
The accompanying notes are an integral part of the consolidated financial statements.
March 28, 2018
Date of approval of the
financial statements
Amir Philips
Chief Executive Officer
F - 4
OPTIBASE LTD.
AND ITS SUBSIDIARIES
December 31,
2017
2016
$
$
6,048
4,362
2,061
12,471
14,042
6,295
294
4,886
135,774
8,473
169,764
10,360
4,254
2,061
16,675
13,620
6,133
407
-
129,261
10,160
159,581
993
993
138,170
(87)
9
(82,048)
57,037
20,031
77,068
138,155
(87)
(3,002)
(80,925)
55,134
18,994
74,128
$
259,303
$
250,384
Alex Hilman
Executive Chairman
of the Board
CONSOLIDATED STATEMENTS OF OPERATIONS
U.S. dollars in thousands (except share and per share data)
Fixed income from real estate rent
Costs and expenses:
Cost of real estate operations
Real estate depreciation and amortization
General and administrative
Other operating costs
Total costs and expenses
Operating income
Other income
Financial expenses, net
Income before taxes on income
Taxes on income
Equity share in losses of associates, net
Net income
Net income attributable to non-controlling interest
Net income (loss) attributable to Optibase Ltd.
Net earnings per share:
OPTIBASE LTD.
AND ITS SUBSIDIARIES
Year ended
December 31,
2016
2015
2017
$
16,587
$
16,338
$
15,273
3,057
4,209
2,698
-
9,964
6,623
597
(2,769)
4,451
(1,602)
(1,677)
1,172
2,295
3,159
4,244
2,615
-
10,018
6,320
1,116
(3,366)
4,070
(1,627)
(323)
2,120
1,925
2,958
3,925
1,849
2,352
11,084
4,189
429
(1,807)
2,811
(1,609)
(31)
1,171
2,239
$
(1,123) $
195
$
(1,068)
Basic and diluted net earnings (loss) per share
$
(0.22) $
0.04
$
(0.21)
Weighted average number of shares used in computing basic net earnings per share:
5,180,163
5,147,130
5,133,024
Weighted average number of shares used in computing diluted net earnings per share:
5,180,163
5,157,165
5,133,024
The accompanying notes are an integral part of the consolidated financial statements.
F - 5
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
U.S. dollars in thousands
Net income
Foreign currency translation adjustments
Financial liability related to hedging
Comprehensive income
Net earnings attributable to non-controlling interests
Other comprehensive loss (income) attributable to non-controlling interests
OPTIBASE LTD.
AND ITS SUBSIDIARIES
Year ended
December 31,
2016
2015
2017
$
1,172
$
2,120
$
1,171
3,357
113
4,642
(2,295)
(831)
(1,475)
(143)
502
(1,925)
522
(467)
(264)
440
(2,239)
46
(1,753)
Comprehensive income (loss) attributable to Optibase Ltd.
$
1,516
$
(901)
$
The accompanying notes are an integral part of the consolidated financial statements.
F - 6
OPTIBASE LTD.
AND ITS SUBSIDIARIES
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
U.S. dollars in thousands
Ordinary
shares
Additional
paid-in
capital
Treasury
shares
Other
reserves
Accumulated
deficit
Total
shareholders'
equity of
Optibase Ltd.
Non-
controlling
interests
Total
shareholders'
equity
Balance as of January 1, 2015
$
988
$
137,898
$
(554) $
(1,221) $
(79,672) $
57,439
$
19,636
$
77,075
Stock-based compensation
Issuance of treasury shares upon
vesting of shares
Dividend to non-controlling interests
Other comprehensive loss
Net income (loss)
-
-
-
-
-
98
(35)
-
-
-
-
200
-
-
-
-
-
-
(685)
-
-
98
(165)
-
-
(1,068)
-
-
(685)
(1,068)
-
-
(2,029)
(46)
2,239
98
-
(2,029)
(731)
1,171
Balance as of December 31, 2015
988
137,961
(354)
(1,906)
(80,905)
55,784
19,800
75,584
Stock-based compensation
Issuance of shares upon exercise of
stock options
Issuance of treasury shares upon
vesting of shares
Dividend to non-controlling interests
Other comprehensive loss
Net income
-
5
-
-
-
-
60
186
(52)
-
-
-
-
-
267
-
-
-
-
-
-
-
(1,096)
-
-
-
(215)
-
-
195
60
191
-
-
(1,096)
195
-
-
-
(2,209)
(522)
1,925
60
191
-
(2,209)
(1,618)
2,120
Balance as of December 31, 2016
993
138,155
(87)
(3,002)
(80,925)
55,134
18,994
74,128
Stock-based compensation
Dividend to non-controlling
interests
Other comprehensive income
Equity component of transaction with
controlling shareholder
Net income (loss)
-
-
-
-
-
15
-
-
-
-
-
-
-
-
-
-
-
2,639
372
-
-
-
-
-
(1,123)
15
-
2,639
372
(1,123)
-
(2,089)
831
-
2,295
15
(2,089)
3,470
372
1,172
Balance as of December 31, 2017
$
993
$
138,170
$
(87) $
9
$
(82,048) $
57,037
$
20,031
$
77,068
The accompanying notes are an integral part of the consolidated financial statements.
F - 7
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
Cash flows from operating activities:
OPTIBASE LTD.
AND ITS SUBSIDIARIES
Year ended
December 31,
2016
2015
2017
Net income
Adjustments required to reconcile net income to net cash provided by operating activities:
$
1,172
$
2,120
$
Depreciation and amortization
Stock-based compensation related to options and unvested shares
Decrease (increase) in trade receivables
Equity share in losses of associates, net
Increase (decrease) in deferred tax liabilities
Decrease in other short-term liabilities
Decrease in land lease liabilities
Decrease (increase) in other accounts receivable and prepaid expenses
Increase (decrease) in accrued expenses and other accounts payable
Net cash provided by continuing operations
Net cash used in discontinued operations
Net cash provided by operating activities
Cash flows from investing activities:
Investment in real estate property
Increase in restricted cash
Proceeds from (investments in) associates, net
Decrease (increase) in other long-term deposits
Acquisition of Optibase Bavaria (b)
Net cash provided by (used in) investing activities
The accompanying notes are an integral part of the consolidated financial statements.
.
F - 8
4,209
15
(112)
1,998
(169)
-
(106)
(791)
1,685
7,901
-
7,901
(2,195)
(292)
3,338
265
-
1,116
4,244
60
(46)
520
(177)
-
(107)
(370)
1,060
7,304
(48)
7,256
(2,450)
-
(2,749)
159
-
(5,040)
1,171
3,925
98
111
31
(48)
(538)
(109)
1,070
(1,687)
4,024
(44)
3,980
(2,215)
-
(13,142)
(2,616)
(31,473)
(49,446)
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
Cash flows from financing activities:
Repayment of long-term bank loans and bonds
Proceeds from bank loan
Proceeds from issuance of long-term bonds
Dividend paid to non-controlling interests
Proceeds from controlling shareholders' loan
Issuance of shares upon exercise of stock options
Net cash provided by (used in) financing activities
Exchange differences on balances of cash and cash equivalents
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
$
20,268
$
16,024
$
(a) Supplemental cash flow activities:
Cash paid during the year for:
Taxes
Interest
(b) Acquisition of Optibase Bavaria:
Real estate property
Other assets, net
Cash paid by the Company
The accompanying notes are an integral part of the consolidated financial statements.
F - 9
$
$
$
$
2,744
$
1,420
$
2,554
$
2,896
$
$
-
-
-
$
$
-
-
-
$
OPTIBASE LTD.
AND ITS SUBSIDIARIES
Year ended
December 31,
2016
2015
2017
(8,431)
-
-
(2,089)
5,118
-
(5,402)
629
4,244
16,024
(8,112)
530
-
(2,209)
-
191
(9,600)
(398)
(7,782)
23,806
(2,811)
36,969
15,045
(2,029)
-
-
47,174
(804)
904
22,902
23,806
3,971
1,795
31,399
74
31,473
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 1:-
GENERAL
OPTIBASE LTD.
AND ITS SUBSIDIARIES
a.
Optibase Ltd. (the "Company") was incorporated and commenced operations in 1990.
During 2009 the Company entered into the fixed-income real estate sector after an acquisition of a commercial building in Switzerland.
Until the sale of its video solutions business to VITEC Multimedia ("Vitec") in July 2010 (see Note 1d below), the Company and its U.S subsidiary, Optibase Inc., provided
equipment for a wide range of professional video applications in the Broadband IPTV, Broadcast, Government, Enterprise and Post-production markets. (Collectively, the
"Video Activity"). Following the sale of the Video Activity, the Company's only operation is the fixed-income real-estate.
As of December 31, 2017, the Company manages its activity through three active subsidiaries: Optibase Inc. in the United States which was incorporated in 1991 ("Optibase
Inc."), Optibase Real Estate Europe SARL ("Optibase SARL") in Luxembourg which was incorporated in October 2009, and OPCTN SA, a Luxembourg company owned 51%
by the Company which was incorporated in February 2011 ("Subsidiaries"), (collectively, the "Group").
b.
Acquisitions and investments in associates:
1.
Retail portfolio in Bavaria, Germany:
On December 18, 2014 the Company through Optibase SARL subsidiary, Optibase Bavaria GmbH & Co. KG ("Optibase Bavaria"), entered into a Purchase Agreement
with an unrelated third party to acquire a retail portfolio of twenty-seven Commercial properties in, Germany (the "Retail Portfolio in Germany").
The Retail Portfolio in Germany represents a homogenous retail portfolio in established retail locations, it has approximately 37,000 square meters of total rental space.
The largest tenant in the Retail Portfolio in Germany is EDEKA, which currently leases 19 of the rental properties in the portfolio. In addition to the hypermarkets and
supermarkets, smaller shops (such as bakeries and post offices) operate on several locations as subtenants of EDEKA.
On June 2, 2015 the first stage of the transaction closing occurred and the Company acquired twenty-five (25) supermarkets in consideration of a purchase price of €
24,000 (approximately $ 26,249 as of the purchase date). On July 8, 2015 the Company acquired the two (2) remaining supermarkets for an additional purchase price of
€ 4,750 (approximately $ 5,224 as of the purchase date).
In addition to the purchase price, the Company incurred acquisition costs, including real estate transfer taxes of € 2,075 (approximately $ 2,352 during 2015) and
presented in the consolidated statements of operations as other operating costs.
F - 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 1:-
GENERAL (Cont.)
OPTIBASE LTD.
AND ITS SUBSIDIARIES
The portfolio purchase price has been allocated to real estate properties and other assets, net, in accordance with the Company's accounting policies for business
combinations.
The total purchase price was allocated as follows:
Real estate property
Other assets, net
Total purchase price
2. 300 South Riverside Plaza, Chicago:
$
31,399
74
$
31,473
On December 29, 2015, the company through its subsidiary, Optibase Inc., completed an investment in 300 River Holdings, LLC, (the "Joint Venture Company")
which beneficially owns the rights to a 23-story Class A office building located at 300 South Riverside Plaza in Chicago under a 99 year ground lease expiring in 2114.
The company invested $ 12,900 in exchange for a thirty percent (30%) interest in the Joint Venture Company. In addition to the Purchase Price, the Company incurred
acquisition costs of approximately $ 242. On June 17, 2016, and in accordance with the Company's initial investment agreement, the Company had invested an
additional amount of $ 3,000 which accrued interest of 12% per annum, and was distributed back to the company on November 21, 2017.
c.
The Company's two major tenants accounted for 18% and 16%, 18% and 18% and 23% and 12% of the Company revenues in the years ended December 31, 2017, 2016 and
2015 respectively. No other tenants accounted for more than 10% of the company revenues.
For further details regarding a dispute to which OPCTN's subsidiary, Eldista Gmbh (“Eldista”), see Note 11e(4).
d. Sale of the Video Activity (discontinued operations):
Until the sale of its video solutions business to VITEC Multimedia ("Vitec") in July 2010, the Company and its U.S subsidiary, Optibase Inc., provided equipment for a wide
range of professional video applications in the Broadband IPTV, Broadcast, Government, Enterprise and Post-production markets (collectively, the "Video Activity").
On March 16, 2010, the Company and its subsidiary, Optibase Inc., entered into an asset purchase agreement (the "Agreement") with Optibase Technologies Ltd. and
Stradis Inc., wholly owned subsidiaries of S.A. Vitec (also known as Vitec Multimedia) (S.A. Vitec, Optibase Technologies Ltd. and Stradis Inc., collectively, "Vitec").
According to the Agreement, the Company sold to Vitec all of the assets and liabilities related to the Company's Video Solutions Business (the "Video Activity"). The
closing of the transaction occurred on July 1, 2010.
F - 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 1:-
GENERAL (Cont.)
The liabilities of the Video activity for the years ended December 31, 2017 and 2016, which relates to the discontinued operations and presented in the consolidated balance
sheets, are summarized as follows:
OPTIBASE LTD.
AND ITS SUBSIDIARIES
Liabilities:
Total liabilities attributed to discontinued operations
Total liabilities
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES
a.
Basis of presentation of the financial statements:
Year ended
December 31,
2017
2016
$
$
2,061
$
2,061
$
2,061
2,061
The preparation of financial statements in conformity with U.S generally accepted accounting principles requires management to make estimates and assumptions that affect
the amounts reported in the financial statements and accompanying notes. The Company's management believes that the estimates, judgments and assumptions used are
reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
b.
Functional currency, presentation currency and foreign currency:
The presentation currency of the financial statements is the U.S. dollar.
The functional currency of the Company is the U.S Dollar.
The functional currencies of Optibase's subsidiaries are CHF, EUR and U.S dollar. Assets and liabilities of these subsidiaries are translated at the year-end exchange rates
and their statement of operations items are translated using the average exchange rates for all periods presented. The resulting translation adjustments are recorded as a
separate component of accumulated other comprehensive income in shareholders' equity.
c.
Principles of consolidation:
The consolidated financial statements include the accounts of the Company and its subsidiaries. Intercompany transactions and balances have been eliminated upon
consolidation.
F - 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
d.
Non-controlling interests:
OPTIBASE LTD.
AND ITS SUBSIDIARIES
Non-controlling interests generally represent the portion of equity that the Company does not own in the consolidated entities. The Company accounts for and reports its
non-controlling interests in accordance with the provisions required under the Consolidation Topic of the FASB ASC 810. Non-controlling interests are separately
presented within the equity section of the consolidated balance sheets. The amounts of consolidated net earnings attributable to the Company and to the non-controlling
interests are presented on the consolidated statement of operations.
e.
Cash equivalents:
Cash equivalents include short-term, highly liquid investments that are readily convertible to cash, with original maturities of three months or less at the date acquired.
f.
Property and equipment:
Real estate properties and equipment are stated at cost net of accumulated depreciation. Costs include those related to acquisition, including building improvements.
Depreciation is computed using the straight-line method over the estimated useful lives of the assets, as follows:
Building
Buildings' improvements
Condominium units
g.
Impairment of long-lived assets and intangible assets:
Years
25 - 63
5 - 20
30
The Group's long-lived assets are reviewed for impairment in accordance with ASC 360, "Property, Plant and Equipment" and ASC 350, “Intangibles - Goodwill and other”,
whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In assessing the recoverability of long-lived assets, the
Company makes judgments regarding whether impairment indicators exist based on legal factors, market conditions and operating performances of assets or asset groups.
Recoverability of assets held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by
the asset. If such assets are considered to be impaired, the impairment recognized is measured by the carrying amount of the assets exceeds the fair value of the assets.
F - 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
OPTIBASE LTD.
AND ITS SUBSIDIARIES
The Company reviews assets on a component-level basis, which is the lowest level of assets for which there are identifiable cash flows that can be distinguished
operationally and for financial reporting purposes. The carrying amount of the asset group was compared with the related expected undiscounted future cash flows to be
generated by those assets over the estimated remaining useful life of the primary asset. In cases where the expected undiscounted future cash flows were less than the
carrying amounts of the assets, those assets were considered impaired and written down to their fair values. Fair value was established based on discounted cash flows. As
of December 31, 2017 and 2016, no impairment losses have been identified.
h. Investments in companies:
Investments in non-marketable equity securities of companies in which the Company does not have control or the ability to exercise significant influence over their
operation and financial policies are recorded at cost.
The management evaluates investments in non-marketable equity securities as evidence of other-than temporary declines in value. When relevant factors indicate a decline
in value that is other-than temporary the Company recognizes an impairment loss for the decline in value.
i.
Investments in associates:
Associates are companies in which the Company has significant influence over the financial and operating policies without having control. The investment in associates is
accounted for using the equity method of accounting. Under the equity method, the investment in associates is accounted for in the financial statements at cost plus
changes in the Group's share of net assets, including other comprehensive income (loss) of the associates. The equity method is applied until the loss of significant
influence or classification of the investment as non-current asset held-for-sale.
The accounting policy in the financial statements of the associates has been applied consistently and uniformly with the policy applied in the financial statements of the
Group.
j.
Intangibles assets:
Intangible assets consist of above-market value of in-place leases that were recorded in connection with the acquisition of the properties. Intangible assets are amortized
and accreted using the straight-line method over the term of the related leases. When a lease is terminated early, any remaining unamortized balances under lease intangible
assets or liabilities are charged to earnings.
F - 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
k.
Derivative instruments:
OPTIBASE LTD.
AND ITS SUBSIDIARIES
The Company accounts for derivatives and hedging based on ASC No. 815, "Derivatives and Hedging". ASC No. 815 requires the Company to recognize all derivatives at
fair value. The accounting for changes in the fair value of a derivative instrument (i.e., gains or losses) depends on whether it has been designated and qualified as part of a
hedging relationship and further, on the type of hedging relationship. For those derivative instruments that are designated and qualified as hedging instruments, the
Company must designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge, cash flow hedge, or a hedge of a net investment in a foreign
operation. If the derivatives meet the definition of a hedge and are so designated, depending on the nature of the hedge, changes in the fair value of such derivatives will
either be offset against the change in fair value of the hedged assets, liabilities, firm commitments through earnings, or recognized in other comprehensive income until the
hedged item is recognized in earnings.
