As filed with the Securities and Exchange Commission on April 1, 2020
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(cid:1798) REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
(cid:1800) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
For the fiscal year ended December 31, 2019
OR
(cid:1798) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(cid:1798) SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to
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 class
Ordinary Shares, par value NIS 0.065 per share (2)
Trading Symbol(s)
OBAS
Name of each exchange on which registered
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: 5,216,256 Ordinary Shares, par
value NIS 0.65 per share, including 17,895 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)
- 2 -
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
- 3 -
4
4
5
5
5
5
20
32
32
47
61
68
72
72
87
88
89
89
89
89
90
90
90
90
91
91
91
91
91
92
92
92
92
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.
- 4 -
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, 2017, 2018, and 2019 and consolidated balance sheet data as of December 31, 2018 and 2019 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,
2015 and 2016 and the consolidated balance sheet data as of December 31, 2015, 2016 and 2017 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:
2015
2016
Year Ended December 31,
2017
(U.S. dollars in thousands, except per share data)
2018
2019
Fixed income from real estate rent
$
15,273
$
16,338
$
16,587
$
16,608
$
16,144
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
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
2,958
3,925
1,849
2,352
11,084
-
4,189
429
(1,807)
2,811
(1,609)
(31)
3,159
4,244
2,615
-
10,018
-
6,320
1,116
(3,366)
4,070
(1,627)
(323)
3,057
4,209
2,698
-
9,964
-
6,623
597
(2,769)
4,451
(1,602)
(1,677)
2,991
4,317
3,500
-
10,808
-
5,800
607
(2,882)
3,525
(1,464)
(2,765)
1,171
$
2,120
$
1,172
$
(704) $
2,239
(1,068) $
1,925
195
$
2,295
(1,123) $
2,077
(2,781) $
0.04
0.00
$
$
0.04
$
(0.22) $
$
0.00
(0.22) $
(0.54) $
$
0.00
(0.54) $
5,147
5,157
5,180
5,180
5,185
5,185
(0.21) $
$
0.00
(0.21) $
5,133
5,133
- 5 -
2,948
4,321
3,047
-
10,316
-
5,828
722
(2,630)
3,920
1,472
(2,321)
127
2,120
(1,993)
(0.38)
0.00
(0.38)
5,186
5,186
$
$
$
$
$
2015
2016
Year Ended December 31,
2017
(U.S. dollars in thousands)
2018
2019
$
$
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
$
$
13,836
2,662
212,349
243,958
144,309
139,181
73,393
$
$
12,564
7,453
181,109
239,307
140,054
139,181
71,854
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.
In 2016 we were profitable, while in 2015, 2017, 2018 and 2019 we operated at a loss. 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, 2018 and 2019, 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.
As of December 31, 2019, we have accumulated losses of $87 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 incur losses as a result of unforeseen or catastrophic events, including the recent outbreak of the novel coronavirus (COVID-19)
The occurrence of unforeseen or catastrophic events such as terrorist attacks, extreme terrestrial or solar weather events or other natural disasters, emergence of a pandemic, or other widespread
health emergencies (or concerns over the possibility of such an emergency), could create economic and financial disruptions, and could lead to operational difficulties that could impair our ability to
manage our business. In particular, the current outbreak of novel coronavirus (COVID-19) that was first reported from Wuhan, China, and has spread to many countries around the world, including the
resulting travel restrictions and quarantines imposed by countries around the world, present concerns that may dramatically affect our ability to conduct our business effectively, affect our ability to
dispose of or liquidate part of our real estate, and may lead to a global economic slowdown or even a recession. During periods of economic slowdown or recession, declining demand for real estate, or the
public perception that any of these events may occur, could result in a general decline in rents or an increased incidence of defaults under existing leases. If we cannot operate our properties so as to meet
our financial expectations, our business, financial condition, results of operations, cash flow or our ability to satisfy our debt service obligations may be negatively impacted. At this stage, we are unable
to assess the scope of the impact on our business and operations and in the event that the economic effect of the outbreak deepens and has a long term effect on the global economy, our business and
operations may be adversely effected.
- 6 -
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, recent decision of the United Kingdom to leave the European Union (the "Brexit") and other disruptions, such as changes in energy costs, and more recently the outbreak of
the novel coronavirus (COVID-19) 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, 2019, the outstanding
amount under the Series A Bonds was 5.7 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.
- 7 -
A large percentage of our ordinary shares are held by one shareholder which 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 78.82%
of our outstanding ordinary shares as of March 20, 2020, 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 were sued for approximately $41.9 million. On June 16, 2019, the Israeli Central (Lod) District Court denied the motion to approve the filing of a derivative claim,
rejected all the plaintiffs' claims and ruled significant legal costs in favor of the defendants. On September 22, 2019, the claimant filed a petition appealing the Court decision. If this appeal 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. For information regarding a pending litigation with LEM Switzerland SA, or
LEM, one of our material tenants pursuant to which LEM argues a reduction of its rent as well as related damages, 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.
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;
- 8 -
•
•
•
•
•
•
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 2019 through March 20, 2020, the closing price of our ordinary shares listed on the NASDAQ Global
Market fluctuated reaching a high of $13 and decreasing to a low of $8.67. 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, 2018, 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.
- 9 -
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 2019, 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.
We are required, pursuant to Section 404 of the Sarbanes–Oxley Act of 2002, 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;
housing demand;
local laws and regulations; and
acts of terror, floods or earthquakes.
- 10 -
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, 2019, our commercial property, CTN complex, in Geneva, Switzerland, accounted for approximately 65% 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. For information regarding the CTN complex and regarding a
pending litigation with LEM pursuant to which LEM argues a reduction of its rent as well as related damages, 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.
- 11 -
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.
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.
- 12 -
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 a floating interest rate (as of December 31, 2019 the balance of all such loans was $111.1 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. From 2014 to 2019, as Swiss interest rates declined, 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 and more recently any negative affect of the Coronavirus outbreak, will adversely affect our results of operations.
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.
- 13 -
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.
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.
- 14 -
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.
A failure to close the sale of our properties in Germany will adversely affect our cash flow and results of operations.
In February 2020, we have entered, through our wholly-owned subsidiary, into an agreement for the sale of portfolio of supermarkets located mainly in Bavaria, Germany, or the German Portfolio.
The closing of the sale is subject, among other things, to customary conditions and will be conducted in tranches with respect to certain groups of properties. For further details on the sale of the German
Portfolio in Germany, see Item 10.C. “Material Contracts”.
We expect the closing to occur over the course of second and third quarters of 2020. Nevertheless, if for whatever reason the closing of the sale of the German Portfolio, shall not occur during
the said period or at all, it will adversely affect our cash flow and results of operations as the net proceeds of the transaction should strengthen our working capital and allow us to better serve our
financial obligations.
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 U.S. real estate properties located in Philadelphia, Texas, Chicago and Miami, From 2014 to 2017, 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. Since 2018 and during 2019, we have witnessed certain changes in the U.S real estate market. While the commercial segment has remained 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, has put pressure on the prices of such properties. 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 and more recently any negative affect of the Coronavirus outbreak, 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 19 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”.
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 currently own 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.
- 15 -
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.
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.
- 16 -
We are exposed to cyber security risks that, if materialized, may adversely 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. 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.
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.
- 17 -
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 inflation rate in Israel was approximately 0.4%, 0.8% and 0.6% in 2017, 2018 and 2019, respectively. The changes of the NIS against the dollar was an appreciation of approximately 9.8% in
2017, and a devaluation of approximately 8.1% in 2018, and an appreciation of approximately 10.9% in 2019. The change of the CHF against the dollar was an appreciation of approximately 4.4% in 2017,
and a devaluation of approximately 0.8% in 2018 and an appreciation of approximately 1.4% in 2019. The change of the Euro against the dollar was an appreciation of approximately 13.7% in 2017, a
devaluation of approximately 4.5% in 2018 and a devaluation of approximately 2.1% in 2019.
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.
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 principal 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. 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.
- 18 -
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.
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;
- 19 -
•
•
•
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 under the symbol "OBAS". 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.”
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 an additional 71,229 of our ordinary shares in two different
transactions with an unrelated third party and on the Nasdaq Global Market, and during May 2019 Capri acquired an additional 300,917 of our ordinary shares on the Nasdaq Global Market. For additional
information see Item 7.A. “Major Shareholders”.
- 20 -
From our formation until 2010 we were engaged in the Video Solution Business. 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.
During the first half of 2009 we have decided to enter into the fixed income real-estate sector and we have been operating in this sector ever since.
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 and to date, the real estate market has yet experienced additional changes as financial institutions have again decreased the availability of financing resulting in more equity being invested in
transactions. Nevertheless, in light of the recent outbreak of the coronavirus, it is very difficult to estimate how the real estate market will be impacted and the extent of such impact.
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.
- 21 -
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
($000)(2)
Rate of
Occupancy (3)
Centre des
Technologies
Nouvelles (CTN)
Geneva, Switzerland March 2, 2011
51%
Ownership with
land lease
Commercial
34,800
11,231
Edeka supermarkets* Bavaria, Germany
June 2, 2015 and
July 8, 2015
100%
Ownership
Commercial
Rümlang
Rümlang,
Switzerland
October 29, 2009
100%
Ownership
Commercial
Miami, Florida
Miami, Florida
2010-2013
100%
Ownership
Residential -
Condominium
Units
37,000
12,500
4,260
3,209
1,837
1,061
91%
97%
91%
72%
Annualized
Rent per
Occupied
Square
Meter
($)(4)
353
90
161
346
Portfolio Total/
Weighted Average
-
-
-
-
-
88,560
17,338
93%
212
(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, 2019 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, 2019, 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.