The ineffective portion of a derivative's change in fair value is recognized in earnings. As of December 31, 2017 and 2016, the Company had outstanding hedging
instruments in amount of $ 294 and $ 407 respectively. At times, the Company may use derivative instruments to manage exposure to variable interest rate risk. Occasionally,
the Company enters into interest rate swaps to manage its exposure to variable interest rate risk and treasury locks to manage the risk of interest rates rising prior to the
issuance of debt. The Company generally enters into derivative instruments that qualify as cash flow hedges and it does not enter into derivative instruments for
speculative purposes.
l.
Revenue recognition:
The Company generates revenues from fixed income real-estate derived from its buildings held through its subsidiaries in Switzerland (Rümlang and Geneva), Germany and
Miami FL.
Rental income includes minimum rents which are recognized on an accrual basis over the terms of the related leases on a straight-line basis. Lease revenue recognition
commences when the lessee is given possession of the leased space and there are no contingencies offsetting the lessee's obligation to pay rent.
Revenue of maintenance expenses recoveries from the tenants for mainly electricity, heating and water is reported net from the related expenses.
m.
Contingencies:
The Company periodically estimates the impact of various conditions, situations and/or circumstances involving uncertain outcomes to its financial condition and operating
results.
F - 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
OPTIBASE LTD.
AND ITS SUBSIDIARIES
The Company accounts for contingent events as required by ASC 450 "Contingencies". ASC 450 defines a contingency as "an existing condition, situation, or set of
circumstances involving uncertainty as to possible gain or loss to an enterprise that will ultimately be resolved when one or more future events occur or fail to occur". Legal
proceedings are a form of such contingencies.
In accordance with ASC 450, accruals for exposures or contingencies are being provided when the expected outcome is probable. However, it is possible that future results
of operations for any particular quarter or annual period could be materially affected by changes in the Company's assumptions, the actual outcome of such proceedings or
as a result of the effectiveness of the Company strategies related to these proceedings.
n.
Income taxes:
The Company and its subsidiaries account for income taxes in accordance with ASC Topic 740, "Income Taxes" "ASC 740", prescribes the use of the liability method,
whereby deferred tax asset and liability account balances are determined based on differences between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company and its subsidiaries provide a valuation
allowance, if necessary, to reduce deferred tax assets to amounts more likely than not to be realized.
ASC 740 clarifies the accounting for uncertainties in income taxes by establishing minimum standards for the recognition and measurement of tax positions taken or expected
to be taken in a tax return. Under the requirements of ASC 740, the Company must review all of its tax positions and make a determination as to whether its position is more-
likely-than-not to be sustained upon examination by regulatory authorities. If a tax position meets the more-likely–than-not standard, then the related tax benefit is measured
based on a cumulative probability analysis of the amount that is more-likely-than-not to be realized upon ultimate settlement or disposition of the underlying issue. The
Company policy is to accrue interest and penalties related to unrecognized tax benefits in its financial expenses.
The Company believes that its tax positions are all highly certain of being upheld upon examination. As such, as of December 31, 2017 and 2016 the Company has not
recorded a liability for uncertain tax positions.
o.
Concentrations of credit risk:
Financial instruments that potentially subject the Company and its subsidiaries to concentrations of credit risk consist principally of cash and cash equivalents, accounts
receivables and long-term lease deposits.
F - 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
OPTIBASE LTD.
AND ITS SUBSIDIARIES
Cash and cash equivalents are invested in U.S. dollar deposits with major banks in Israel, the United States, Switzerland and Germany. Cash and cash equivalents in the
United States may be in excess of insured limits and are not insured in other jurisdictions. The Company maintains cash and cash equivalents with diverse financial
institutions and monitors the amount of credit exposure to each financial institution.
Accounts receivable includes amounts billed to tenants and accrued expense recoveries due from tenants. The Company makes estimates of un-collectability from its
accounts receivable using the specific identification method related to base rents, straight-line rent balances, expense reimbursements and other revenues.
The Company also analyzes accounts receivable and historical bad debt levels, tenant credit-worthiness, payment history and current economic trends when evaluating the
adequacy of the allowance for doubtful accounts. Accounts receivable are written-off when they are deemed to be uncollectible and the Company is no longer actively
pursuing collection. The Company's reported net income is directly affected by the management's estimate of the collectability of accounts receivable.
p.
Earnings (loss) per share:
Basic net earnings (losses) per share are computed based on the weighted average number of Ordinary shares outstanding during each year. Diluted net earnings (losses)
per share is computed based on the weighted average number of Ordinary shares outstanding during each year, plus dilutive potential Ordinary shares considered
outstanding during the year, in accordance with ASC 260, "Earning Per Share".
Options and restricted shares that have been excluded from the calculations of diluted net income per share were 10,035 for the years ended December 31, 2016.
q.
Accounting for stock-based compensation:
ASC Topic 718 "Compensation - Stock Compensation" "ASC 718", requires companies to estimate the fair value of share-based awards on the date of grant using an option-
pricing model.
The Company recognizes these compensation costs net of forfeiture rate and recognizes the compensation costs for only those shares expected to vest on a straight-line
basis over the requisite service period of the award, which is generally the option vesting term of four years.
F - 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
OPTIBASE LTD.
AND ITS SUBSIDIARIES
The Company estimates the fair value of stock options granted using the Black-Scholes- Merton option pricing model. The option-pricing model requires a number of
assumptions, of which the most significant are the expected stock price volatility and the expected option term. Expected volatility is calculated based upon actual historical
stock price movements. The expected term of options granted is based upon historical experience and represents the period of time that options granted are expected to be
outstanding. The risk free interest rate is based on the yield from U.S. treasury bonds with an equivalent term. The Company has historically not paid dividends and has no
foreseeable plans to pay dividends.
The fair value was estimated at the date of grant using the Black-Scholes model. During 2017 and 2016 there were no new grants.
r. Treasury shares:
During the past years, the Company repurchased certain Ordinary shares on the open market and holds such shares as treasury shares. The Company presents the cost to
repurchase treasury shares as a reduction from the shareholders' equity. From time to time the Company reissues treasury shares under the stock purchase plan, upon
exercise of option and upon vesting of restricted stock units.
When treasury stock is reissued, the Company accounts for the re-issuance in accordance with ASC No. 505-30, "Treasury Stock" and charges the excess of the purchase
cost, including related stock-based compensation expenses, over the re-issuance price to retained earnings. The purchase cost is calculated based on the specific
identification method. In case the purchase cost is lower than the re-issuance price, the Company credits the difference to additional paid-in capital.
s. Fair value of financial instruments:
The carrying amounts of the Company's financial instruments, including cash and cash equivalents, other accounts receivable, trade payables, other accounts payable, and
accrued liabilities, approximate fair value because of their generally short-term maturities.
ASC 820 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an
asset or a liability.
F - 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
OPTIBASE LTD.
AND ITS SUBSIDIARIES
As a basis for considering such assumptions, ASC 820 establishes a three-level value hierarchy, which prioritizes the inputs used in the valuation methodologies in
measuring fair value:
Level 1 -
Level 2 -
Level 3 -
Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Include other inputs that are directly or indirectly observable in the marketplace.
Unobservable inputs which are supported by little or no market activity.
The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
Swap instruments are measured at fair value under ASC 820 on a recurring basis as of December 31, 2017 and 2016.
t.
Comprehensive income:
The Company accounts for comprehensive income in accordance with ASC No. 220, "Comprehensive Income". Comprehensive income generally represents all changes in
shareholders' equity during the period except those resulting from investments by, or distributions to, shareholders.
u.
Recent accounting pronouncements:
In May 2014, the Financial Accounting Standards Board ("FASB") issued, Accounting Standards Update ("ASU") 2014-09, "Revenue from Contracts with Customers
(Topic 606)". The guidance substantially converges final standards on revenue recognition between the FASB and the International Accounting Standards Board providing
a framework on addressing revenue recognition issues and, upon its effective date, replaces almost all exiting revenue recognition guidance, including industry-specific
guidance, in current U.S. generally accepted accounting principles.
The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps:
•
•
•
•
•
Step 1: Identify the contract(s) with a customer.
Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligations in the contract.
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
The Company examined the new revenue recognition standard and concluded that the new revenue recognition standard is out of scope.
F - 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
OPTIBASE LTD.
AND ITS SUBSIDIARIES
The amendments in this ASU are effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Earlier
application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Group
does not anticipate that this adoption will have a significant impact on its financial position, results of operations, or cash flows.
In February 2016, the FASB issued the ASU 2016-02, Leases (Topic 842). The main provision of this ASU is the recognition of lease assets and lease liabilities by lessees for
those leases classified as operating leases. The FASB decided to not fundamentally change lessor accounting. However, some changes have been made to lessor
accounting to conform and align that guidance with the lessee guidance and other areas within U.S. GAAP. The new leases standard requires a modified retrospective
transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. This update is effective for
public entities with reporting periods beginning after December 15, 2018, including interim periods within those years. Early adoption is permitted. The company is currently
evaluating the impact, if any, of the adoption of this new standard, and does not anticipate that this adoption will have a significant impact on its financial position, results
of operations, or cash flows.
In January 2016, the FASB issued ASC 2016-01, Financial Instruments - Overall (Subtopic 825-10) - Recognition and Measurement of Financial Assets and Financial
Liabilities. The ASU makes the following targeted changes for financial assets and liabilities: i) requiring equity investments with readily determinable fair values to be
measured at fair value with changes recognized in net income; ii) simplifying the impairment assessment of equity securities without readily determinable fair values using a
qualitative approach; iii) eliminating disclosure of the method and significant assumptions used to fair value instruments measured at amortized cost on the balance sheet;
iv) requiring use of the exit price notion when measuring the fair value of instruments for disclosure purposes; v) for financial liabilities where the fair value option has been
elected, requiring the portion of the fair value change related to instrument-specific credit risk (which includes a Company's own credit risk) to be separately reported in
other comprehensive income; vi) requiring the separate presentation of financial assets and liabilities by measurement category and form of financial asset (liability) on the
balance sheet or accompanying notes; and vii) clarifying that the evaluation of a valuation allowance on a deferred tax asset related to available-for-sale securities should be
performed in combination with the entity's other deferred tax assets. The ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within
those years Early adoption of item (v) above is permitted for financial statements (both annual and interim periods) that have not yet been issued. The Company have not
determined when the Company will adopt item (v) above of this ASU.
The Company will adopt the remaining provisions of the ASU on January 1, 2018. The Company is evaluating the impact of this ASU on the Company's financial statements.
F - 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
OPTIBASE LTD.
AND ITS SUBSIDIARIES
In February 2015, the FASB issued ASU 2015-02, Consolidation: Amendments to the Consolidation Analysis (Topic 810), requiring entities to evaluate whether they should
consolidate certain legal entities. All legal entities are subject to reevaluation under the revised consolidation model. The revised consolidation model: (1) modifies the
evaluation of whether limited partnerships and similar legal entities are variable interest entities (VIEs) or voting interest entities, (2) eliminates the presumption that a general
partner should consolidate a limited partnership, (3) affects the consolidation analysis of reporting entities that are involved with VIEs, and (4) provides a scope exception
from consolidation guidance for reporting entities with interests in certain legal entities. The updated standard is effective for financial statements issued for annual and
interim periods beginning after December 15, 2015.
The updated standard may be applied retrospectively or using a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning
of the fiscal year of adoption. The adoption of this guidance is not expected to have an impact on the Company's financial statements and related disclosures.
In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash”, which requires companies to include amounts generally
described as restricted cash and restricted cash equivalents in cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on
the statement of cash flows. This ASU is effective for annual and interim periods beginning after December 15, 2017. The Group does not anticipate that this adoption will
have a significant impact on its financial statement.
F - 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 3:-
REAL ESTATE PROPERTY, NET
Cost:
At January 1, 2016
Additions
At December 31, 2016
Additions
At December 31, 2017
Accumulated depreciation:
At January 1, 2016
Depreciation charge for the year
At December 31, 2016
Depreciation charge for the year
At December 31, 2017
Real estate property, net:
At December 31, 2017
At December 31, 2016
Estimated depreciation expenses by years are as follows:
Year
2018
2019
2020
2021 and thereafter
OPTIBASE LTD.
AND ITS SUBSIDIARIES
Land
Building
Condominium
units
Currency
translation
adjustment
Total
$
$
33,874
-
$
184,860
1,969
$
19,974
481
(8,966) $
(5,710)
33,874
-
33,874
-
-
-
-
-
186,829
1,945
188,774
13,878
3,631
17,509
3,696
21,205
20,455
250
20,705
1,326
394
1,720
394
2,114
(14,676)
11,266
(3,410)
(302)
(135)
(437)
335
(102)
229,742
(3,260)
226,482
13,461
239,943
14,902
3,890
18,792
4,425
23,217
33,874
167,569
18,591
(3,308)
216,726
$
33,874
$
169,320
$
18,735
$
(14,239) $
207,690
Estimated
depreciation
expenses
4,204
4,202
4,173
168,617
$
181,196
F - 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 4:-
OTHER ASSETS, NET
Cost:
At January 1, 2016
Additions
At December 31, 2016
Additions
Disposals
At December 31, 2017
Accumulated amortization:
At January 1, 2016
Amortization charge for the year
At December 31, 2016
Amortization charge for the year
Disposals
At December 31, 2017
Other assets, net:
At December 31, 2017
At December 31, 2016
OPTIBASE LTD.
AND ITS SUBSIDIARIES
Above, below
market value of
in-place leases
Currency
translation
adjustment
Total
$
$
1,524
-
(50) $
(32)
1,524
-
(315)
1,209
1,088
219
1,307
120
(346)
1,081
(82)
55
(31)
(58)
(84)
(26)
(110)
40
-
(70)
128
12
$
217
$
28
$
1,474
(32)
1,442
-
(346)
1,151
1,004
193
1,197
160
(346)
1,011
140
245
Intangible assets consist of lease contracts with tenants deriving from the purchase of a building complex in Geneva in 2011 and purchase of retail portfolio in Germany. See Note
1b(1).
Estimated amortization expenses by years are as follows:
Year
2018
2019
2020
2021 and thereafter
F - 23
Estimated
depreciation
expenses
(8)
(26)
11
163
$
140
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 5:-
OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES
Prepaid expenses
Income receivable
Deposit
Others
NOTE 6:-
LONG-TERM DEPOSITS
Bonds deposit (1)
Restricted account (2)
SWAP (3)
Other
OPTIBASE LTD.
AND ITS SUBSIDIARIES
December 31,
2017
2016
$
$
367
95
-
44
$
506
$
December 31,
2017
2016
$
$
1,897
519
986
81
$
3,483
$
407
95
6
20
528
1,709
727
274
75
2,785
(1)
(2)
(3)
Bonds deposit of one payment of principal and interest reserves. See Note 10.
Restricted amount of $ 519 related to the hedging transaction, see details (3) below.
Hedging of cross currency interest rate swap transaction for the total amount of approximately NIS 34,200 at fixed interest rate of 6.7% in exchange for approximately $ 8,700
at fixed interest rate of 7.95% with semi-annually payments commencing on June 2016 through December 2021, the termination date. As of December 31, 2017 the hedging
amount is $ 5,800.
NOTE 7:-
INVESTMENTS IN COMPANIES AND ASSOCIATES
a.
On October 12, 2012, the Company acquired through its subsidiary beneficial interests in Two Penn Center Plaza in Philadelphia, Pennsylvania. This investment is accounted
for using the equity method of accounting as the Company's indirect beneficial interest in Two Penn Center Plaza is 22.16% and therefore is considered to be more than
minor.
Invested in equity
Distributions
Accumulated net loss
Total investment
F - 24
December 31,
2017
2016
$
$
4,025
(672)
(84)
$
3,269
$
4,025
(335)
(203)
3,487
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 7:-
INVESTMENTS IN COMPANIES AND ASSOCIATES (Cont.)
OPTIBASE LTD.
AND ITS SUBSIDIARIES
b.
c.
On December 31, 2012 the Company acquired through its subsidiary Optibase Inc. approximately 4% indirect beneficial interest in a portfolio of shopping centers located in
Texas, USA in consideration for $ 4,000 which accounted for the cost method of accounting. The Company believes that its beneficial interests in Texas portfolio are
considered to be so minor that they create virtually no influence over the operating and financial policies of the Real Estate Asset and therefore this investment accounted
for cost method of accounting.
On December 29, 2015, the company through its subsidiary, Optibase Inc., completed an investment in 300 River Holdings, LLC, (the "Joint Venture Company") which
beneficially owns the rights to a 23-story Class A office building located at 300 South Riverside Plaza in Chicago under a 99 year ground lease expiring in 2114. The company
invested $ 12,900 in exchange for a thirty percent (30%) interest in the Joint Venture Company. In addition to the Purchase Price, the Company capitalized acquisition costs
of approximately $ 242. See Note 1b(2). On June 17, 2016, and in accordance with the Company's initial investment agreement, the Company had invested an additional
amount of $ 3,000 which accrued interest of 12% per annum, and was distributed back to the company on November 21, 2017. Amounts of $ 321 and $ 196 received as
interest for 2017 and 2016, respectively, was recorded as equity share in losses of associates, net.
Invested in equity
Accumulated net loss
Total investment
d.
Investments in associates accounted for using the equity method of accounting:
Summarized data of the financial statements of associates, unadjusted to the Company's percentage of holdings: *)
Assets
Liabilities
Income
Net loss
*)
The information presented does not include excess cost and goodwill.