* For information regarding the sale of the German Portfolio, see Item 10.C. “Material Contracts".
- 22 -
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
Non-GAAP Total Net Operating Income (NOI)
Year Ended December 31
Thousands US$
2018
2017
2019
6,623
5,800
5,828
4,209
2,698
13,530
4,317
3,500
13,617
4,321
3,047
13,196
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.
- 23 -
A reconciliation of GAAP net income to Non-GAAP FFO and Recurring FFO is as follows:
Year Ended December 31
Thousands US$
2018
2017
2019
GAAP Net income (loss) attributable to Optibase Ltd.
(1,123)
(2,781)
(1,993)
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)
Non- GAAP Recurring Fund From Operation (Recurring FFO)
4,209
2,022
(1,141)
3,967
3,967
4,317
2,610
(1,136)
3,010
3,010
4,321
3,085
(1,162)
4,251
4,251
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.
- 24 -
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
($000)(2)
Rate of
Occupancy (3)
2 Penn Center Plaza
Philadelphia,
Pennsylvania
October 12, 2012
22.16%
Texas Shopping
Centers Portfolio
Houston, Dallas, San
Antonio, Texas
December 31, 2012
4%
South Riverside
Plaza Office Tower
300 South Riverside
Plaza, Chicago
December 29, 2015
30%
Beneficial interest in
the owner of the
property
Beneficial interest in
the portfolio
Beneficial interest in
the owner of the
property
Commercial
526,351
13,070
Commercial
2,036,290
26,736
Commercial
1,072,931
21,324
94%
94%
96%
Portfolio Total/
Weighted Average
-
-
-
-
-
3,635,572
61,130
95%
Annualized
Rent per
Occupied
Square
Feet
($)(4)
26
14
21
18
(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, 2019 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, 2019, 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
- 25 -
Set forth below is additional information with respect to our projects:
The CTN Complex in 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 34,500 square meters of leasable space
(app. 377,000 square feet), is currently leased to 44 tenants, primarily in the field of advanced industries including biotech electronic and information technology industries, and is currently 91% occupied.
The following table sets forth certain information regarding leases of tenants in the CTN Complex, as of December 31, 2019:
2020
2021
2022
2023
2024
Thereafter
Sub-total
Vacant
Total
Number of tenants
whose
leases will expire*
14
6
9
13
4
7
53
-
53
Total area covered
by these leases
Area covered
by these leases (%)
9,938
2,987
4,313
9,505
431
4,627
31,801
3,002
34,803
28.56%
8.58%
12.39%
27.31%
1.24%
13.29%
91.37%
8.63%
100%
Annual rent
at expiration ($000)
3,426
985
1,336
3,168
170
1,454
10,539
-
10,539
Percent of annual
rent at expiration
(%)
32.51%
9.35%
12.67%
30.06%
1.61%
13.80%
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”.
- 26 -
For information regarding a pending litigation with LEM Switzerland SA, or LEM, one of our material tenants in the CTN complex, pursuant to which LEM argues a reduction of its rent as well as
related damages, see Item 8. “Financial Information - Legal Proceedings”.
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 15 tenants, and is currently 91% occupied.
The following table sets forth certain information regarding leases of tenants in the Rümlang property, as of December 31, 2019:
2020
2021
2022
2023
2024
Sub-total
Vacant
Total
Number of tenants
whose
leases will expire*
6
1
2
4
2
15
-
15
Total area covered
by these leases
Area covered
by these leases (%)
1,573
3,369
4,617
1,637
71
11,267
1,112
12,379
12.71%
27.22%
37.30%
13.22%
0.57%
91.02%
8.98%
100%
Annual rent
at expiration ($000)
293
428
638
223
63
1,645
-
1,645
Percent of annual
rent at expiration
(%)
17.82%
26.01%
38.79%
13.57%
3.82%
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.
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 legal claim filed by Swiss Pro against our subsidiaries, 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.
- 27 -
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, 2019, 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. Two Penn Center has approximately 525,000
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 156 tenants, primarily for general office and retail
related usage. As of December 31, 2019, the Two Penn Center was 94% occupied and the annual rental income for the year 2019 totaled to approximately $13 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.
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, 2019, Texas shopping centers portfolio annual rental income totaled to approximately $26.7 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.
- 28 -
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, 19 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.
25 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, all renovations and remodeling in the various units have been completed. We are constantly monitoring the market conditions and demand for such units and are aiming to dispose of
our units if market conditions allow. 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.
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”. 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 continuing renting or selling the unit in accordance with our business considerations and market conditions.
- 29 -
On December 29, 2016, our shareholders approved, following the approval by our audit committee and board of directors, a lease agreement to be entered into with an affiliate of Capri, or the
Tenant. The lease was in effect for a one-year term commencing on January 2, 2017 and was automatically extended by a one-year term and up to a total of three years. On December 31, 2019, our
shareholders approved, following the approval by our audit committee and board of directors, an extension of the lease agreement commencing on January 2, 2020, 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 2.8 million (app. $3.3 million). The leasable area is currently 97% 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 18 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.
On February 11, 2020, Optibase Bavaria had entered into a definitive agreement with an unrelated third party buyer, to sell the German Portfolio. For further details, see Item 10.C. “Material
Contracts”.
The following table sets forth certain information regarding leases of tenants in the portfolio by property, as of December 31, 2019:
2020
2021
2022
2023
2024
Thereafter
Sub-total
Vacant
Total
* Number of tenants by property of which 18 are leased by Edeka.
Total area covered
by these leases
Area covered
by these leases (%)
9,947
-
6,716
-
6,033
13,007
35,703
1,285
36,988
26.89%
-
18.16%
-
16.31%
35.17%
96.53%
3.47%
100%
Annual rent
at expiration ($000)
893
-
565
-
616
1,135
3,209
-
3,209
Percent of annual
rent at expiration
(%)
27.84%
-
17.60%
-
19.19%
35.37%
100%
-
100%
Number of tenants
whose
leases will expire*
5
-
5
-
4
11
26
1
27
- 30 -
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 96% of the rentable square feet of the building are secured by various signed 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, 2019, these tenants occupied approximately 11,300 square meters and accounted for approximately $3.8 million of rent income, or
approximately 24% of our gross leasable area in Switzerland and approximately 30%, of our annual rent in Switzerland. For further details regarding a pending litigation with LEM, pursuant to which LEM
argues a reduction of its rent as well as related damages, see Item 8. “Financial Information - Legal Proceedings.
Our largest tenant in Germany is Edeka. As of December 31, 2019, Edeka occupied approximately 26,900 square meters and accounted for approximately $2.6 million of rent income, or
approximately 73% of our gross leasable area in Germany and approximately 80%%, of our annual rent in Germany. Our other tenant in Germany is Buchbauer Handelsmärkte GmbH. Or Buchbauer. As of
December 31, 2019, Buchbauer occupied approximately 5,300 square meters and accounted for approximately $387,000of rent income, or approximately 14% of our gross leasable area in Germany and
approximately 12%, of our annual rent in German. 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.
- 31 -
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 are currently undergoing an audit by the
IIA, for royalties paid before the sale of our Video Solution Business. The Company believe it has sufficient provision to cover the expected outcome of such review process.
4.C. ORGANIZATIONAL STRUCTURE
As of December 31, 2019, we have been managing our activity through our four wholly-owned direct subsidiaries: Optibase Inc. which was incorporated in California in 1991, Optibase Real Estate
Europe SARL, or Optibase SARL, which was incorporated in Luxembourg in October 2009, our 51% held subsidiary OPCTN S.A., which was incorporated in Luxembourg on February 24, 2011 and through
Optibase RES SARL which was incorporated in Luxembourg on June 11, 2018. 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. Optibase SARL wholly owns
Optibase Bavaria GmbH & Co. KG, a German partnership, and Optibase Bavaria Holding GmbH, a German corporation and Optibase RE2 SARL, which were incorporated in Luxemburg. Optibase RES
SARL wholly owns Optibase RE1 SARL which was incorporated in Luxemburg and 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
Our headquarters' offices occupy 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 three
months prior notice.
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.
- 32 -
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, 2019, we had available cash and cash equivalents of approximately $12.6 million. As of March 17, 2020, we have available cash and cash equivalents, of approximately $14.1
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.
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 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.
- 33 -
Taxes on income
Israeli companies are generally subject to corporate tax on their taxable income. As of 2020, the corporate tax rate since 2018 is 23% (in 2017 the corporate tax rate was 24%). 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.
Taxable income of Luxemburg, Switzerland, Germany and the United States is subject to tax at the rate of approximately 29%, 24%, 16% and 21% respectively in 2019.
We have final tax assessments through the tax year 2013.
As of December 31, 2019, we had approximately $66 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 $52 million that can be carried forward and offset against taxable income for 20 years, no later than 2038. 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 2019 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.
- 34 -
5.A. OPERATING RESULTS
The following table sets forth, for the years ended December 31, 2017, 2018 and 2019 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
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.
Results of Operations for the Years Ended 2019 and 2018
2017
Year Ended December 31
2018
2019
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)
100%
18
26
21.1
65.1
34.9
3.7
(17.4)
21.2
(8.8)
(16.6)
(4.2)
12.5
(16.7)
100%
18.3
26.8
18.9
63.9
36.1
4.5
(16.3)
24.3
(9.1)
(14.4)
0.7
13.1
(12.3)
Fixed income from real estate rent. Our fixed income real estate rent in 2019 totaled to $16.1 million compared to $16.6 million in 2018. The decrease was due to decline in occupancy rate.