F - 25
December 31,
2017
2016
$
13,142
(2,855)
16,142
(737)
10,287
$
15,405
December 31,
2017
2016
$
364,805
$
446,335
41,546
$
(13,206) $
285,988
352,892
46,324
(9,740)
$
$
$
$
$
$
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 8:-
OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Employees and payroll accruals
Accrued expenses
Government (mainly tax provision)
Advance tenants payments
Tenant security deposits
Trade payables
Total
NOTE 9:- LONG-TERM LOANS
OPTIBASE LTD.
AND ITS SUBSIDIARIES
December 31,
2017
2016
$
$
206
1,406
1,245
684
124
697
$
4,362
$
215
1,011
1,803
607
120
498
4,254
a.
On October 29, 2009, Optibase SARL received a mortgage loan (the "Loan") from a financial institution in Switzerland, in the amount of CHF 18,800 for the purpose of
purchasing the real estate property located in Rümlang, Switzerland (the "Property"). The loan bears a variable interest rate based on current money and capital markets in
Switzerland plus the bank's customary margins 0.8%. The financial institution may increase the margin at any time if creditworthiness of the borrower or quality of the
property is impaired. Principal and interest of the loan are payable quarterly. The loans are repaid at a rate of CHF 376 per year. The mortgage loan may be repaid at any time
with a three months prior written notice by the Company. The mortgage loan is governed by the laws of Switzerland and bears other terms and conditions customary for that
type of mortgage loans. The Company pledged to the bank the property and all accounts and assets of the Company's subsidiary which are deposited with the bank against
the loan received. The Company is required to meet certain covenants under this mortgage loan. As of December 31, 2017, the Company met the required covenants.
Maturities of the loan by years are as follows:
Year ended December 31,
2018 (current maturity)
Long-term portion:
2019
2020
2021
2022
Thereafter
Total
F - 26
$
385
385
385
385
385
14,250
$
15,790
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 9:-
LONG-TERM LOANS (Cont.)
b.
On October 2011, OPCTN and Eldista entered into a CHF 100,000 bank loan refinancing with Credit Suisse for the above mentioned loan. Under the new financing
agreement, Credit Suisse provided a new loan to OPCTN and Eldista which replaced the mortgage loan that Credit Suisse provided to Eldista. The loan bears a variable
interest rate based on current money and capital markets in Switzerland plus the bank's customary margins, the combined interest margins rate is 0.83%. The loans are repaid
at a rate of CHF 2,000 per year and are secured by a first mortgage over the property and by a pledge of Eldista's shares. The Company is required to meet certain covenants
under this mortgage loan. As of December 31, 2017, the Company met these covenants.
OPTIBASE LTD.
AND ITS SUBSIDIARIES
Maturities of the loan by years are as follows:
Year ended December 31,
2018 (current maturity)
Long-term portion:
2019
2020
2021
2022
Thereafter
Total
$
2,049
2,049
2,049
2,049
2,049
80,221
$
88,417
c.
Optibase Bavaria negotiated a loan agreement with a Deutsche Genossenschafts-Hypothekenbank Aktiengesellschaft ("DG HYP"), for the provision of a senior mortgage
loan in the amount of up to Euro 21,000 of which the Company utilized Euro 20,474. The effective interest rate was closed at 2.15%. The loan is repaid in quarterly
installments of EUR 105 each, up until April 30, 2020. The terms of the loan includes certain covenants, a debt service cover ratio requirement of between 130% and 110%,
and a loan to value requirement of 70% in the first three years and 65% in the fourth and fifth years. As of December 31, 2017, the Company met these covenants.
Maturities of the loan by years are as follows:
Year ended December 31,
2018 (current maturity)
Long-term portion:
2019
2020
Total
$
503
503
22,135
$
22,638
F - 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 9:- LONG-TERM LOANS (Cont.)
OPTIBASE LTD.
AND ITS SUBSIDIARIES
d.
On July 8, 2015, the Company subsidiary, Optibase Inc., entered into a loan agreement with City National Bank of Florida (“CNB”) for a gross amount of $ 15,000 for the
financing of 25 condominium units the Company owns in Miami and Miami Beach, Florida. The loan is secured by a senior mortgage over the condominium units. The loan
was taken for a term of three (3) years, with an interest rate of Libor 30-day-rate plus 2.65%. Interest is paid monthly commencing August 1, 2015, and the principal is reduced
in six-month intervals beginning July 2016. On November 24, 2017 Optibase Inc., refinanced the loan. Under the refinancing, the existing principle loan balance of $ 9,390
bears an interest rate of Libor 30- day rate plus 2.65% which may be increased to 30-day Libor plus 3.25% if Optibase Inc. or its subsidiary, fail to maintain depository
accounts with totaling $ 1,500. The principal of the Loan is amortized on a monthly basis with principal payments of approximately $ 19 per month plus accrued interest until
the loan matures on July 8, 2020 when all remaining principal and interest become due and payable. The securities for the Loan include a restricted cash deposit of
approximately $ 300. As of December 31, 2017 Loan issuance costs of $ 183 reported in the balance sheet as a direct deduction from the gross amount of the loan and are
amortized in accordance with the loan payments. The covenants under the new financing agreement are substantially the same as under the previous loan agreement. As of
December 31, 2017, the Company met these covenants.
Maturities of the loan by years are as follows:
Year ended December 31,
2018 (current maturity)
Long-term portion:
2019
2020
Total
$
228
228
8,701
$
8,929
e.
For information regarding a loan received from the controlling shareholder, see note 17b(8).
NOTE 10:- LONG-TERM BONDS
In August 2015, the Company issued gross amount of NIS 60,000 (approximately $ 15,700 as of the issue date) in aggregate principal amount of Series A Bonds bearing annual fixed
interest of 6.7% payable in semi-annual installments on June 30 and on December 31 of each of the years 2015 through 2021, commencing on December 31, 2015 and ending on
December 31, 2021. The principal will be repaid in semi-annual installments on June 30 and on December 31 of each of the years of 2016 through 2021, commencing on June 30, 2016
and ending on December 31, 2021. The bonds (principal and interest) are not linked to any currency or index.
F - 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 10:- LONG-TERM BONDS (Cont.)
Debt issuance costs of $ 384 reported in the balance sheet as a direct deduction from the gross amount of the bonds according to Accounting Standards Update, or ASU, 2015-03
issued by the Financial Accounting Standards Board In April 2015. The Company elected to adopt this standard early, effective August 10, 2015. The debt issuance costs are
amortized in accordance with the bonds payments. As of December 31, 2017 the unamortized amount of the debt issuance costs is $ 184. The Company is required to meet certain
covenants under this bonds. As of December 31, 2017, the Company met these covenants.
Maturities of the bonds by years are as follows:
OPTIBASE LTD.
AND ITS SUBSIDIARIES
Year ended December 31,
2018 (current maturity)
Long-term portion:
2019
2020
2021
Total
$
2,883
2,883
2,883
2,707
$
8,473
NOTE 11:-
COMMITMENTS AND CONTINGENT LIABILITIES
a.
Lease commitments:
The Company and its subsidiaries facilities leased and motor vehicles leased under several operating lease agreements for different periods ending in 2020.
Future minimum lease commitments under non-cancelable operating leases are as follows:
Year ended December 31,
2018
2019
2020
2021
Total
b.
Assets pledged as collateral:
$
156
151
118
34
459
As collateral for the Company's loan mortgages, a fixed pledge has been placed on the Company's subsidiaries in Luxemburg shareholders' equity. See Note 9a.
F - 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 11:- COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)
c.
Israel Innovation Authority commitments:
OPTIBASE LTD.
AND ITS SUBSIDIARIES
Until the sale of the Video Activity the Company participated in programs sponsored by the Israeli Government and by the European Commission for the support of
research and development activities.
The Company was obligated to pay royalties to the Israel Innovation Authority ("IIA"), in the amount of 3%-3.5% of the sales recorded from products and other related
revenues generated from such projects, up to 100% of the grants received, linked to the U.S. dollar and for grants received after January 1, 1999 also bearing interest at the
rate of LIBOR. The obligation to pay these royalties is contingent on actual sales of the products and in the absence of such sales, no payment is required. The Company
was undergoing an audit by the IIA for royalties paid before the sale of the Company's Video business. As of December 31, 2017, the Company has sufficient provisions to
cover the expected outcome of such review process. The provision for the above commitments was recorded under liabilities attributed to discontinued operations as the
Company has no further obligation to pay royalties on revenues generated by the Video Activity subsequent to its sale.
d.
In June 2017, Aberdeen Associates LLC, a Delaware limited liability company, extended a $7,000, 5-year fixed-rate loan facility (the “Loan Facility”) to the Company’s
subsidiary, Optibase Inc. secured by a pledge of 100% of its membership interest in Optibase Chicago 300, LLC. The Loan Facility will bear interest at an annual rate of 5%
of the amount drawn, and is compounded and paid quarterly until the maturity on June 1, 2022. As of December 31, 2017, the Company has not drawn down any funds
under the Loan Facility.
e.
Legal claims and contingent liabilities:
1. On October 26, 2014, the Company received a letter on behalf of two purported shareholders (the "Shareholders") demanding the Company to file a derivative claim
against its controlling shareholder and directors and officers, according to procedures of the Companies Law and requesting discovery of internal documents. The
demand alleges, among other things, breach of fiduciary duties by directors and officers with respect to the approval of the transaction to acquire condominium units in
Miami Beach, Florida, (the "Transaction"), in accordance with the Companies Law. The Company presented the Shareholders, at their request, with certain materials in
connection with the Transaction for their review.
On May 12, 2015 the Company has been served with a motion to approve the filing of a derivative claim against its controlling shareholder, directors and CEO and
against certain former controlling shareholder and directors, (the "Motion").
The Claim alleges, among other things, a breach of fiduciary duties by the Company directors, officers and controlling shareholder, and an exploitation of a business
opportunity by the Company current and former controlling shareholder with respect to certain private placements of the Company's shares to its controlling
shareholder.
F - 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 11:-
COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)
OPTIBASE LTD.
AND ITS SUBSIDIARIES
The Claim further alleges, that such private placements constitute a prohibited distribution as the shares were issued for an unfair consideration. As a result of the
above, the Applicants request the Court to allow them to continue with this derivative claim and ultimately to require all the defendants to pay the Company an
aggregate amount of approximately $ 41,900, as well as required the Companies shareholder (current and former) to pay to the Company approximately $ 2,800 plus
interest (for the exploitation of a business opportunity). The Applicants further require reimbursement of expenses, legal fees and award to the Applicants.
On November 8, 2015, The Company has submitted its response to the Motion and Claim together with an expert opinion. The Company has raised several arguments
against the Motion including, inter alia, preliminary claims to dismiss the Motion in-limine. On November 13, 2015, the directors, CEO and former directors submitted
their response to the Motion.
On September 6, 2016, the Applicants submitted to the District Court their answer to the Company's response to the motion to approve the filing of a derivative claim,
together with an expert opinion.
On October 30, 2016, a pre-trial hearing was held during which the Court gave instruction regarding the scope of disclosure that the Company needs to discover.
On March 14, 2017 the Company, the Company's directors, CEO and former directors' submitted an expert opinion as a response to the expert opinion submitted by
the Applicants.
Cross-examination hearings were held on October 31, 2017, November 19, 2017, December 5, 2017 and February 25, 2018. The next cross-examination hearing is
scheduled for October 7, 2018.
At this stage we cannot provide an assessment as to the chances of the claim and the exposure to the Company.
2.
On March 1, 2010, the Company's subsidiary in Luxembourg entered into an Option Agreement, (the "Option Agreement"), with Swiss Pro who introduced the
Company the Rümlang property and facilitated the acquisition and financing of the commercial building acquired by the Company in October, 2009 in Rümlang,
Switzerland. According to the Option Agreement, the Company's subsidiary granted Swiss Pro an option to purchase, within 8 years from the entrance into the
agreement, twenty percent (20%) of its share capital in consideration of CHF 315 for the option. The exercise price under the Option Agreement is calculated based
on twenty percent (20%) of acquisition costs for the Rümlang Property plus interest and an adjustment for proceeds that are distributed to the shareholders. The
shares that would be issued to Swiss Pro upon exercise of the option will not have voting rights and would be subject to transfer restrictions in favor of the
Company. In October 2017, the option has expired.
F - 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 11:-
COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)
OPTIBASE LTD.
AND ITS SUBSIDIARIES
On May 19, 2015, The Company received a letter on behalf of Swiss Pro, demanding the Company to provide Swiss Pro with certain relevant data in connection with
the option agreement.
The Company sent a response letter on August 18, 2015 in which the Company rejected all allegations. On December 24, 2015 Swiss Pro sent another letter repeating
its arguments and the Company sent its response to the letter on December 31, 2015.
On May 25, 2016 Swiss Pro sent another letter in which they asked for exercise of the granted option. On June 29, 2016, the Company responded to this letter and
detailed the required sum for exercise of the granted option, however, the Company has not yet received a response.
At this stage the Company cannot provide an assessment as to the chances of the arguments raised by Swiss Pro and the exposure to the Company.
3.
4.
On April 16, 2015, the Company's subsidiary Eldista GmbH, filed a claim to the court in Switzerland in an amount of CHF 961 (approximately $ 984 as of December 31,
2017) due to damages and unpaid amounts from a specific tenant. Shortly thereafter, the tenant filed a counterclaim against Eldista GmbH in an amount of CHF 157
(approximately $ 161 as of December 31, 2017) for damages allegedly caused to it. The court suggested the parties to transfer to mediation proceedings which failed.
The court handed down a partial judgment on 31, October 2016, dismissing against the judgment. The appeal is currently pending before the court of appeal of
Geneva. At this stage, the Company cannot assess whether the court will receive Elista's or the tenant's arguments.
On March 1, 2017, OPCTN subsidiary Eldista Gmbh, received a notice from its largest tenant in Switzerland, LEM Switzerland SA, (the "Tenant"), regarding the
deposit of the monthly rent as of March 2017 amounting to CHF 279 (approximately $ 286 as of December 31, 2017) with Banque cantonale de Genève under the
control of the Pouvoir judiciaire of the Canton of Geneva, as a preliminary process for filing a claim with the Commission de Conciliation en Matière de Baux et Loyers
of the Canton of Geneva, or the Commission. The Tenant claims that there are serious defects affecting the rented premises, which merit the Tenant with a
reimbursement of CHF 2,428 (approximately $ 2,486 as of December 31, 2017) as well as CHF 69 (approximately $ 71 as of December 31, 2017) as indemnification for
consequential damages for the years 2014 and 2015. The Tenant also reserves its claims regarding damages suffered before year 2014. The Tenant may continue to
deposit the monthly rent until the end of the proceedings. On April 5, 2017 the Tenant released the deposit. On October 23, 2017 the Tenant filed a claim with the first
instance court, requesting a rent reduction and related damages amounting to a minimum capital amount of CHF 3,833 (approximately $ 3,926 as of December 31,
2017), based on various defects allegedly affecting the rented premises.
F - 32
OPTIBASE LTD.
AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 11:-
COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)
On February 16, 2018 Eldista submitted a reply brief to the court, the Tenant will have until April 9, 2018 to submit a complementary brief and Eldista until May 14,
2018.
As of December 31, 2017, the Company has sufficient provisions to cover the expected outcome of this claim.
NOTE 12:- FAIR VALUE MEASUREMENTS
a.
Recurring fair value measurements:
The fair value of the interest rate swaps is based on the estimated amount the Company would receive or pay to terminate the contract at the reporting date and is
determined using interest rate pricing models and observable inputs.
As of December 31, 2017 and 2016, the Company has an interest rate swap agreements for Optibase Bavaria loan. The fair value of the interest rate swap consisted of a
liability of $ 293 and $ 407, respectively, is included in long-term liabilities, and the net unrealized income on the Company interest rate swap is included in accumulated other
comprehensive loss.
The fair value of the currency swaps is based on the estimated amount the Company would receive or pay to terminate the contract at the reporting date and is determined
using currency rate pricing models and observable inputs.
As of December 31, 2017 and 2016, the Company has a currency rate swap agreements for Optibase Series A bonds. The fair value of the currency rate swap consisted of an
assets of $ 986 and $ 274, respectively.
b.
Valuation methods:
In accordance with ASC 820, the Company measures its interest rate swap derivative instruments at fair value using the market approach valuation technique. The fair value
of interest rate swap derivative instruments is classified within Level 2 value hierarchy, as the valuation inputs are based on quoted prices.
F - 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 13:-
TAXES ON INCOME
OPTIBASE LTD.
AND ITS SUBSIDIARIES
a.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "TCJA"). The TCJA makes
broad and complex changes to the Code. The changes include, but are not limited to:
1. A corporate income tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017 ("Rate Reduction");
2. The transition of U.S international taxation from a worldwide tax system to a territorial system by providing a 100 percent deduction to an eligible U.S. shareholder on
foreign sourced dividends received from a foreign subsidiary;
3. A one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017; and
4. Taxation of GILTI earned by foreign subsidiaries beginning after December 31, 2017. The GILTI tax imposes a tax on foreign income in excess of a deemed return on
tangible assets of foreign corporations.
The Company has not completed its accounting for the income tax effects of the TCJA. Where the Company has not yet been able to make reasonable estimates of the
impact of certain elements, the Company has not recorded any amounts related to those elements and has continued accounting for them in accordance with ASC 740 on the
basis of the tax laws in effect immediately prior to the enactment of the TCJA, pursuant to SEC Staff Accounting Bulletin No. 118.
b.
Corporate tax rates:
Israeli companies are generally subject to corporate tax on their taxable income. As of 2017, the corporate tax rate is 24% (in 2016 and 2015, the corporate tax rate was 25%
and 26.5%, respectively).
In December 2016, the Israeli Parliament approved the Economic Efficiency Law (Legislative Amendments for Applying the Economic Policy for the 2017 and 2018 Budget
Years), 2016 which reduces the corporate income tax rate to 24% (instead of 25%) effective from January 1, 2017 and to 23% effective from January 1, 2018. Capital gains
derived by an Israeli company are subject to the prevailing corporate tax rate.