Cost of real estate operations. Our cost of real estate operation slightly decreased in 2019 to $2.9 million, compared to $3 million in 2018.
Real estate depreciation and amortization. Our real estate depreciation and amortization in 2019 totaled to $4.3 million and remained stable compared to 2018.
General and Administrative Expenses. General and administrative expenses decreased in 2019 to $3 million, compared to $3.5 million in 2018. The decrease was mainly due to more significant
legal costs and provision, associated with leasing activities in 2018.
Operating Income. As a result of the foregoing, we recorded operating income of $5.8 million in 2019 and in 2018.
Other income (loss). We recorded other income of $722,000 in 2019, compared to other income of $607,000 million in 2018, related to dividend received and interest income on loan to an
associated company.
Financial Expenses, Net. We recorded financial expenses, net of $2.6 million in 2019, compared with financial expenses, net of $2.9 million in 2018. The decrease was due to exchange rate
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. The tax expenses of $1.5 million in 2019 and in 2018, mainly related to
our Swiss subsidiaries.
Equity share in losses of associates, Net. We recorded an equity loss of $2.3 million in 2019, compared to an equity loss of $2.8 million in 2018, mainly attributable to associated with equity losses
of Optibase Chicago 300 LLC partially off set by equity gains from 2 Penn Philadelphia LP. 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.
- 35 -
Net Income. As a result of the foregoing, we recorded net income of $127,000 in 2019, compared with a net loss of $704,000 in 2018.
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 $2 million in 2019, compared with a net loss of $2.8 million in 2018.
Results of Operations for the Years Ended 2018 and 2017
This analysis can be found in Item 5 of the Company’s Annual Report on Form 20-F for the year ended December 31, 2018.
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:
(cid:1966) Long-lived assets including intangible assets
(cid:1966) Investment in companies
(cid:1966) Contingencies; and
(cid:1966) 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.
- 36 -
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.
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.
Recently issued and adopted accounting pronouncements
In February 2016, the FASB issued ASU 2016-02, “Leases” ("ASC 842"), on the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and
lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed
purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight line basis over the term of the lease, respectively. A
lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be
accounted for in a manner similar to the accounting under the prior guidance (ASC 840). The new standard requires lessors to account for leases using an approach that is substantially equivalent to ASC
840 guidance for sales-type leases, direct financing leases and operating leases. The new standard supersedes the previous leases standard, ASC 840, "Leases". We elected the lessor practical expedient
to not separate lease and non-lease components in contract and instead to account for as a single lease component, if certain criteria are met.
- 37 -
We adopted the new standard as of January 1, 2019, using the modified retrospective approach. Consequently, prior period balances and disclosures have not been restated. We have elected to
utilize the available package of practical expedients permitted under the transition guidance within the new standard which does not require it to reassess the prior conclusions about lease identification,
lease classification and initial direct costs. We included in our balance sheet at adoption an operating right-of-use assets, short term operating lease liabilities and long term operating lease liabilities of $
463, $ 124 and $ 339, respectively. The standard did not materially impact our net earnings and had no material impact on cash flows.
New accounting pronouncements not yet effective
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses on Financial Instruments”, which requires that expected credit losses relating to financial assets measured on
an amortized cost basis and available for sale debt securities be recorded through an allowance for credit losses. ASU 2016-13 limits the amount of credit losses to be recognized for available for sale debt
securities to the amount by which carrying value exceeds fair value and also requires the reversal of previously recognized credit losses if fair value increases. The new standard will be effective for interim
and annual periods beginning after January 1, 2020, and early adoption is permitted. We do not expect this standard to have a material effect on our consolidated 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, 2019, we had cash and cash equivalents of $12.6 million,
and as of March 17, 2020, we have available cash, and cash equivalents of approximately $14.1 million.
Net cash provided by our operating activities was $7.4 million, $6.9 million, and $7.9 million in December 31 of each of the years 2019, 2018 and 2017, respectively. Net cash provided for operating
activities in 2019 was primarily the result of net income for the period, as adjusted for depreciation and amortization, equity share in losses of associates, net,increase in accrued expenses, other accounts
payable and other liabilities and increase in lease liabilities, offset by increase in trade receivables, increase in other accounts receivable and prepaid expenses, decrease in deferred tax liabilities and land
lease liabilities and increase in right-of-use assets. Net cash provided for operating activities in 2018 was primarily the result of net loss for the period, as adjusted for depreciation and amortization, equity
share in losses of associates, net and decrease in other accounts receivable and prepaid expenses, offset by increase in trade receivables, decrease in deferred tax liabilities and in land lease liabilities and
decrease in accrued expenses and other accounts payable, and in 2017 was primarily the result of net income for the period, as adjusted for depreciation and amortization and equity share in losses of
associates, net, 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 used for investment activities in 2019 totaling $596,000 reflects primarily our investment in building improvements, offset by the proceeds from our associates. Net cash used for
investment activities in 2018 totaling $2 million reflects primarily the proceeds from our associates, offset by investment in building improvements. 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 financial activities in 2019 totaling $8.2 million reflects bonds repayment, dividend distribution to non-controlling interests partially. Net cash used for financial activities in 2018
totaling $11.1 million reflects loans and bonds repayment, dividend distribution to non-controlling interests partially. 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..
- 38 -
Non-GAAP NOI decreased by $421,000, or 3%, for the year ended December 31, 2019 compared to the year ended December 31, 2018. The decrease in NOI was primarily driven by the decrease in
our fixed income from real estate rent. For further details regarding the definition of NOI please see Item 4.B.
Non-GAAP Recurrent FFO increased by $1.2 million, or 41%%, for the year ended December 31, 2019, compared to the year ended December 31, 2018. The increase in FFO was mainly due to
decrease in general and administrative expenses, financial expenses and Equity share in losses of associates, related to the investment in 300 River Holdings, LLC, offset by decrease in fixed income from
real estate.
During 2019, 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. In May 2018, the parties entered into an amendment to the Loan agreement, under which the Company repaid the Controlling Shareholder
$2.5 million on account of the Loan and the repayment by the Company of the remaining Loan amount of $2.5 million has been postponed from April 1, 2019 to July 1, 2020. In September 2019, the parties
entered into an additional amendment to the Loan agreement. Following these amendments, the repayment by the Company of the remaining Loan amount of $2.5 million has been postponed from July 1,
2020 to October 1, 2020.. However, we may prepay the Loan prior to such date at our sole discretion without any penalty.
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. We received a repayment of our senior notes to 300 Riverside Owner’s parent company, 300
River Holdings LLC, in the amount of $3 million plus accrued interest from the proceeds of the Shinhan Loan.
- 39 -
The following table summarizes the principle terms of our material financing agreements of the Company in effect as of December 31, 2019:
Type of Facility
Borrower
Original Date
and Maturity
Date
Original
Amount*
Non-convertible
Series A Bonds
issued to the public
in Israel
The Company Original Date-
9,
August
2015;
Maturity
Date-
December 31,
2021
NIS 60
million
(app. $15
million)
Outstanding
Amount (as of
December 31,
2019)**
NIS 20 million
(app. $7.9
million)
Annual Interest
Payment Terms
Principal Securities Principal Covenants
Additional Information
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
material
undertakings
towards the bondholders;
breach of the Company's
financial covenants during
fiscal
two
consecutives
quarters;
default
cross
provisions; the sale of the
majority of the Company's
assets, subject to certain
exceptions; and occurrence
of
of
control' events.
'change
certain
on
certain
restriction
No
the
issuance of any new series
of debt instruments, subject
to
exceptions.
Expansion of the series is
subject to maintaining the
the
rating assigned
the
bonds
and
expansion
continued compliance with
the financial covenants.
prior
date
to
to
none
6.7%
Interest - payable in
semi-annual
payments
Principal - payable
in
semi-annual
payments on June
30 and on December
31 of each of the
years
2016
of
through 2021 (last
payment
on
December 31, 2021)
- 40 -
of
• negative pledge
the
regarding
creation
a
floating charge on
all of the Company's
assets, subject
to
certain exceptions.
• no distributions in
an amount greater
than 35% of
the
profits
• no distributions
immediately
that
following which the
Company's
equity
(excluding minority
interest)
will
decrease below $50
million
•
of
increase
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 financial debt
to EBITDA ratio will
not be greater than
16.
As of December 31,
2018, the Company
the
meets
required covenants.
all
Type of Facility
Borrower
Refinancing
agreement of the
CTN complex
Eldista GmbH
(Senior
Borrower)
Original Date
and Maturity
Date
Original
Amount*
Original Date-
October 3,
2011;
Maturity
Date- 2061
CHF 85
million
(app. $93.5
million).
Outstanding
Amount (as of
December 31,
2019)**
CHF 83.5 million
(app. $86
million).
Annual Interest
Payment Terms
Principal Securities Principal Covenants
Additional Information
LIBOR + 0.75%
per annum.
Interest due
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
31.12.2018.
- 41 -
•
of
Transfers/sales
property are prohibited.
Any sale will result in the
loan being 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.
•
dividends/shareholder
loans are only permitted in
line with available yearly
profit after loan payments.
Distributions
of
of
Distributions
•
dividends/shareholder
loans are only permitted: (a)
to OPCTN to make its loan
payments;
(b)
otherwise
line with
in
available yearly profit after
loan payments.
and
Type of Facility
Borrower
Original Date
and Maturity
Date
Original
Amount*
Financing
agreement
amended) of
Edeka Portfolio
(as
the
Optibase
Bavaria
GmbH & Co.
KG
Original Date-
May
2015;
Maturity
Date- May 31,
2020
€21 million
(app. $23
million) of
which €20.5
million (app.