Taxable income of the Company's subsidiary in Luxemburg, Switzerland and the United States is subject to the following tax rates:
Luxemburg
Switzerland
United States
Germany
F - 34
Year ended
December 31,
2016
2017
2015
29%
24%
34%
16%
29%
24%
34%
16%
29%
24%
34%
16%
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 13:-
TAXES ON INCOME (Cont.)
c.
Tax assessments:
The Company has final tax assessments through the tax year 2013.
d.
Deferred tax assets and liabilities:
OPTIBASE LTD.
AND ITS SUBSIDIARIES
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes.
Deferred tax assets and liabilities mainly derive from the acquisitions of commercial buildings in Switzerland. The deferred taxes are computed at the average tax rate of 24%,
based on the corporate income tax in Switzerland, which is the tax rate that will be in effect when the differences are expected to reverse.
Significant components of the Company and its subsidiary deferred tax assets are as follows:
Deferred tax assets:
Net Operating losses
Lease provision
Other
Deferred tax assets
Deferred tax liabilities:
Land
Building
Other
Deferred tax liabilities
Valuation allowance
Deferred tax liabilities, net
e.
Net operating losses carry-forward:
$
December 31,
2017
2016
$
24,972
1,511
203
26,686
(5,408)
(10,344)
(605)
28,091
1,472
199
29,762
(5,181)
(10,065)
(397)
(16,357)
(15,643)
(24,371)
(27,739)
$
(14,042) $
(13,620)
Through December 31, 2017, Optibase Ltd. had net operating losses carry-forward for tax purposes in Israel of approximately $ 68,000 which may be carried forward and
offset against taxable income in the future, for an indefinite period.
F - 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 13:- TAXES ON INCOME (Cont.)
OPTIBASE LTD.
AND ITS SUBSIDIARIES
As of December 31, 2017, Optibase Inc. had U.S. federal net operating loss carry-forward of approximately $ 37,000 that can be carried forward and offset against taxable
income for 20 years, no later than 2037. Utilization of U.S. net operating losses may be subject to the substantial annual limitation due to the "change in ownership"
provisions of the Internal Revenue Code of 1986, and similar state provisions. The annual limitation may result in the expiration of net operating losses before utilization.
Based upon the weight of available evidence, which includes the Company's historical operating performance and the recorded cumulative net losses in all prior fiscal
periods, the Company has provided a full valuation allowance against it Israeli and U.S deferred tax assets.
f.
Reconciliation of the theoretical tax expenses to the actual tax expenses:
A reconciliation between the theoretical tax expense, assuming all income is taxed at the statutory tax rate applicable to the income of the Company and the actual tax
expense as reported in the statements of operations is as follows:
Year ended
December 31,
2016
2017
2015
Income before taxes as reported
$
4,451
$
4,070
$
2,811
Theoretical tax benefit computed at the statutory rate 24%, 25% and 26.5% for the years 2017, 2016 and 2015,
respectively
Income tax at rate other than the Ltd. statutory tax rate
Tax adjustments in respect of currency translation
Adjustment of deferred tax balances following a decrease in statuary tax rates
Deferred taxes on losses and other temporary differences for which valuation allowance was provided
Taxes for previous years
Other non-deductible expenses
1,068
(226)
33
4,225
(3,600)
(80)
182
1,018
(163)
86
1,229
(638)
-
95
745
5
42
-
463
45
309
Income tax expense
$
1,602
$
1,627
$
1,609
F - 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 13:-
TAXES ON INCOME (Cont.)
f.
Income before taxes on income consists of the following:
Domestic
Foreign
g.
Income tax expenses are comprised as follows:
Current
Deferred
Domestic
Foreign
OPTIBASE LTD.
AND ITS SUBSIDIARIES
Year ended
December 31,
2016
2017
2015
(84) $
4,535
(1,239) $
5,309
4,451
$
4,070
$
(898)
3,709
2,811
Year ended
December 31,
2016
2017
2015
1,771
$
(169)
$
1,801
(174)
1,602
$
1,627
$
$
-
1,602
$
-
1,627
1,602
$
1,627
$
1,648
(39)
1,609
-
1,609
1,609
$
$
$
$
$
$
h.
As of December 31, 2017 and 2016 the Company has no liability for unrecognized income tax benefits, and there was no change in its liability for unrecognized income tax
benefits during all years presented.
NOTE 14:-
SHAREHOLDERS' EQUITY
a.
General:
1.
The Ordinary shares of the Company are traded on the NASDAQ Global Market since April 1999 and on the Tel Aviv Stock Exchange Ltd. Since April 2015.
Ordinary shares confer on their holders the right to receive notice to participate and vote in general meetings of the Company, the right to a share in excess assets
upon liquidation of the Company and the right to receive dividends, if declared.
2.
On December 31, 2013 following the approval of the Company board of directors and the approval of the Company shareholders, the Company issued a net sum of
1,300,580 ordinary shares in consideration for the purchase of twelve luxury condominium units in Miami Beach, Florida from a private companies indirectly
controlled by Capri, The Company's controlling shareholder. See Note 1b(1).
F - 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 14:-
SHAREHOLDERS' EQUITY (Cont.)
b.
Stock options:
OPTIBASE LTD.
AND ITS SUBSIDIARIES
In 1999, the Company adopted an Israeli Option Plan ("1999 Israeli option plan"), and a U.S. Option Plan ("1999 U.S. option plan") (collectively, the "1999 plans"). Under the
terms of the above option plans, options may be granted to employees, officers, directors and consultants. The options generally become exercisable monthly over a four-
year period, commencing one year after date of the grant, subject to the continued employment of the employee. The options generally expire no later than seven years from
the date of the grant.
In May 2003 the Company amended its 1999 Plan to provide for the grant of options to Israeli optionees under Section 102 of the Israeli Tax Ordinance.
The exercise price of the options granted under the above mentioned plans may not be less than the nominal value of the shares into which such options are exercised. Any
options, which are forfeited or cancelled before expiration, become available for future grants.
The total number of options available for future grants as of December 31, 2017 was 511,260.
A summary of the Company's stock option activity, and related information, is as follows:
Outstanding at the beginning of the year
Granted
Forfeited
Exercised
Outstanding at the end of the year
Exercisable options at end of year
Options vested and expected to vest at end of year
Year ended
December 31, 2017
Weighted
average exercise
price
Amount
Weighted
average
remaining
contractual term
(years)
$
81,269
-
(19,269) $
-
62,000
$
62,000
$
62,000
$
9.57
8.41
9.93
9.93
9.93
1.43
0.83
0.83
0.83
The aggregate intrinsic value represents the total intrinsic value (the difference between the Company's closing stock value as of December 31, 2017 and the exercise price,
multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on December 31, 2017.
This amount may change based on the fair market value of the Company's stock. As of December 31, 2017 and 2016, the total intrinsic value of outstanding options was $ 0.
F - 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 14:- SHAREHOLDERS' EQUITY (Cont.)
OPTIBASE LTD.
AND ITS SUBSIDIARIES
As of December 31, 2017, the compensation cost related to options granted under the Company's stock option plans were fully recognized.
c.
Non-vested shares:
In May 2006, the Board of Directors approved the adoption of the 2006 Israeli Incentive Compensation Plan (the "2006 Plan"). The 2006 Plan provides for the grant of
options, restricted shares and restricted share units in accordance with various Israeli tax tracks.
The Company currently uses the 2006 Plan for the grant of restricted shares only.
The restricted shares are granted at no consideration and with a vesting schedule of two years (50% each year). The restricted shares are granted in accordance with the
Israeli capital gains tax track. In November 2013 and in August 2014, the Company's board of directors approved the increase of 50,000 shares and 150,000 shares under the
2006 Plan.
As of December 31, 2017 an aggregate sum of 183,690 ordinary shares has been reserved for issuance under the 2006 Plan, respectively.
A summary of the status of the entity's restricted shares as of December 31, 2017, and changes during the year ended December 31, 2017, is presented below:
Restricted shares
Non-vested at January 1, 2017
Granted
Vested
Non-vested at December 31, 2017
Weighted
average grant
date fair value
Shares
12,000
$
-
(8,000) $
4,000
$
7.42
7.40
7.47
As of December 31, 2017, the compensation cost related to unvested share-based compensation arrangements granted to employees under the Plan were fully recognized.
d.
The total equity-based compensation expense related to all of the Company's equity-based awards, recognized for the years ended December 31, 2017, 2016 and 2015, was
comprised as follows:
General and administrative
15
60
98
Year ended December 31,
2016
2017
2015
F - 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 15:-
FINANCIAL EXPENSES, NET
Financial income (expenses):
Interest
Re-measurement of derivatives
Foreign currency translation adjustments
Other
NOTE 16:- GEOGRAPHIC INFORMATION
Summary information about geographic areas:
OPTIBASE LTD.
AND ITS SUBSIDIARIES
Year ended
December 31,
2016
2017
2015
$
(3,143) $
616
(565)
323
(3,170) $
22
(218)
-
$
(2,769) $
(3,366) $
(2,640)
578
255
-
(1,807)
The Company manages its business on a basis of one reportable segment (see Note 1 for a brief description of the Company activity). The data is presented in accordance with
ASC 280, "Segment Reporting". Revenues in the table below are attributed to geographical areas based on the location of the end customers.
The following present total revenues for the years ended December 31, 2017, 2016 and 2015 and real estate property as of December, 31, 2017, 2016 and 2015:
Switzerland
Germany
United States
2017
2016
2015
Total revenues
Real estate
property, net
Total revenues
Real estate
property, net
Total revenues
Real estate
property, net
$
$
$
12,288
3,268
1,031
$
165,981
32,152
18,593
$
12,104
3,338
896
$
160,089
28,864
18,737
$
12,503
1,914
856
165,371
30,820
18,649
16,587
$
216,726
$
16,338
$
207,690
$
15,273
$
214,840
F - 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 17:- MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
a.
Controlling shareholders:
OPTIBASE LTD.
AND ITS SUBSIDIARIES
To the Company's knowledge there are no arrangements, the operation of which may at a subsequent date result in a change in control of the Company. To the best of The
Company's knowledge, the Company's controlling shareholder, the Capri Family Foundation, holds approximately 73% of the Company's ordinary shares.
b.
Related party transactions:
1.
2.
On July 2013, following the Company audit committee and board of directors approved, in accordance with the Israeli Companies Regulations (Relieves for
Transactions with Interested Parties) of 2000, the receipt of guarantees, (the "Guarantees"), from the Company's controlling shareholder or any affiliate thereof, or
collectively, (the "Controlling Shareholder"), to financing institutions in connection with the Company subsidiaries' or affiliated companies' real estate and real estate
related activities. The purpose of the receipt of the Guarantees is to increase the Company financial resources in order to expand the Company Real Estate Activities.
The Guarantees will be provided by the Controlling Shareholder to financing institutions in for a credit or loan to be provided in the event the Company is unable to
provide sufficient equity in connection with the Real Estate Activities. The Guarantees will be provided for credit or loan amounts that will not exceed $ 20,000 per
year, effective as of July 18, 2013, and up to $ 60,000 for a three-year period. The Guarantees will be in effect for the entire duration of the credit agreement or loan
facility. The Company will not bear any costs or expenses in connection with the provision of the Guarantees and will not indemnify the Controlling Shareholder in
case such Guarantees are exercised.
On May 26, 2015 the Company utilized the guaranty given by its controlling shareholder and drew a total of Euro 5,000 that was used to partially finance the closing
of the Retail Portfolio in Germany transaction. The funds were drawn in a form of a monthly credit facility bearing a yearly rate of approximately 76 basis points
(0.76%). On July 24, 2015 the Company covered the monthly credit facility in full.
On December 19, 2013, and following the approval of the Company's audit committee, compensation committee, board of directors, and the Company's shareholders
the Company approved the compensation terms of Mr. Shlomo (Tom) Wyler, for his service as Chief Executive Officer of the Company's subsidiary Optibase Inc. The
yearly gross base salary will be $ 170 as well as reimbursement of health insurance expenses of up to $ 24 per year, and including reimbursement of reasonable work-
related expenses incurred up to $ 50 per year. On May 16, 2016, following the approval by the Company's compensation committee, audit committee and board of
directors, the Company's shareholders approved an amendment to Mr. Wyler's compensation terms in a manner that Mr. Wyler's annual gross base salary shall be $
200 for a full time position, as of January 1, 2016, as well as reimbursement of health insurance expenses of up to $ 24 per year, and including reimbursement of
reasonable work-related expenses incurred as part of his activities as Chief Executive Officer of Optibase Inc., of up to $ 50 per year.
F - 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 17:- MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS (Cont.)
OPTIBASE LTD.
AND ITS SUBSIDIARIES
3.
4.
5.
6.
On December 19, 2013, and following the approval Of the Company's audit committee, board of directors, and the Company's shareholders approved the a service
agreement between the Company and Mr. Reuwen Schwarz, currently serves also as a member of the Company's board of directors, who is a relative of the
beneficiaries of Capri, the Company's controlling shareholder, for the provision of real estate related consulting services in consideration for a monthly fee of € 4 plus
applicable value added tax (if applicable) and reimbursement for expenses incurred up to € 12 per year. On December 29, 2016, and following the approval by the
Company's audit committee and board of directors, the Company's shareholders approved the extension of Mr. Schwarz' service agreement, which will be in effect
retroactively from November 1, 2016 for a period of three years. Each of Mr. Schwarz and the Company may terminate the service agreement by giving a prior written
notice of 30 days. During such advance notice period, Mr. Schwarz will be required to continue the provision of the services provided by him under the agreement
(unless the Company have instructed him otherwise) and in any event Mr. Schwarz will be entitled to receive the consideration for such period, except for cause.
On December 31, 2013 following the approval of the Company's audit committee, board of directors and the Company's shareholders, the Company, through its
subsidiary Optibase Inc., completed the purchase of twelve (12) residential units in Flamingo South Beach One Condominium and the Continuum on South Beach
Condominium, both located in Miami Beach, Florida from a private companies indirectly controlled by the Company's controlling shareholder (the "seller") for an
aggregate net consideration of $ 7,153 following the set off of rental income of one unit for a period of three years to the seller, representing the fair value of 1.31
million new ordinary shares of the Company issued to the seller.
On October 22, 2014, following the approval by the Company audit committee and board of directors the Company shareholders approved the entrance into a
registration rights agreement with Mr. Shlomo (Tom) Wyler and Capri, for the filing of a registration statement in order to register for resale all of the Company's
Ordinary shares held by them. As of December 31, 2016 registration has not been implemented yet.
On September 17, 2014, following the approval of the Company audit committee and board of directors, the company entered into a transaction to sell the eleven (11)
Flamingo Units, to an unrelated third party, in consideration for an aggregate price of approximately $ 6,411. The transaction was conditioned on the purchaser's
execution of a purchase and sale agreement to acquire an additional nineteen (19) condominium units located in the Flamingo Condominium from a company affiliated
with the Company's controlling shareholder. Therefore, in the interest of caution, the Company treated the transaction as a transaction between a public company
and another party, in which the company's controlling shareholder has personal interest.
F - 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 17:- MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS (Cont.)
OPTIBASE LTD.
AND ITS SUBSIDIARIES
7.
8.
9.
On December 29, 2016, the Company's shareholders approved, following the approval by the Company's audit committee and board of directors, a new lease
agreement to be entered into with an affiliate of Capri, or the Tenant. The new lease will be in effect for a one-year term commencing on January 2, 2017, which will be
automatically extended by a one-year term and up to a total of three years. The Tenant may decide not to extend the New Lease provided that it has given notice to
that effect to the Company at least 45 days before the end of each year. The monthly rent to be paid by the Tenant to the Company is $ 25, including sales tax, the
Rent. The Rent will be increased by 3% every year.
In March 2017, the Company's audit committee and board of directors approved, in accordance with the Israeli Companies Regulations (Relieves for Transactions
with Interested Parties) of 2000, the receipt of a $ 5,118 loan, (the "Loan"), from the Company's controlling shareholder. The Loan was granted to the Company on
March 28, 2017 for the purpose of strengthening the Company's liquidity. The Loan does not bear any interest or linkage differentials and is unsecured. The Loan is
due on April 1, 2019, however, the Company may prepay the Loan prior to such date at its sole discretion without any penalty. The loan was recognized at fair value
to reflect its interest beneficiary terms at the date of the transaction. The difference between the fair value and the loan principal, in the amount of $ 372 is reported as
a reserve from transaction with controlling shareholder in the balance sheet. As of December 31, 2017 an amount of $ 140 was recorded as a finance expense and an
amount of $ 232 is reported in the balance sheet as a direct deduction from the gross amount of the loan and will be amortized throughout the duration of the loan.
In December 2017, following the approval of the Company’s board of directors and compensation committee, the Company's shareholders approved an amendment to
the Company’s undertaking to indemnify Mr. Shlomo (Tom) Wyler, the Chief Executive Officer of the Company’s subsidiary Optibase Inc. who is affiliated with the
controlling shareholder of the Company; and Mr. Reuwen Schwarz, a member of the Company’s Board of Directors, who is affiliated with the controlling shareholder
of the Company, to the fullest extent permitted by the Companies Law and our articles of association. The aggregate indemnification amount shall not exceed the
higher of: (i) 25% of the Company shareholders’ equity, as set forth in the Company’s financial statements prior to such payment; or (ii) $20 million.
F - 43
300 RIVER HOLDINGS, LLC
(a Delaware limited liability company)
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
F - 44
300 RIVER HOLDINGS, LLC
(a Delaware limited liability company)
Contents
Consolidated Financial Statements
Report of Independent Certified Public Accountant
Consolidated balance sheets as of December 31, 2017 and 2016
Consolidated statements of operations for the years ended December 31, 2017 and 2016
Consolidated statements of members’ deficit for the years ended December 31, 2017 and 2016
Consolidated statements of cash flows for the years ended December 31, 2017 and 2016
Notes to consolidated financial statements
F - 45
Page
F - 46
F - 47
F - 48
F - 49
F - 50
F - 51
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To The Members of
300 River Holdings LLC
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of 300 River Holdings LLC (the "Company") as of December 31, 2017 and 2016, and the related consolidated statements of
operations, members’ deficit, and cash flows for the years ended December 31, 2017 and 2016, and the related notes (collectively referred to as the "financial statements"). In our opinion, the
financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2017 and 2016, and the consolidated results of their operations
and their cash flows for each of the years in the two-year period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are
a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over
financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the
effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to
those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a
reasonable basis for our opinion.
We have served as the Company’s auditor since 2011.
/s/ EISNERAMPER LLP
New York, New York
March 28, 2018
F - 46
300 River Holdings, LLC
(a Delaware limited liability company)
Consolidated Balance Sheets
ASSETS
Real estate, net of accumulated depreciation
Cash
Segregated cash and other escrows
In-place and other lease values, net of accumulated amortization of $38,046,694
and $37,335,190, respectively.
Tenant account receivable
Current
Unbilled straight-line rent
Prepaid Expenses and other assets
Deferred leasing costs, net of accumulated amortization of $4,681,639 and $3,365,394, respectively.
LIABILITIES AND MEMBERS DEFICIT
Lease financing obligation, less unamortized value of deferred lease financing
costs, including accrued interest of $2,088,884 and $1,340,785, respectively.
Notes payable
Mortgage payable
Accounts payable, accrued expenses and other liabilities
Below market lease values, net of accumulated amortization of $46,396,063 and
$46,005,562, respectively
Commitments and contingencies (Note I)
Members' deficit
See notes to consolidated financial statements
F - 47
December 31,
2017
December 31,
2016
$
$
205,954,819
1,600,282
60,021,513
181,500,970
1,159,374
11,845,203
1,415,721
2,127,225
735,524
9,020,360
260,315
17,459,273
343,582
5,607,700
1,216,388
15,231,117
$
296,467,807
$
219,031,559
$
213,120,691
-
171,943,695
6,316,762
$
212,279,240
75,000,000
8,735,471
1,850,967
2,371,635
393,232,115
298,386,346
(96,764,308)
(79,354,787)
$
296,467,807
$
219,031,559
300 River Holdings, LLC
(a Delaware limited liability company)
Consolidated Statements of Operations
For The Years Ended December 31,
Revenue:
Base rent
Escalation and other income
Amortization of acquired below market leases
Expenses:
Depreciation and amortization
Operating expenses
Real estate taxes
Management fees
Operating income
Interest including amortization of deferred financing costs of $93,350, and $93,350, respectively and
related party interest of $3,693,394, and $3,129,229, respectively
Net loss
See notes to consolidated financial statements
F - 48
2017
2016
$
$
16,356,447
12,268,628
520,668
15,379,671
15,012,537
3,288,769
29,145,743
33,680,977
9,974,917
11,923,628
6,275,477
796,197
11,391,330
13,360,786
5,680,623
1,067,626
28,970,219
31,500,365
175,524
2,180,612
(17,688,251)
(13,914,762)
$
(17,512,727) $
(11,734,150)
300 River Holdings, LLC
(a Delaware limited liability company)
Consolidated Statements of Members' Deficit
Balance - January 1, 2016
Net Loss
Member's Distributions
Balance - January 1, 2017
Net loss
Contributions
Balance - December 31, 2017
See notes to consolidated financial statements
F - 49
$
(67,430,037)
(11,734,150)
(190,600)
(79,354,787)
(17,512,727)
103,206
$
(96,764,308)
300 River Holdings, LLC
(a Delaware limited liability company)
Consolidated Statement of Cash Flows
Year Ended December 31,
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization
Amortization of below market leases
Accrued interest on notes payable
Unbilled straight-line rental income
Lease financing obligation
Bad debt expense
Changes in assets and liabilities:
Tenant accounts receivable
Other assets
Accounts payable, accrued expenses and other liabilities
Net cash used in operating activities
Cash flows from investing activities:
Additions to leasing cost
Additions to real estate
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from notes payable
Repayment of notes payable
Proceeds from mortgage payable
Additions to financing costs
Contributions by member
Distribution to members
Net cash provided by financing activities
Net increase in cash, cash equivalents and escrows
Cash, cash equivalents and escrows at beginning of period
Cash, cash equivalents and escrows at end of period
Supplemental disclosures of cash flow information:
Interest paid
Supplemental disclosures of noncash investing activities:
Accrued additions to real estate
Accrued additions to leasing costs
The following table provides a reconciliation of cash, cash equivalents and escrows reported within the balance sheet:
Cash and cash equivalents
Segregated cash and other escrows
Total cash, cash equivalents and escrows shown in the statement of cash flows
2017
2016
$
(17,512,727) $
(11,734,150)
10,068,269
(520,668)
-
(3,412,660)
748,099
-
(391,942)
956,073
(2,390,516)
11,484,680
(3,288,769)
2,400,000
(680,417)
725,980
743,308
367,208
(834,808)
751,244
(12,456,072)
(65,724)
(4,435,230)
(31,538,381)
(4,750,682)
(5,136,943)
(35,973,611)
(9,887,625)
26,600,000
(101,600,000)
175,000,000
(3,056,305)
103,206
-
15,000,000
-
-
-
-
(190,600)
97,046,901
14,809,400
48,617,218
13,004,577
4,856,051
8,148,526
$
61,621,795
$
13,004,577
$
19,299,760
$
11,421,412
$
$
862,636
292,345
$
$
-
1,183,174
December 31, 2017
1,600,282
60,021,513
61,621,795
December 31, 2016
1,159,374
11,845,203
13,004,577
Amounts included in segregated cash and other escrows as of December 31, 2017 represent tenant security deposits, cash received through the Company's lockbox bank account and monies
required to be set aside by the Mortgage note payable. Amounts included in segregated cash and other escrows as of December 31, 2016 represent tenants security deposits, cash received
through the Company's lockbox bank account, monies set aside by ownership for certain annual expenses and monies required to be set aside by various contractual agreements which were
released during 2017.
See notes to consolidated financial statements
F - 50
300 RIVER HOLDINGS, LLC
(a Delaware limited liability company)
Notes to Consolidated Financial Statements December 31, 2017 and 2016
NOTE A - ORGANIZATION
300 River Holdings, LLC, a Delaware limited liability company ("Holdings"), was formed on September 21, 2010 between 300 River Plaza One LLC (the "70% Member") and WKEM
Riverside Member LLC (the "Original 30% Member") (collectively, the "Original Members").
Holdings owns a 100% interest in the following Subsidiaries (all Delaware single member limited liability companies):
•
•
•
South Riverside Building LLC (the "Building LLC")
South Riverside Mezz LLC (the “Mezz LLC”)
300 Riverside Master Lease LLC (the “Master Lease LLC”)
Holdings and Subsidiaries are collectively referred to as the Company. The purpose of the Company is to acquire, own, and operate a commercial office building and all related
tangibles and intangibles at 300 South Riverside Plaza, Chicago, IL (the "Property").
In a transaction accounted for as a purchase business combination (see Note B[6]) on December 29, 2010 (the "Closing Date"), the Building LLC acquired the Property and the
Rights LLC acquired the related land, which was then leased to Building LLC (the "Lease") for $190 million, including the assumption of the existing mortgage notes on the land of
approximately $24 million. The Company incurred closing costs of approximately $3.1 million in connection with this transaction, which were expensed.
On February 10, 2015 (the "Sale Date"), the Company sold the Property for $220 million and simultaneously re- leased the Property (See Note F with respect to the accounting for
this transaction as a financing).
On December 28, 2015 (the "Interest Transfer Date") in connection with a series of transactions the Company admitted a new member and redeemed out a member, resulting in net
additional capital contributions of approximately $6 million. Also, on the Interest Transfer Date, the Company issued notes to the 70% and the Original 30% Member in the
principal amounts of $42 million and $18 million, respectively, (See Note H) and made a non-cash distribution of $60 million to the Original Members.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
[1]
Basis of presentation
The accompanying consolidated financial statements include the accounts of Holdings and its Subsidiaries. All significant intercompany balances and transactions have
been eliminated in consolidation.
[2]
Use of estimates:
The accompanying financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
F - 51
300 RIVER HOLDINGS, LLC
(a Delaware limited liability company)
Notes to Consolidated Financial Statements December 31, 2017 and 2016
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[3]
Concentration of credit risk:
Cash balances are insured up to a $250,000 maximum aggregate balance. The Company places its cash investments with high-credit-qualified financial institutions which
account balances, at times, exceed the federally insured limits. The Company's policy is to maintain funds only with financial institutions which it considers reputable and
where management believes that the risk of loss is minimal.
[4]
Deferred costs:
Deferred costs consist of fees and costs incurred to obtain the finance lease and to obtain the mortgage payable. Such costs are being amortized on the straight-line basis
over the term of the lease (99 years) and the mortgage (10 years). Such amortization is included in interest expense in the accompanying consolidated statement of
operations.
Deferred leasing costs are being amortized using the straight-line method over the terms of the related leases. Such amortization is included in depreciation and amortization
in the accompanying consolidated statement of operations.
[5]
Real estate:
Real estate is carried at cost. The building, building improvements and site improvements are being depreciated on the straight-line basis over an estimated useful life of 40
years. The leasehold interest in the platform on which the building sits is being amortized over the life of the lease (99 years).
In accordance with Accounting Standards Codification ("ASC") Topic 360, the Real Estate is evaluated for impairment whenever indicators of impairment exist. If an
indicator of impairment exists, the estimated future cash flows of the Real Estate are compared, on an undiscounted basis, to its carrying value. If the undiscounted cash
flows exceed the carrying value, no impairment is indicated. If the undiscounted cash flows do not exceed the carrying value, then an impairment write-down is measured
based on fair value compared to carrying value, with fair value typically based on a discounted cash flow analysis or an income capitalization model. There were no
indications of impairment for the year ended December 31, 2017.
[6]
Purchase accounting for acquisition of real estate:
In accordance with the guidelines outlined in ASC Topic 805, and based on an evaluation by the Company utilizing an independent appraisal, the estimated fair value of the
Property as of the date of acquisition was allocated to (i) the acquired tangible assets consisting of a leasehold interest and (ii) the identified intangible assets and liabilities
consisting then of above-market, below-market, and in-place lease values, including various lease origination costs and assumed debt at purchase was adjusted to fair value.
The fair value of the Property's acquired tangible assets is determined by valuing the Property as if it were vacant. The "as-if-vacant" value is then ascribed to land and
building and all acquired intangibles based on fair value.
The identified intangible assets included (i) above market lease values, representing the favorable element of contractual rents in excess of prevailing market rents for certain
existing leases; (ii) in-place lease values, representing the lost revenues during the lease-up period to achieve the Property's occupancy level at the time of acquisition; and
(iii) lease origination costs (legal, marketing, commissions, tenant improvements, etc.) that would have been incurred to procure the existing leases. Above market lease
values were amortized over the remaining non-cancelable lease term of such leases. In-place lease values and lease origination costs are amortized over the remaining
non-cancelable lease term of each lease.
F - 52
300 RIVER HOLDINGS, LLC
(a Delaware limited liability company)
Notes to Consolidated Financial Statements December 31, 2017 and 2016
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[6] Purchase accounting for acquisition of real estate (Continued):
Below market lease values, an intangible credit, represents the unfavorable element of contractual rents below prevailing market rents for existing leases. Such credit is
amortized over the estimated remaining term of the leases, including anticipated and estimated renewal periods (approximately 10 years).
In the event a tenant vacates prior to the end of their lease term, any unamortized intangible lease values associated with such lease are written off to operations as of the
date of vacancy.
[7]
Revenue recognition and unbilled straight-line rent:
In accordance with ASC Topic 820, base rental revenue generated from leases is recognized on a straight- line basis over such term. Such amounts in excess of amounts
currently receivable per the terms of the leases are reflected as unbilled straight-line rent in the accompanying balance sheet.
The Company makes estimates of the uncollectibility of its accounts receivable based on all the facts and circumstances surrounding each tenant account. An allowance
for doubtful accounts has been provided for tenant accounts receivable that are estimated to be uncollectable. Once an amount is deemed uncollectible it is written off.
[8]
Income taxes:
No provision has been made in the accompanying financial statements for any liability for federal, state or local taxes since each item of income, gain or loss, deduction or
credit is reportable for income tax purposes by the Company's Members.
In accordance with the provisions of Accounting Standards Codification ("ASC") 740-10-05, management is required to determine whether a tax position of the Company is
more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the
technical merits of the position. The Company has evaluated whether it has any uncertain tax positions and has determined that there are none that would materially impact
the financial position of the Company.
[9] Debt issuance costs:
Effective July 1, 2015, the Company adopted Financial Accounting Standards Board ("FASB") Accounting Standards Update ("ASU") 2015-03, Interest-Imputation of
Interest (Subtopic 835-30): which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the
carrying amount of that debt liability, consistent with debt discounts.
Debt issuance costs are amortized to interest expense over the term of the related debt.
[10] Subsequent events:
Management has evaluated events occurring through March 28, 2018, the date the financial statements were available for issuance.
F - 53
300 RIVER HOLDINGS, LLC
(a Delaware limited liability company)
Notes to Consolidated Financial
NOTE C – RECENTLY ISSUED ACCOUNTING STANDARDS
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers”, which
is effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2016. In August 2015, the FASB extended the effective date by one year to
years beginning on and after December 15, 2017. The standard may be adopted as early as the original effective date but early adoption prior to that date is not permitted. ASU
No. 2014-09 outlines a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue
recognition guidance, including industry specific guidance. The Company determined this guidance will have no material impact on the financial statements.
In September 2016, FASB issued ASU No. 2016-03, “Financial Instruments - Credit Losses" (ASU 2016-03). ASU 2016-03 requires measurement and recognition of expected credit losses
for financial assets held. The update is effective for the Company beginning January 1 2020. The Company is continuing to evaluate this guidance however, it does not expect the
adoption of ASU 2016-03 to have a significant impact on its financial statements.
In November 2016, the FASB issued ASU 2016-18, "Statement of Cash Flows" (ASU 2016-18), which is effective for fiscal years and interim periods within those year, beginning
after December 15, 2017. Early adoption is permitted, including adoption in an interim period. ASU No. 2016-18 requires that a statement of cash flows explain the change during
the period in the total of cash, cash equivalents, and amounts generally described as
restricted cash or restricted cash equivalents. The Company elected to adopt ASU 2016-18 as of December 31, 2017. The applicable amendments of ASU 2016-18 have been applied
retrospectively to all periods presented.
In January 2017, the FASB issued ASU 2017-01, "Business Combinations: Clarifying the Definition of a Business" (ASU 2017-01), which amends guidance that assists preparers in
evaluating whether a transaction will be accounted for as an acquisition of an asset or a business, likely resulting in more acquisitions being accounted for as asset acquisitions. There
are certain differences in accounting under these models, including the capitalization of transaction expenses and application of a cost accumulation model in an asset acquisition. The
standard is effective for annual periods beginning after December 15, 2017, including interim periods within those periods with arely adoption permitted for certain transactions. The
Company is currently evaluating the potential impact of this standard.
In February 2017, the FASB issued Accounting Standards Update 2017-02, “Leases” (ASU 2017-02). The standard requires that lessees recognize lease assets and lease liabilities
on the balance sheet for all leases with a lease term greater than 12 months. ASU 2017-02 is effective for fiscal years and interim periods within those years beginning after
December 15, 2018 and requires a modified retrospective approach to adoption. Early adoption is permitted. The Company determined this guidance will have no material impact
on the financial statements.
NOTE D - REAL ESTATE
As of December 31, 2017 and 2016 the Company's real estate consisted of the following:
Leasehold interest
Building and improvements
Tenant improvements
Equipment
Less: accumulated depreciation
F - 54
December 31,
2017
2016
$
25,310,232 $
171,427,267
64,328,188
1,729,420
25,310,232
161,698,219
41,656,219
1,729,420
262,795,107
230,394,090
(56,840,288)
(48,893,120)
$
205,954,819 $
181,500,970
300 RIVER HOLDINGS, LLC
(a Delaware limited liability company)
Notes to Consolidated Financial
NOTE E - DEFERRED LEASING COSTS AND OTHER LEASE INTANGIBLES
As of December 31, 2017 and 2016, the Company's deferred leasing costs consisted of the following:
In-place and other lease intangibles
Less: accumulated amortization
Below market lease values
Less: accumulated amortization
Amortization for the next five years is as follows:
Year Ending December 31, 2017
2018
2019
2020
2021
2022
December 31,
2017
2016
$
39,462,415 $
39,462,415
(38,046,694)
(37,335,190)
$
1,415,721 $
2,127,225
December 31,
2017
2016
$
(48,377,197) $
(48,377,197)
46,526,230
46,526,230
$
(1,850,967) $
(2,371,635)
In-Place and
Other
Lease
Intangibles
Below Market
Value Leases
(516,929)
(495,931)
(274,517)
(233,748)
(233,748)
705,367 $
486,843
116,257
44,484
44,484
$
F - 55
300 RIVER HOLDINGS, LLC
(a Delaware limited liability company)
Notes to Consolidated Financial
NOTE F - LEASE FINANCING OBLIGATION
On February 10, 2015 (the "Sale Date"), the Company sold the Property for $220,000,000 (the "Obligation Principal") and simultaneously entered into a related lease through
February 2114 (the "Maturity Date"). The lease requires minimum monthly payments aggregating $9,900,000 annually (the "Lease Payment") until the Maturity Date. Commencing
February 2015, the Land Lease Payment shall be increased by an amount calculated by a formula, as provided in the lease agreement, which is based on the increase in CPI subject
to a cap in certain years plus an additional $500,000 annual increase every tenth year. The proceeds of the sale were used to pay the then existing mortgage debt and accrued
interest thereon with the balance distributed to the Members.