$22.5
million) has
been drawn
down
Outstanding
Amount (as of
December 31,
2019)**
€18.5 million
(app.
$20.7million)
Annual Interest
Payment Terms
Principal Securities Principal Covenants
Additional Information
Quarterly
amortization
of
€105,000 each from
June 30, 2015 until
the maturity date.
3-month Euro
Interbank Offer
Rate + either:
(a) 1.75%; or (b)
if
certain
mortgage
requirements
under German
law are not met,
1.89%.
a
is
There
Hedge
Agreement
in
place securing
an interest rate
of a maximum of
2.15%
per
annum.
Land charges over
the
Portfolio
properties;
Assignment of rent,
insurance right and
claims as well as
claims of all future
purchase
agreements;
Pledge
accounts;
of
rent
Enforceable
abstract promise of
debt;
Assignment of right
and claims under
the
Hedge
Agreement.
to
from
• Debt service cover
ratio ("DSCR") of at
least 130% (breach
is a "Soft Default",
surplus
requiring
income
the
portfolio properties
to be used
to
remedy the breach)
or of at least 110%
(breach is a "Hard
requiring
Default"
by
payment
Borrower
fully
remedy the breach-
DSCR of 130% must
be restored). DSCR
must be proven
towards
the bank
by
the Borrower
every six months
from December 31,
2015.
• Loan to value of
70%
first
three years and 65%
in the fourth and
fifth years (breach
requires Borrower
to make payment by
the Borrower
to
remedy the breach).
was
Portfolio
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.
the
in
the
the
out
term
• The Borrower should pay
certain release amounts (as
set
loan
in
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
for the sold property.
• Exit Fee for prepayment
prior to Maturity Date equal
to 0.30% per remaining year
of
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 Borrower. If
the conditions are not met
on or by December 31, 2017
loan will be
then
reduced by €525,884 and
Borrower will
repay an
amount of €74,116. To date,
the Company is negotiating
with the bank regarding an
extension until December
31, 2018.
• The Lender is authorized
to syndicate or
transfer
parts or the entire loan at its
own cost.
the
As of December 31,
2018, the Company
meets
the
required covenants.
all
- 42 -
Type of Facility
Borrower
Original Date
and Maturity
Date
Original
Amount*
Outstanding
Amount (as of
December 31,
2019)**
Financing
agreement
of
condominium units
in Miami
Optibase Real
Estate Miami,
LLC
Original Date-
July 7, 2015;
Maturity
Date- January
4, 2021
$9.4 million
$8.9 million
Annual Interest
Payment Terms
Principal Securities Principal Covenants
Additional Information
Libor
(30-day
rate) + either:
(a) 2.65%; or (b)
if
3,25%
Borrower
and
Guarantor fail to
maintain
depository
accounts with
Lender
the
totaling
$1.5
million.
on
on
Interest – payable
monthly
commencing
August 1, 2015.
is
Principal:
amortized
a
monthly basis with
principal payments
of
approximately
$19,000 per month
until
loan
the
matures on July 8,
2020
all
when
remaining principal
and interest become
due and payable.
senior
(i)
A
mortgage
spread
over 25 residential
condominium units;
and
(ii) Guaranty
from Optibase, Inc.,
which
under
Inc.
Optibase,
guarantees
the
obligations of the
Borrower, including
punctual
the
of
payment
owed
amounts
loan
under
documents.
the
the
presents
to
executed by
• The Mortgage will be
partially released so that a
sale of a Unit can occur,
provided: no Event of
Default exists at the time the
a
Borrower
the
contract for sale
Lender
a
buyer; the sale is to a bona-
fide third party purchaser
upon
and
conditions set out in Exhibit
B of the Loan Agreement.
• Lender may obtain a new
or updated Appraisal of the
Borrower’s
Project
expense once annually, or
more often if an Event of
Default exists or if required
a governmental or
by
or
agency
banking
authority.
terms
at
in
and
• Borrower to keep
$1 million
a
Restricted Account,
from which interest
are
payments
deducted
if such
payments are not
paid in cash.
• Guarantor and the
must
Borrower
collectively
maintain
unrestricted
unencumbered
Liquid Assets of at
$2 million
least
including
any
amounts held as
Reserve
Interest
under
the Loan
Agreement.
Guarantor not
to
transfer a material
portion
its
assets, other than in
the ordinary course
of business, for fair
market
terms, and
such
transfer will
not have material
adverse effect on its
ability to perform its
obligations.