In accordance with Accounting Standards Codification ("ASC") Topic 840, the sale of the Property was not recognized, accordingly, the lease has been treated as a financing
transaction for financial reporting purposes. Upon closing of the transaction, the Company recorded a lease financing obligation in the amount of the Obligation Principal, net of
the related costs of the transaction (approximately $9,242,000). The minimum payments provided under the financing obligation results in an effective interest rate of 4.84% thru
January 31, 2017, 4.92% thru January 31, 2018 and 5.02% thereafter, as a result of the change in CPI creating an increased minimum rent payment. Given the current effective rate of
4.92% on the obligation, annual interest expense is expected to exceed the payment requirements through approximately the 40th anniversary of the Lease. For the years ended
December 31, 2017 and 2016 the required minimum rent payments made by the Company were approximately $10,162,000 and $9,966,000, respectively. Total interest expense for the
Lease Financing Obligation for the years ended December 31, 2017 and 2016 was approximately $10,910,000 and $10,692,000, respectively.
NOTE G – MORTGAGE PAYABLE
A-Note
B-Note
Mezz Note
Less: unamortized debt issuance costs
Rate
December
31, 2017
4.61%* $ 100,000,000
50,000,000
5.80%*
25,000,000
8.46%*
175,000,000
3,056,305
$ 171,943,695
*The weighted average interest rate for the notes is 5.50% per annum
[1] Senior notes:
On November 20, 2017 (the "Mortgage Closing Date"), the Building LLC (the "Senior Borrower") entered into a loan agreement (the "Senior Note Agreement") with unrelated lenders (the
"Senior Lenders") to borrow a principal amount of $150,000,000 (the "Senior Notes").
The Senior Notes, which are collateralized by the building and an assignment of its rent and leases, mature on November 6, 2022 (the "Mortgage Maturity Date"), at which time its entire
principal is due and payable. The Senior Notes require monthly payments of interest only equal to the rates reflected above per annum (based on a 360-day year) until the Maturity Date.
The Senior Notes are also jointly and severally guaranteed by individuals affiliated with the Members.
On the Mortgage Closing Date, pursuant to the Senior Note Agreement, the Senior Borrower deposited into escrow reserve accounts approximately (i) $16,700,000 for a tenant
improvement and leasing commission reserve, (ii) $10,623,000 for a master lease reserve, (iii) $10,358,000 for a free rent reserve, (iv) $19,372,000 for unfunded obligations related to lease in
place at the Mortgage Closing Date (v) $2,142,000 in real estate tax funds, (vi) $266,000 in insurance funds, (vii) $848,000 in ground rent funds and (viii) $150,000 in maintenance funds.
Release of escrow funds for approved expenditures require the approval of the lender. The Borrower is also required to deposit funds on a monthly basis into escrow accounts for real
estate taxes and insurance. At December 31, 2017 the total balance of these accounts was approximately $57,602,000.
The Company can prepay the Senior Notes without penalty following the fourth anniversary of the Mortgage Closing Date.
Under the Senior Loan Agreement, the Company is required to deposit all rental revenue received into a restricted account, which is under the Lender's control. At December 31, 2017 the
balance of this account was approximately $2,409,000.
[2] Mezz-Note:
On the Mortgage Closing Date, the Mezz LLC (the "Mezz Borrower") entered into a loan agreement (the "Mezz Note Agreement") with an unrelated lender (the "Mezz Lender") to borrow
a principal amount of $25,000,000 (the "Mezz Note").
The Mezz Note, which is collateralized by the building and an assignment of its rent and leases, matures on the Mortgage Maturity Date, at which time its entire principal is due and
payable. The Mezz Note requires monthly payments of interest only equal to 8.46% per annum (based on a 360-day year) until the Mortgage Maturity Date, at which time the entire
outstanding principal amount of the note is due. The Mezz Note is also jointly and severally guaranteed by individuals affiliated with the Members.
The Company can prepay the Mezz Note without penalty following the fourth anniversary of the Mortgage Closing Date.
F - 56
300 RIVER HOLDINGS, LLC
(a Delaware limited liability company)
Notes to Consolidated Financial
NOTE H – NOTES PAYABLE
[1] Notes Payable - related party:
On the Interest Transfer Date, the Company issued notes to the 70% Member and the Original 30% Member in the principal amounts of $42,000,000 and $18,000,000, respectively.
The notes provided for interest ranging from 4% to 12% per annum through maturity in December 2022. Principal and interest were payable from available cash flow, as provided in
the Company's operating agreement. The notes were repaid on the Mortgage Closing Date with the funds received from the mortgage. Total interest expense for the notes
payable-related party for the years ended December 31, 2017 and 2016 was approximately $2,169,000 and $2,400,000, respectively.
[2] Notes Payable:
During 2016, the Company issued notes in the amount of $15,000,000, $7,725,000 of which were to members and affiliates of the Company. The notes provided for interest at 12% per annum.
Principal and interest were payable from available cash flow, as provided for in the Company's operating agreement.
During 2017, the Company issued additional notes in the amount of $26,600,000, of which $10,225,000 were to members and affiliates of the Company, under substantially the same
terms as previously noted. Total interest expense for the notes payable approximately $3,397,000 and $729,000 in 2017 and 2016, of which approximately $1,524,000 and $491,000,
was with members and affiliates of the Company, respectively.
The notes were repaid on the Mortgage Closing Date with the funds received from the mortgage.
NOTE I - TENANT LEASES
[1]
[2]
Space in the Property is leased to various tenants under operating leases which generally provide for renewal options and additional rentals based on increases in real estate taxes and
certain operating expenses.
Base rent from the five largest tenants in the Property (who collectively occupy approximately 45% of the building's rentable square footage during 2017) accounted for approximately
69% of the building's base rental income for the year ended December 31, 2017. The leases with such tenants expire from August of 2019 through April of 2026. For the year ended
December 31, 2016, base rent from the two largest tenants in the Property (who collectively occupied approximately 55% of the building's rentable square footage during 2016) accounted
for approximately 44% of the building's base rental income.
[3]
As of December 31, 2017, future minimum rentals under the Company's operating leases with its tenants,
for the next five years and thereafter are approximately as follows:
2018
2019
2020
2021
2022
Thereafter
F - 57
Total
17,816,000
17,397,000
17,634,000
17,942,000
18,113,000
101,095,000
$ 189,997,000
300 RIVER HOLDINGS, LLC
(a Delaware limited liability company)
Notes to Consolidated Financial
NOTE J - RELATED PARTY TRANSACTIONS
During the years ended December, 31, 2017 and 2016 the Property was managed by an affiliate of the Member (the “Manager”), pursuant to the annual management agreement, which
renews automatically unless terminated by either party, for 3.5% of gross revenue. The Company incurred approximately $796,000 and $1,068,000 for the year ended December 31, 2017
and 2016, respectively, of the property management fees with the Manager.
An affiliated party (the “Affiliate”) acting in a professional capacity provided legal services to the Property, for which the Affiliate was paid $96,000 for each of the years ended
December 31, 2017 and 2016. In addition, affiliates of the Managing member were paid approximately $201,000 and $235,000 for the years ended December 31, 2017 and 2016,
respectively. These amounts are included in legal and professional fees.
Advances from affiliates represent operating expenses on behalf of the Company by and affiliate. Such balances are non-interest bearing and are due on demand.
Pursuant to an informal arrangement the Company incurs approximately $650,000, annually, to a related entity for the estimated maintenance costs of the plenum located in the Property
and under the Property subject to
adjustment for out of pocket expenses incurred directly by the Company. During the year ended December 31, 2017, the Company was reimbursed approximately $1,000,000 from a
related entity for the maintenance costs relating to the plenum for expenses incurred in prior periods. Approximately $100,000 of this amount is included in Accounts payable, accrued
expenses and other liabilities as of December 31, 2017 on the accompanying consolidated balance sheets, representing the estimated amount of common area maintenance that may be
due to tenants. The balance has been recorded as a reduction of repairs and maintenance which is included in Operating expenses on the consolidated statement of operations. For the
years ended December 31, 2017 and 2016 the net effect of the transactions between the Company and the related entity were approximately ($260,000) and $1,300,000, respectively,
which are included in Operating expenses on the consolidated statement of operations. As of December 31, 2017 the Company has recorded receivables of approximately $452,000
representing maintenance costs incurred by the Company related to the plenum, which are included in Tenant accounts receivable - current on the consolidated balance sheet.
F - 58
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its
SIGNATURES
behalf.
Date: March 28, 2018
OPTIBASE LTD.
By: /s/ Amir Philips
Name: Amir Philips
Title: Chief Executive Officer
- 98 -
Exhibit Number
1.1
1.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
4.13
4.14
4.15
EXHIBIT INDEX
Description of Document
Amended and Restated Memorandum of Association of Optibase Ltd. (incorporated by reference to Exhibit 3.1 to the Registrant's Report on Form 6-K dated February 19,
2002).
Amended and Restated Articles of Association of Optibase Ltd. (incorporated by reference to Exhibit 1.2 to the Registrant's Annual Report on Form 20-F dated April 30,
2014).
Form of Letter of Indemnification between Optibase, Inc. and its directors and officers (incorporated by reference to Exhibit 4.9 to the Registrant’s Annual Report on Form
20-F for the fiscal year ended December 31, 2002).
1999 Israel Share Option Plan, as amended (incorporated by reference to exhibits filed with the Registrant’s Annual Report on Form 20-F for the fiscal year ended December
31, 1999).
102 Plan (incorporated by reference to exhibits filed with the Registrant’s Annual Report on Form 20-F for the fiscal year ended December 31, 1999).
2003 Amendment to the 1999 Israel Share Option Plan (incorporated by reference to Exhibit 4.(c).9 to the Registrant’s Annual Report on Form 20-F for the fiscal year ended
December 31, 2003).
2006 Israeli Incentive Compensation Plan (incorporated by reference to Exhibit 4.1 to the Registrant’s Registration Statement on Form S-8 (File no. 333-137644)).
Agreement between Optibase RE 1 SARL and Basler Kantonalbank dated October 28, 2009 (incorporated by reference to Exhibit 4.5 to the Registrant’s Annual Report on
Form 20-F for the fiscal year ended December 31, 2009)
Framework Agreement between Eldista GmbH and CREDIT SUISSE AG dated October 6, 2011 (incorporated by reference to Exhibit 4.7 to the Registrant’s Annual Report on
Form 20-F for the fiscal year ended December 31, 2011).
Security Agreement between Eldista GmbH and CREDIT SUISSE AG dated October 6, 2011 (incorporated by reference to Exhibit 4.8 to the Registrant’s Annual Report on
Form 20-F for the fiscal year ended December 31, 2011).
Framework Agreement between OPCTN S.A. and CREDIT SUISSE AG dated October 6, 2011 (incorporated by reference to Exhibit 4.9 to the Registrant’s Annual Report on
Form 20-F for the fiscal year ended December 31, 2011).
Deed of Pledge Agreement between OPCTN S.A. and CREDIT SUISSE AG dated October 6, 2011 (incorporated by reference to Exhibit 4.10 to the Registrant’s Annual
Report on Form 20-F for the fiscal year ended December 31, 2011)
Shareholders Agreement between The Phoenix Pension and Provident Fund Ltd., The Phoenix Insurance Company Ltd., and Optibase Ltd. Dated February 28, 2011
(incorporated by reference to Exhibit 4.13 to the Registrant’s Annual Report on Form 20-F for the fiscal year ended December 31, 2015).
Purchase and Transfer Agreement between Optibase Bavaria GmbH & Co. KG, Lincoln Dreizehnte Deutche Grundstucksgellschaft mbH and Lincoln Land Passau GmbH,
dated December 18, 2014 (unofficial English translation) (incorporated by reference to Exhibit 4.14 to the Registrant’s Annual Report on Form 20-F for the fiscal year ended
December 31, 2014).
Purchase and Sale Agreement between Optibase FMC, LLC and Flamingo South Acquisitions, LLC, dated September 16, 2014 (incorporated by reference to Exhibit 4.15 to
the Registrant’s Annual Report on Form 20-F for the fiscal year ended December 31, 2014).
Loan Agreement between Optibase Bavaria GmbH & Co KG, and Deutsche Genossenschafts-Hypothekenbank Aktiengesellschaft, dated May 4, 2015 (unofficial English
translation) (incorporated by reference to Exhibit 4.14 to the Registrant’s Annual Report on Form 20-F for the fiscal year ended December 31, 2015).
First Amendment to the Loan Agreement between Optibase Bavaria GmbH & Co KG, and Deutsche Genossenschafts-Hypothekenbank Aktiengesellschaft (dated May 4,
2015), dated November 10, 2015 (unofficial English translation) (incorporated by reference to Exhibit 4.15 to the Registrant’s Annual Report on Form 20-F for the fiscal year
ended December 31, 2015).
- 99 -
Exhibit Number
4.16
4.17
4.18*
4.19
4.22
6.1*
8.1
11.1
12.1*
12.2*
13.1*
13.2*
15.1*
15.2*
101*
Description of Document
Contribution Agreement between Optibase Chicago 300 LLC, 300 River Holdings LLC, 300 River Plaza One LLC and WKEM Riverside Member LLC, dated December 28,
2015 (incorporated by reference to Exhibit 4.16 to the Registrant’s Annual Report on Form 20-F for the fiscal year ended December 31, 2015).
Amended and Restated Limited Liability Company Agreement of 300 River Holdings LLC between Optibase Chicago, LLC and 300 River Plaza One LLC, dated December 28,
2015 (incorporated by reference to Exhibit 4.17 to the Registrant’s Annual Report on Form 20-F for the fiscal year ended December 31, 2015).
Loan Agreement between Optibase Real Estate Miami, LLC and City National Bank of Florida, dated July 1, 2015 as amended on November 17, 2017.
Deed of Trust for Series A Bonds between Optibase Ltd. and Hermetic Trust (1975) Ltd., dated August 2, 2015 (unofficial English translation) (incorporated by reference to
Exhibit 4.19 to the Registrant’s Annual Report on Form 20-F for the fiscal year ended December 31, 2015).
Registration Rights Agreement between Optibase Ltd., The Capri Family Foundation and Mr. Shlomo (Tom) Wyler, dated September 4, 2014 (incorporated by reference to
Exhibit 4.13 to the Registrant’s Annual Report on Form 20-F for the fiscal year ended December 31, 2014).
Form of Letter of Indemnification between Optibase, Ltd. and its directors and officers, as Amended on December 21, 2017.
List of the subsidiaries of Optibase Ltd. (incorporated by reference to Exhibit 8.1 to the Registrant’s Annual Report on Form 20-F for the fiscal year ended December 31,
2015).
Code of Business Conduct and Ethics, as last adopted by Optibase Ltd. Board of directors on September 5, 2016 (incorporated by reference to Exhibit 11.1 to the
Registrant’s Annual Report on Form 20-F for the fiscal year ended December 31, 2016)
Certification by Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Certification by Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Certification by Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification by Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Consent of Kost, Forer Gabbay & Kasierer, a member of Ernst & Young Global.
Consent of EisnerAmper LLP Accountants and Advisors.
The following financial information from Optibase Ltd.'s Annual Report on Form 20-F for the year ended December 31, 2017, formatted in XBRL (eXtensible Business
Reporting Language): (i) Consolidated Balance Sheets as of December 31, 2017 and 2016; (ii) Consolidated Statements of Operations for the years ended December 31, 2017,
2016 and 2015; (iii) Consolidated Statements of Comprehensive Income for the years ended December 31, 2017, 2016 and 2015; (iv) Consolidated Statements of Changes in
Shareholders’ Equity for the years ended December 31, 2017, 2016 and 2015; (v) Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and
2015; and (vi) Notes to Consolidated Financial Statements.
* Filed herewith
- 100 -
AMENDMENT AND RATIFICATION OF LOAN AGREEMENT
Exhibit 4.18
THIS AMENDMENT AND RATIFICATION OF LOAN AGREEMENT (this “Agreement”) is entered into on this 17th day of November, 2017, by and between OPTIBASE REAL ESTATE
MIAMI, LLC, a Delaware limited liability company (the “Borrower”) and CITY NATIONAL BANK OF FLORIDA, its successors and/or assigns (the “Lender”).
RECITALS:
A. Borrower requested and Lender agreed to make a term loan to Borrower in the principal amount of FIFTEEN MILLION AND 00/100 DOLLARS ($15,000,000.00) (the “Loan”), as
evidenced by that certain Promissory Note dated as of June 7, 2015 from Borrower in favor of Lender in the original principal amount of FIFTEEN MILLION AND 00/100 DOLLARS
($15,000,000.00) (the “Original Note”), which Original Note is secured, in part, by that certain Mortgage, Assignment of Rents and Security Agreement dated as of July 7, 2015, from Borrower in
favor of Lender, recorded in Official Records Book 29690, at Page 1805, of the Public Records of Miami-Dade County, Florida (the “Mortgage”). In connection with the execution of the Original
Note, Borrower and Lender entered into that certain Loan Agreement dated as of July 7, 2015 (the “Loan Agreement”).
B. In connection with the making of the Loan, OPTIBASE, INC., a California corporation (the “Guarantor”) executed and delivered to Lender that certain Guaranty of Payment and
Performance dated as of July 7, 2015 (the “Guaranty”).
C. Borrower has now requested and Lender has agreed to modify the Loan, as evidenced by that certain Amended and Restated Promissory Note dated as of even date herewith
from Borrower in favor of Lender in the original principal amount of NINE MILLION THREE HUNDRED EIGHTY-NINE THOUSAND SEVEN HUNDRED TWENTY-THREE AND 00/100
DOLLARS ($9,389,723.00) (as the same may be amended or modified from time to time, the “Note”), which Note amends, restates, replaces and supersedes the Original Note, in its entirety, and is
secured, in part, by the Mortgage, as modified by that certain Mortgage Modification Agreement dated as of even date herewith (the “Mortgage Modification”) and that certain Pledged
Collateral Agreement dated as of even date herewith from Borrower in favor of Lender (as the same may be amended or modified from time to time, the “Pledged Collateral Agreement”). In
connection with the execution of the Note, Borrower and Lender are entering into this Agreement.
D. In connection with the modification of the Loan, Guarantor is executing and delivering to Lender that certain Amendment and Ratification of Guaranty of Payment and
Performance dated as of even date herewith (the “Ratification of Guaranty”).
E. The Loan Agreement, as modified by this Agreement, is hereinafter referred to as the “Loan Agreement”. The Mortgage, as modified by the Mortgage Modification, is
hereinafter referred to as the “Mortgage”. The Guaranty, as modified by the Ratification of Guaranty, is hereinafter referred to as the “Guaranty”.
F. Lender is willing to modify the Loan, subject to Guarantor giving Lender the representations, assurances and other agreements set forth herein.
In consideration of Lender’s continued extension of credit and the agreements contained herein, the parties agree as follows:
AGREEMENT:
1. The Recitals contained hereinabove are true and correct and are made a part hereof. All capitalized terms not otherwise defined herein shall be given the meaning
ascribed to such terms in the Loan Agreement, as amended.
2. Borrower hereby acknowledges that, as of the date hereof, the outstanding principal balance of the Original Note (as defined in Recital “A” above) is $9,389,723.00.
3. The Loan Agreement is hereby amended by deleting the following definitions from Section 1 in their entireties and substituting the following in lieu thereof:
(a) Guaranty: That certain Guaranty of Payment and Performance dated as of July 7, 2015 from Guarantor in favor of Lender, as modified by that certain
Amendment and Ratification of Guaranty of Payment and Performance dated as of November 17, 2017, as the same may be further amended, restated, modified
or replaced from time to time.
(b) Loan: That certain term loan in the amount of NINE MILLION THREE HUNDRED EIGHTY-NINE THOUSAND SEVEN HUNDRED TWENTY-THREE
AND 00/100 DOLLARS ($9,389,723.00), as evidenced by the “Note” (as hereinafter defined) and secured by the Mortgage and other “Loan Documents” (as
hereinafter defined) as provided herein.
(c) Loan Documents: Any and all documents evidencing, securing, or executed by Borrower and/or Guarantor in connection with the Loan, including,
without limitation, the Note, the Mortgage, the Guaranty, that certain Amended and Restated Collateral Assignment of Contracts, Etc. dated as of November
17, 2017 from Borrower in favor of Lender, that certain Pledged Collateral Agreement dated as of November 17, 2017 from Borrower in favor of Lender and this
Agreement.
(d) Maturity Date: Shall mean July 8, 2020.
(e) Mortgage: That certain Mortgage, Assignment of Rents and Security Agreement dated as of July 7, 2015, from Borrower in favor of Lender, recorded
in Official Records Book 29690, at Page 1805, of the Public Records of Miami-Dade County, Florida, as modified by that certain Mortgage Modification
Agreement dated as of November 17, 2017, to be recorded in the Public Records of Miami-Dade County, Florida, which is a valid first mortgage lien on the
“Units” (as hereinafter defined), all contract rights derived therefrom and all Improvements, fixtures, equipment and personal property owned by Borrower to
be located on or used in connection with the Units, and any replacements or additions thereto, and all modifications and amendments thereto.
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(f) Note: That certain Amended and Restated Promissory Note dated as of November 17, 2017 from Borrower in favor of Lender in the principal amount
of NINE MILLION THREE HUNDRED EIGHTY-NINE THOUSAND SEVEN HUNDRED TWENTY-THREE AND 00/100 DOLLARS ($9,389,723.00), as the same
may be amended, restated, modified or replaced from time to time.
4. The Loan Agreement is hereby amended by deleting the definitions of “Conditions for Extension”, “Extended Maturity Date” and “Extension Option” from Section 1 in
their entireties.
5. The Loan Agreement is hereby amended by deleting Section 3 in its entirety.
6. The Loan Agreement is hereby amended by deleting Section 10 in its entirety and substituting the following in lieu thereof:
10. Principal/Interest Reserve: Upon the execution of this Agreement, Borrower shall fund $266,820.00 into the Restricted Account to be used
as a principal and interest reserve. On the fifteenth (15th) banking business day of each respective month, the Lender shall debit the Restricted Account to
make payments of principal and interest due under the Note for the account of Borrower, as the same become due by Lender’s bookkeeping entries, unless
Borrower elects to pay principal and interest due in cash to Lender. Borrower shall replenish the funds in the Restricted Account, as necessary, every six (6)
months. Notwithstanding any other provision contained in this Agreement to the contrary, Lender shall not be required to utilize any sums from the
Restricted Account if an Event of Default or Unmatured Event of Default exists under this Agreement or any of the Loan Documents and upon such
occurrence, Borrower shall be required to make out-of-pocket payments of principal and interest due under the Note. In the event an Unmatured Event of
Default exists and Lender requires Borrower to make out-of-pocket payments of principal and interest, Lender shall provide advance written notice of the
same to Borrower.
7. Borrower acknowledges, represents and confirms to Lender that: (i) the Loan Agreement and the other Loan Documents are valid and binding upon Borrower and are
enforceable in accordance with the terms thereof; (ii) all of the terms, covenants, conditions, representations, warranties and agreements contained in the Loan Agreement and the other Loan
Documents are hereby ratified and confirmed in all respects; (iii) there are no defenses, set-offs, counterclaims, cross-actions or equities in favor of Borrower to or against the enforcement of the
Loan Agreement or any of the other Loan Documents; (iv) no payments of interest or any other charges have been made to Lender or paid by Borrower in connection with any indebtedness
evidenced by the Loan Agreement or any of the other Loan Documents which would result in the computation or earning of interest in excess of the maximum rate of interest which is legally
permitted under the laws of the State of Florida or federal law, in effect from time to time, whichever is the highest; (v) Lender is under no obligation to further amend or modify the Loan
Agreement or any of the other Loan Documents; and (vi) to Borrower’s knowledge, after the execution, delivery and consummation of this Agreement, no default now exists under the Loan
Agreement or any of the other Loan Documents.
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8. Guarantor represents and warrants unto Lender that: (i) the Guaranty and all other documents executed by Guarantor in connection therewith are valid and binding
obligations of Guarantor, enforceable in accordance with their respective terms; (ii) the obligations of Borrower shall continue to be guaranteed by Guarantor pursuant to the terms of the
Guaranty; (iii) all of the terms, covenants, conditions, representations, warranties and agreements contained in the Guaranty and in the Loan Documents are hereby ratified and confirmed in all
respects; and (iv) no oral representations, statements, or inducements have been made by Lender with respect to the Loan, this Agreement or the Guaranty.
9. Except as amended by this Agreement and the documents executed in connection herewith, no term or condition of the Loan or the other Loan Documents shall be
modified and the same shall remain in full force and effect; provided, however, if any provision of this Agreement is in conflict with, or inconsistent with, any provision in the Loan Agreement or
the other Loan Documents, then the provision contained in this Agreement shall govern and control.
10. This Agreement shall be binding upon, and shall inure to the benefit of, the respective successors and assigns of the parties hereto.
11. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original. Said counterparts shall constitute but one and the same
instrument and shall be binding upon each of the undersigned individually as fully and completely as if all had signed but one instrument so that the joint and several liability of each of the
undersigned shall be unaffected by the failure of any of the undersigned to execute any or all of said counterparts.
12. AS A MATERIAL INDUCEMENT FOR LENDER TO EXECUTE THIS AGREEMENT, BORROWER AND EACH GUARANTOR DO HEREBY RELEASE, WAIVE,
DISCHARGE, COVENANT NOT TO SUE, ACQUIT, SATISFY AND FOREVER DISCHARGE LENDER ITS OFFICERS, DIRECTORS, EMPLOYEES, AND AGENTS AND ITS AFFILIATES AND
ASSIGNS FROM ANY AND ALL LIABILITY, CLAIMS, COUNTERCLAIMS, DEFENSES, ACTIONS, CAUSES OF ACTION, SUITS, CONTROVERSIES, AGREEMENTS, PROMISES AND
DEMANDS WHATSOEVER IN LAW OR IN EQUITY WHICH BORROWER OR ANY GUARANTOR EVER HAD, NOW HAS, OR WHICH ANY PERSONAL REPRESENTATIVE, SUCCESSOR,
HEIR OR ASSIGN OF BORROWER OR ANY GUARANTOR HEREAFTER CAN, SHALL OR MAY HAVE AGAINST LENDER, ITS OFFICERS, DIRECTORS, EMPLOYEES, AND AGENTS, AND
ITS AFFILIATES AND ASSIGNS, FOR, UPON OR BY REASON OF ANY MATTER, CAUSE OR THING WHATSOEVER THROUGH THE DATE THAT THIS AGREEMENT IS EXECUTED.
BORROWER AND EACH GUARANTOR FURTHER EXPRESSLY AGREE THAT THE FOREGOING RELEASE AND WAIVER AGREEMENT IS INTENDED TO BE AS BROAD AND INCLUSIVE
AS PERMITTED BY THE LAWS OF THE STATE OF FLORIDA.
13.WAIVER OF JURY TRIAL. TO THE EXTENT PERMITTED BY APPLICABLE LAW, BORROWER AND EACH GUARANTOR BY EXECUTION HEREOF AND LENDER
BY ACCEPTANCE HEREOF, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
BASED ON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY AGREEMENT CONTEMPLATED TO BE EXECUTED IN
CONNECTION WITH THIS AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY
WITH RESPECT HERETO. THIS PROVISION IS A MATERIAL INDUCEMENT TO LENDER TO ACCEPT THIS AGREEMENT.
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BORROWER, EACH GUARANTOR AND LENDER AGREE THAT THEY SHALL NOT HAVE A REMEDY OF PUNITIVE OR EXEMPLARY DAMAGES AGAINST THE
OTHER IN ANY DISPUTE AND HEREBY WAIVE ANY RIGHT OR CLAIM TO PUNITIVE OR EXEMPLARY DAMAGES THEY HAVE NOW OR WHICH MAY ARISE IN THE FUTURE IN
CONNECTION WITH ANY DISPUTE WHETHER THE DISPUTE IS RESOLVED BY ARBITRATION OR JUDICIALLY.
14. WAIVER OF BANKRUPTCY STAY. BORROWER AND EACH GUARANTOR HEREBY AGREE, IN CONSIDERATION OF THE RECITALS AND MUTUAL
COVENANTS CONTAINED HEREIN, AND FOR OTHER GOOD AND VALUABLE CONSIDERATION, INCLUDING THE FORBEARANCE OF LENDER FROM GOING TO TRIAL AND
EXERCISING ITS OTHER RIGHTS AND REMEDIES OTHERWISE AVAILABLE TO IT, THE RECEIPT AND SUFFICIENCY OF WHICH ARE HEREBY ACKNOWLEDGED, THAT IN THE
EVENT THAT BORROWER OR ANY GUARANTOR SHALL FILE WITH ANY BANKRUPTCY COURT OF COMPETENT JURISDICTION OR BE THE SUBJECT OF ANY PETITION UNDER
TITLE 11 OF THE UNITED STATES CODE THE AUTOMATIC STAY IMPOSED BY SECTION 362 OF TITLE 11 OF THE UNITED STATES CODE IS WAIVED, AND SUCH WAIVER
CONSTITUTES “CAUSE” PURSUANT TO 11 U.S.C. SECTION 362(d)(1) FOR THE IMMEDIATE LIFTING OF THE AUTOMATIC STAY IN FAVOR OF LENDER, AND BORROWER AND
EACH GUARANTOR HEREBY KNOWINGLY AND IRREVOCABLY WAIVES ALL DEFENSES AND OBJECTIONS TO SUCH LIFTING OF THE AUTOMATIC STAY.
[CONTINUES ON FOLLOWING PAGE]
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IN WITNESS WHEREOF, the undersigned have signed and sealed this Agreement as of the day and year first set forth above.
BORROWER:
OPTIBASE REAL ESTATE MIAMI, LLC, a Delaware limited liability company, acting by and
through its Sole Member, to wit:
By: OPTIBASE, INC., a California corporation
By:___________________________________
Robert A. Feingold, Executive Vice President
LENDER:
CITY NATIONAL BANK OF FLORIDA
By: _______________________________________
Kevin Miliffe, Senior Vice President
[CONTINUES ON THE FOLLOWING PAGE]
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The undersigned, as Guarantor, hereby joins in and consents to the foregoing Amendment and Ratification of Loan Agreement.
JOINDER OF GUARANTOR
GUARANTOR:
OPTIBASE, INC., a California corporation
By: ______________________________________
Robert A. Feingold, Executive Vice President
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Exhibit 6.1
Annex A
To
___________
___________
___________
OPTIBASE LTD.
(the “Company”)
Letter of Indemnification
(the “Letter” or the “Indemnification Letter”)
Whereas on November 2, 2005 the General Meeting of the Company approved, following the approval of the Company’s audit committee and board of directors, to indemnify the Officers of the
Company in accordance with the Companies Law of 1999 (the “Companies Law”);
Whereas on September 19, 2005 the Company’s board of directors approved, following the approval of the Company’s audit committee, to indemnify the Officers of the Company in accordance
with the Companies Law; and
Whereas on October 11, 2011 the Company’s board of directors approved, following the approval of the Company’s audit committee, to indemnify the Officers of the Company in accordance
with the Companies Law; and
Whereas on October 22, 2014 the Company’s shareholders’ approved, following the approval of the Company’s board of directors and compensation committee, to amend the Company’s
prospective undertaking to indemnify its current and future directors and to amend this Indemnification Letter accordingly: and
Whereas on December 21, 2017 the Company’s shareholders’ approved, following the approval of the Company’s compensation committee and board of directors, to amend the Company’s
prospective undertaking to indemnify its current and future directors and to amend this Indemnification Letter accordingly.
1.
Obligation to indemnify:
The Company hereby undertakes:
WE HEREBY DECLARE THAT:
1.1.
To indemnify you for any liability or expense, as detailed below, imposed upon you for actions taken (including actions preceding the date of this Letter) and/or actions that will
be taken, by virtue of your service as an Officer of the Company, or an Officer on behalf of the Company in a company controlled by the Company or in which the Company has
an interest (such companies being referred to herein as the “Subsidiaries”), as follows:
1.1.1.
1.1.2.
1.1.3.
1.1.4.
1.1.5.
Financial liability that you incur or imposed on you in favor of another person in accordance with a judgment, including a judgment given in a settlement or a
judgment of an arbitrator approved by the Court, provided that such acts pertain to one or more of the events set out in the Schedule hereto (the “Schedule”);
Reasonable litigation expenses, including legal fees that you will incur or for which you will be ordered to pay by a court within the framework of proceedings
filed against you by or on behalf of the Company or by a third party, or in a criminal proceeding in which you will be acquitted, or in a criminal proceeding in
which you will be convicted of a felony but which does not require criminal intent;
Reasonable litigation expenses, including legal fees that you will incur due to an investigation or proceeding conducted against you by an authority authorized
to conduct such investigation or proceeding and which was ended without the filing of an indictment against you and without being subject to a financial
obligation as a substitute for a criminal proceeding, or which was ended without the filing of an indictment against you but with the imposition of financial
obligation as a substitute for a criminal proceeding relating to an offence which does not require criminal intent, within the meaning of the relevant terms in the
Companies Law;
Financial liability that you incur for payment to persons or entities harmed as a result of violations in Administrative Proceedings, as detailed in section 52(54)
(A)(1)(a) of the Israeli Securities Law, 1965 (the "Securities Law"). For this purpose "Administrative Proceeding" shall mean a proceeding pursuant to
Chapters H3 (Imposition of Monetary Sanction by the Israel Securities Authority), H4 (Imposition of Administrative Enforcement Means by the Administrative
Enforcement Committee) or I1 (Settlement for the Avoidance of Commencing Proceedings or Cessation of Proceedings, Conditioned upon Conditions) of the
Securities Law, as shall be amended from time to time.
Expenses that you incur in connection with Administrative Proceedings (as defined above) you were involved in, including reasonable litigation fees, and
including attorney fees.
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1.2.
1.3.
1.4.
1.5.
1.6.
The aggregate and accumulated indemnification amount that the Company shall pay to its Officers (in addition to sums that may be received from insurance companies in
connection with insurance policies that the Company has purchased, see also section 1.3 below) pursuant to all the letters of indemnification issued and/or that shall be issued
by the Company pursuant to the indemnification decisions, shall not exceed the higher of: (i) 25% of the shareholders’ equity of the Company, as set forth in the Company’s
most recent consolidated financial statements prior to such payment; (ii) 20 million U.S. Dollars (the “The Maximum Indemnification Amount”).
The Maximum Indemnification Amount shall not be affected in any way by the existence of, or payment under, insurance policies. Payment of the indemnification shall not affect
your right to receive insurance payments, if you receive the same (either personally or through the Company or on your behalf) and the Company will not be required to
indemnify you for any sums that were, in fact, already paid to you or for you in respect of insurance or any other indemnification obligations made to you by any third party. In
the event there is any payment made under this Letter and such payment is covered by an insurance policy, the Company shall be entitle to collect such amount of payment from
the insurance proceeds.
In the event the indemnification amount the Company is required to pay to its Officers, as set forth in Section 1.1 above, exceeds at a certain time the Maximum Indemnification
Amount (or the balance thereof after deducting any indemnification amounts paid or payable by the Company to any of its Officers at such time) in accordance with Section 1.2
above, the Maximum Indemnification Amount or its remaining balance will be allocated between the Officers entitled to indemnification, in the manner that the amount of
indemnification that each of the Officers will actually receive will be calculated in accordance with the ratio between the amount each individual Officer may be indemnified for,
and the aggregate amount that all of the relevant Officers involved in the event may be indemnified for.
Upon the occurrence of an event that by its virtue you are likely to be entitled to indemnification in accordance with Section 1.1 above, the Company shall place at your disposal,
from time to time, the funds required to cover the expenditures and payments that are connected to handling the legal proceeding, in a manner that you shall not be required to
pay for, or personally finance the legal expenses, subject to the conditions and instructions in this Indemnification Letter.
In order to avoid any doubt, upon the occurrence of an event that may entitle you to indemnification, you shall be entitled to appoint an advocate of your choice, with the
exception of an advocate whom the Company deems unacceptable for reasonable cause, provided that you shall immediately inform the Company of the identity of the advocate,
when it becomes necessary to appoint such advocate. In the event you do not inform the Company regarding your choice of advocate in compliance with the above mentioned,
the Company shall have discretion to appoint an advocate on your behalf.
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2.
The obligation to indemnify in accordance with this Letter is subject to the statements set forth in this Section 2 and to any applicable law:
2.1.
2.2.
2.3.
There is nothing by law to prevent your being indemnified.
You shall inform the Company of every legal proceeding that shall be brought against you in connection with any event that may entitle you to indemnification, and of every
warning made to you in writing, pertaining to legal proceedings that may be commenced against you, and this shall be done in a timely manner, immediately after you shall first
be aware of such, and you shall provide the Company or to whom the Company shall instruct you to, all documents in connection with such proceedings.
Despite the provisions of Section 1.6 above, the Company is entitled to take upon itself the care of your defense in the legal proceeding and/or to give the above care to any
prominent advocate that the Company shall select for this purpose (except an advocate that shall not be reasonably acceptable to you) subject to the fulfillment of all of the
following conditions: (a) The Company shall inform the holder of this Indemnification Letter, within 45 days from the time of receiving the notice as said in Section 2.2 above (or
within a shorter period of time – if the matter requires filing a statement of defense or a response to a proceeding), that it shall indemnify the holder of the Indemnification Letter
according to this Letter; and (b) The legal proceeding against the holder of the Indemnification Letter shall solely entail a claim for monetary damages. The Company and/or the
aforementioned advocate shall be entitled to act with their exclusive discretion and to bring the proceeding to a close; the appointed advocate shall act and shall owe its duty of
loyalty to the Company and to you. In the event that a conflict of interest shall arise between you and the Company, you shall inform the Company of such conflict and shall be
entitled to appoint an advocate on your behalf, and the provisions of this Indemnification Letter shall apply to expenses you may incur as a result of such appointment. In the
event that the Company decides to settle a monetary obligation or to decide a monetary obligation by arbitration, or by mediation or by settlement the Company shall be entitled
to do so as long as the lawsuit or the threat of a lawsuit against you shall be fully withdrawn. Following the request of the Company you shall sign any document that shall
empower the Company and/or an advocate as mentioned above, to act on your name with regard to your defense in the above-mentioned proceedings and to represent you in all
matters pertaining to these proceedings, as set forth above.
2.4.
You shall cooperate with the Company and/or with any advocates as set forth above in every reasonable manner that shall be required from you by any of them in connection
with the handling of such legal proceedings, all in accordance with Section 1.2 above. You shall not bear any additional legal expenses due to such cooperation.
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2.5.
2.6.
2.7.
2.8.
Subject to the provisions of this Indemnification Letter, whether or not the Company shall act in accordance with section 2.3 above, the Company shall cover litigation expenses
in a manner that you shall not be required to pay or finance such litigation expenses yourself.
Your indemnification in connection to the legal proceeding of any actions against you, as set forth in this Letter, will not be enforceable in connection with amounts that you
shall be required to pay as a result of a settlement or arbitration, unless the Company agrees, in advance and in writing, to the settlement, or to the arbitration award.
The Company shall not be required to pay, pursuant to this Letter, monies that were actually paid, to you, or on your behalf or in your stead, through an insurance policy that
the Company procured or through an obligation to any indemnification that was made by any other person other than the Company. In addition, in the event of the
indemnification hereunder is being paid in respect of your serving as an Officer in any Subsidiary, such indemnification will only be paid after all your rights to insurance and
indemnification from such Subsidiary will have been exhausted, if and to the extent they exist.
In order to avoid any doubt, it shall be clarified that the indemnification amount pursuant to this Letter shall be independent of, (and in addition) to the amount that shall be paid
(if paid) pursuant to an insurance policy and/or any other indemnification.
Upon your request to an execution of a payment in connection with any event pursuant to this Letter, the Company shall take all necessary steps according to any applicable
law to pay such payment and will do all that is required to obtain any approval that is required. If any approval is required for the above payment and that payment shall not be
approved for any reason, such payment, or any part of it, that will not be approved, as said above, shall be subject to the approval of a court and the Company shall take all
necessary steps to obtain the court’s approval.
3.
4.
The obligations of the Company according to this Letter shall remain valid even if you have ceased to be an Officer of the Company, provided that acts for which you are given a
commitment of indemnification were performed or shall be performed during your service as an Officer of the Company.
In the event the Company pays to you, or in your place, any amount pertaining to this Letter in connection with a legal proceeding as stated above, and afterwards it shall be determined
that you are not entitled to any indemnification from the Company for any reason whatsoever, the sums paid by the Company shall be considered a loan that was granted to you by the
Company, and shall be linked to the Consumer Price Index and accrue interest in accordance with the Income Tax Regulations (Determination of the interest rate), 1985, as amended from
time to time. You will be required to repay these sums to the Company when requested to do so in writing by the Company and in accordance with a payment schedule that the Company
shall determine.
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5.
6.
7.
8.
9.
10.
The terms contained in this Letter will be construed in accordance with the Companies Law, and in the absence of any definition in the Companies Law, pursuant to the Securities Law,
5728-1968.
The obligations of the Company according to this Indemnification Letter shall be interpreted broadly and in a manner that shall facilitate its execution, to the extent permitted by law, and
for the purposes for which it was intended. In the event of a conflict between any provision of this Letter and any provision of the law, said provision of the law shall supersede the
specific provision in this Letter, but shall not limit or diminish the validity of the remaining provisions of this Letter.
The indemnification under this Letter will enter into effect upon your signing a copy of the same in the appropriate place, and the delivery of such signed copy to the Company. It is
hereby expressly agreed and understood that this Indemnification Letter does not derogate in any way from any indemnification undertaking the Company has made to you; provided
however, that the aggregate indemnification amount pursuant to all the Indemnification Letters issued or that shall be issued by the Company will not exceed the Maximum
Indemnification Amount.
Notwithstanding the foregoing, if this Indemnification Letter shall be declared or found void for any reason whatsoever, then any previous undertaking by the Company for
indemnification towards you, to the extent granted, shall remain in full force and effect, subject to any applicable law.
The Company may, at its sole discretion and at any time, may revoke its undertaking to indemnify you hereunder, or reduce the Maximum Indemnification Amount, or limit the events to
which it applies, either in regard to all the Officers or to some of them, to the extent it relates only, to events that will apply after the date of such change, provided that prior notice has
been given to the Officer of the Company’s intention to do so, in writing at least 60 days before the date on which such decision will enter into effect. For the avoidance of any doubt, it
is hereby clarified that any such decision will not have retroactive effect of any kind whatsoever and the Indemnification Letter, prior to such change or revocation, as the case may be,
will continue to apply and be in full force and effect for all purposes in relation to any event that has preceded such change or revocation, even if the proceeding in respect thereof has
been filed against the Officer after the change or revocation of the Indemnification Letter. In all other cases, this Indemnification Letter may not be changed, unless the Company and
yourself have signed it.
This Letter does not constitute a contract for the benefit of any third party and is not assignable. For the avoidance of any doubt, in the event of death (God forbids), this Letter will
apply to you and your estate.
No waiver, delay, forbearance to act or extension granted by the Company or by you will be construed in any circumstances as a waiver of the rights hereunder or by law, and will not
prevent any such party from taking all legal and other steps as will be required in order to enforce such rights.
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11.
12.
The foregoing does not derogate from the Company’s right to indemnify you retroactively in accordance with the articles of association of the Company and subject to any applicable
law.
The law of the State of Israel shall govern this Letter and all issues related thereto, without giving effect to any conflicts of law principles. The courts in Tel Aviv, Israel shall have the
exclusive local and international jurisdiction, in connection with this Indemnification Letter, except if an indemnification claim is related to legal proceeding, already filed by a third party
in a different court.
13.
In this Indemnification Letter-
“The Companies Law”- the Companies Law, 1999, as will be valid from time to time.
“Officer” – in accordance with its meaning in the Companies Law, including a senior employee of the Company.
“Action” or any derivative of it – including a decision or a failure to act and including your Actions before the date of this Indemnification Letter that were made during your term of
service as an Officer in the Company.
This Letter shall be neutral with regard to gender.
14.
The Schedule to this Letter is an integral and inseparable part of it.
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In witness whereof, the Company shall execute this Indemnification Letter by its authorized signatories that have been duly appointed.
__________________________
Optibase Ltd.
I hereby confirm receiving this Letter and consent to all its terms.
____________
Officer
Date: ____________
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Subject to any provision of the law, the events are as follows:
SCHEDULE
1. Any issuance of securities and/or listing them for trading on a stock exchange in Israel or abroad, including without limitation, a public offering pursuant to a prospectus, a private
offering, an offer for sale, the issuance of bonus shares or any offer of securities in any other manner;
2. An event arising from the Company being a public company or arising from the fact that its shares were offered to the public or arising from the fact that the Company's shares are traded on
a stock exchange in Israel or abroad;
3. Conducting tender offers and any thing related thereto;
4. A "Transaction" within the meaning of Section 1 of the Companies Law1, including without limitation negotiations for entering into a transaction, the transfer, sale or purchase or charge of
assets or liabilities, including securities, or the grant or receipt of a right to any of the foregoing, receiving credit and the grant of collateral and any act directly or indirectly involved in such
"Transaction" and including disclosure of information and documents with respect to such "Transaction";
5. Resolutions and/or acts relating to approval of transactions with stakeholders, as such transactions are defined in Chapter 5 of Part VI of the Companies Law;
6. Report or notice filed in accordance with any applicable law, including the Companies Law and/or the Israeli Securities Law of 1968, and/or the Securities Exchange Act of 1933 and/or the
Securities Exchange Act of 1934 including regulations promulgated thereunder and/or any tax laws, antitrust laws, labor laws, or in accordance with rules or instructions prevailing on an
Israeli stock exchange or on Nasdaq-NM, or a stock exchange outside of Israel, or any law of another country regulating similar matters and/or the omission to act accordingly;
7. Adoption of the findings of external opinions for the purpose of the issuance of an immediate report, prospectus, financial statements or any other disclosure document;
8. Discussion and passing resolutions and discovery and disclosure in the Company's reports, including an evaluation with respect to the effectiveness of internal control and other issues
incorporated in the report of the Company's Board of Directors, as well as the issuance of statements and reference to the financial statements;
9.
1
Preparation, editing, approval and execution of the financial statements, including the passing of resolutions as to the application of accounting principles and restatement in the financial
statements;
Article 1 of the Companies Law defines “Transaction” as a contract or engagement or a unilateral decision of the company regarding a grant of a right or another benefit.”
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10. Adoption of financial reporting in accordance with Generally Accepted Accounting Principles (US GAAP), and any act in connection therewith;
11. Events relating to the effecting of investments on the part of the Company in any corporations whatsoever;
12. Any resolution with respect to distribution, as defined in the Companies Law;
13. Amendment to the Company’s structure or its reorganization or any resolution with respect to such matters, including without limitation, a merger, split, change in the Company’s capital
structure, incorporation of subsidiaries, dissolution or sale thereof, issuance or distribution;
14. Consolidation, change or revision of arrangements between the Company and the shareholders and/or holders of bonds and/or banks and/or creditors of the Company or of any entities
affiliated with the Company, including the preparation or revision of the trust deeds, bonds and outline and arrangement documents in general;
15. Taking part in tenders;
16. The making of any statement, including a bona fide statement or opinion made by an officer of the Company in such capacity, including during meetings of the Board of Directors or any
committee thereof;
17. An act in contradiction to the articles or memorandum of association of the Company;
18. Any action or decision in relation to employer-employee relations, including the negotiation for, signing and performance of individual or collective employment agreements, other
employees benefits (including allocation of securities to employees) and harassment suits;
19. Any action or decision in relation to work safety and/or working conditions;
20. Negotiation for, signing and performance of insurance policy;
21. Formulating working programs, including pricing, marketing, distribution, directives to employees, customers and suppliers and collaborations with competitors;
22. Decisions and/or acts pertaining to the environment, including dangerous substances;
23. Decisions and/or acts pertaining to the Consumer Protection Law, 5741-1981, and/or orders and/or Regulations thereunder;
24. Negotiating, making and performing of contracts of any kind and type with suppliers, distributors, agents, franchisees and the like of the products that are marketed and/or sold by, or by
those serving, the Company;
25. Negotiating, the making and performing agreements with manpower contractors, service contractors, building contractors, renovations contractors, etc;
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26. Reporting and/or filing of applications to the state authorities and other authorities;
27.
Investigations on the part of state authorities and other authorities;
28. Management of the bank accounts which the Company operates at banks and performance of transactions in such bank accounts, including with respect to transactions in foreign currency
(including foreign currency deposits), securities (including resale transactions in securities and lending and borrowing of securities), loans and credit facilities, debit cards, bank guarantees,
letters of credit, consultation agreements concerning investments including with portfolio managers, hedging transactions, options, futures contracts, derivatives, swap transactions, and so
forth;
29. Realization of personal guarantees provided by the officer to the Company, as security for the Company's obligations and/or declarations;
30. Failure to maintain complete and/or proper due diligence procedures over the Company's investments, resulting in a loss of the investments in whole or in part and/or an adverse effect to the
Company's businesses and/or breach of an undertaking vis-à-vis a third party;
31. Events and acts in connection with investments performed by the Company in various corporations, before or after effecting the investment, including for the purpose of entering into a
transaction, its implementation, development, follow up and supervision;
32. Financial liability imposed on an officer in connection with acts in which he took part on behalf of the Company, vis-à-vis the various state institutions;
33. Financial liability imposed on an officer in connection with a claim by third parties against the officer due to deficient or misleading disclosure, in writing or verbally, to existing and/or
potential investors in the Company, including in the event of the merger of the Company with another company;
34. Covering the excess insurance in the event of the activation of officers’ liability insurance;
35. Breach of the provisions of any agreement whatsoever to which the Company is a party;
36. An act relating to a tax liability of the Company and/or a subsidiary and/or shareholders of any of them;
37. Acts and omissions in connection with bodily injuries or property damage attributed to the Company and/or to an officer who has acted on its behalf;
38. Acts and omissions arising from failure to purchase appropriate insurance and/or to take sufficiently secure measures and/or negligence in risk management;
39. Any of the foregoing events relating to the capacity of such officer as an officer of a corporation controlled by the Company or otherwise affiliated therewith; and
40. Any event or action for which indemnification is allowed to be granted under the Efficiency of Enforcement Proceedings in the Israel Securities Authority Law (Legislation Amendments) of
2011.
A - 11
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
Exhibit 12.1
I, Amir Philips, certify that:
1.
I have reviewed this annual report on Form 20-F of Optibase Ltd.
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations
and cash flows of the company as of, and for, the periods presented in this report;
4. The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information
relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being
prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially
affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and
5. The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit
committee of the company’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the
company’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.
Date: March 28, 2018
/s/ Amir Philips
Amir Philips
Chief Executive Officer
CERTIFICATION OF CHIEF FINANCIAL OFFICER
Exhibit 12.2
I, Yakir Ben-Naim, certify that:
1.
I have reviewed this annual report on Form 20-F of Optibase Ltd.
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations
and cash flows of the company as of, and for, the periods presented in this report;
4. The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information
relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being
prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially
affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and
5. The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit
committee of the company’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the
company’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.
Date: March 28, 2018
/s/ Yakir Ben-Naim
Yakir Ben-Naim
Chief Financial Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 13.1
In connection with the Annual Report of Optibase Ltd. (the "Company") on Form 20-F for the period ending December 31, 2017, as filed with the Securities and Exchange Commission on the
date hereof (the "Report"), the undersigned hereby certify that to the best of our knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 28, 2018
/s/ Amir Philips
Name: Amir Philips
Title: Chief Executive Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 13.2
In connection with the Annual Report of Optibase Ltd. (the "Company") on Form 20-F for the period ending December 31, 2017, as filed with the Securities and Exchange Commission on the
date hereof (the "Report"), the undersigned hereby certify that to the best of our knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 28, 2018
/s/ Yakir Ben-Naim
Name: Yakir Ben-Naim
Title: Chief Financial Officer
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Exhibit 15.1
We consent to the incorporation by reference in the Registration Statements (Form S-8 Files No. 333-10840; 333-12814; 333-13186; 333-91650; 333-122128; 333-137644; 333-139688; 333-148774;
333-198519) pertaining to Optibase Ltd. of our report, dated March 28, 2018, with respect to the consolidated financial statements of Optibase Ltd., included in this Annual Report (Form 20-F) for
the year ended December 31, 2017.
Tel-Aviv, Israel
March 28, 2018
/s/ Kost Forer Gabbay & Kasierer
KOST FORER GABBAY & KASIERER
A Member of Ernst & Young Global
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statements (Form S-8 Files No. 333-10840; 333-12814; 333-13186; 333-91650; 333-122128; 333-137644; 333-139688; 333-148774;
333-198519) pertaining to Optibase Ltd. of our report, dated March 28, 2018, with respect to the consolidated financial statements of 300 River Holdings LLC, included in this Annual Report (Form
20-F) for the year ended December 31, 2017.
Exhibit 15.2
New York, New York
March 28, 2018
/s/ EISNERAMPER LLP
EISNERAMPER LLP