Guarantor can make
advances
to
affiliates in ordinary
course of business
without consent.
of
As of December 31,
2018, the Company
meets
the
required covenants.
all
- 43 -
Type of Facility
Borrower
Original Date
and Maturity
Date
Original
Amount*
Financing
agreement of
property
Rumlang
the
in
Optibase RE 1
SARL
Original Date-
October 2009;
Maturity
Date- 2059
CHF 18.8
million
($18.4
million)
Outstanding
Amount (as of
December 31,
2019)**
CHF 15 million
(app. $15.5
million)
Annual Interest
Payment Terms
Principal Securities Principal Covenants
Additional Information
a
(for
Libor
period
determined by
per
borrower
each
interest
payment for 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 the amount
of
94,000
CHF
(approximately
$92,000 as of the
purchase date).
A senior mortgage
over the property +
Pledge over
holdings
borrower.
the
in
• Undertaking not to
any
grant
encumbrance
or
the
mortgage on
Rümlang property
without the lender's
approval.
As of December 31,
2018, the Company
meets
the
required covenants.
all
and
• The lender may adjust the
margin at its sole discretion
on account of deterioration
in Optibase RE 1's 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
no
replacement tenant is found
within 6 months.
• Borrower may repay the
time,
at
mortgage
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
default
conditions.
certain
any
- 44 -
Type of Facility
Borrower
Original Date
and Maturity
Date
Original
Amount*
Outstanding
Amount (as of
December 31,
2019)**
Loan Agreement
The Company Original date-
March 2017
Maturity
Date- October
1, 2020
$5.1 million
$2.5 million
Annual Interest
Payment Terms
Principal Securities Principal Covenants
Additional Information
The loan does
not bear any
interest
or
linkage
differentials
to
we may prepay the
loan prior
the
maturity date at our
discretion
sole
without
any
penalty.
loan
The
unsecured
is
none
our
and
approved,
In March 2017, our audit
committee and board of
directors
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,
Controlling
from
Shareholder. The Loan was
granted to the Company on
March 28, 2017 for
the
purpose of strengthening
liquidity.
the Company's
The Loan does not bear any
linkage
interest
or
differentials
is
unsecured, and we may
prepay the Loan prior to
such date at our sole
discretion without
any
penalty. In May 2018 and in
September 2019, we have
agreed with our Controlling
Shareholder to repay $2.5
million on account of the
Loan's
account while
postponing the repayment
remaining. The
of
the
revised
agreement was
approved by our audit
committee and board of
directors,
in accordance
with the Israeli Companies
Regulations (Relieves for
Transactions
with
Interested Parties) of 2000.
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, 2019
- 45 -
We believe that, considering the use of cash in our ongoing operations, together with the existing sources of liquidity including the consideration from the sale of the German Portfolio 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
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. During 2016 and 2017, 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 kept stable and in certain cased showing a moderate increase. During 2018, 2019 and to date the high end residential market in the U.S. is
showing a significant decrease in demand while up until recent events (the Coronavirus outbreak), other segments remained stable.
In addition, during 2015 and throughout 2016, as Swiss interest rates declined, 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, 2017, 2018 and throughout 2019. 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 throughout 2019 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 2017, 2018 and 2019, 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.
Since the outbreak of the Coronavirus, market conditions around the world, including in the areas we operate in have taken a significant downturn, and as of now we still cannot assess the full
impact of the Coronavirus outbreak on our operations.
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.
- 46 -
In 2016 we were profitable, while in 2015, 2017, 2018 and 2019 we operated at a loss. 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, 2018, and 2019 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, 2019:
Contractual Obligations
Total
Long-Term Debt*
Capital Lease Obligations
Lease Obligations*
Bonds*
Total Contractual Cash Obligations
* Excluding interest
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
6.A. DIRECTORS AND SENIOR MANAGEMENT
134,317
15,960
426
5,737
156,440
Less than 1 year
25,911
285
145
2,892
29,233
Payments Due by Period
(USD in thousands)
1- 3 years
3-5 years
13,470
571
255
2,845
17,141
4,896
571
26
-
5,493
more than 5 years
90,040
14,533
-
-
104,573
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
Tali Yaron-Eldar(1)(2)(3)
Danny Lustiger(1)(3)
Haim Ben-Simon(1)(2)(3)
Reuwen Schwarz
Position
Age
67
52
68
48
57
52
63
43
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.
- 47 -
On December 31, 2019, our shareholders approved the re-election of Alex Hilman, Danny Lustiger and Reuwen Schwarz as directors of the Company and the election of Ms. Tali Yaron Eldar and
Mr. Haim Ben-Simon as our external directors.
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.
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 and holds a B.A degree in social sciences from Bar Ilan University.
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.
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.
Haim Ben-Simon joined our board of directors in December 2019. Mr. Ben-Simon has served in various senior positions in private companies, including as the Chief Executive Officer of Sodexo
B&R Israel Ltd. and as the Chief Executive Officer and Chief Financial Officer of Cibus Business Meals Ltd. Mr. Ben-Simon currently serves as a director and strategic advisor in Sodexo B&R Israel Ltd.
Mr. Ben-Simon holds a B.A. degree in Economics and Statistics from the Hebrew University and an M.B.A. specializing in finance and business from the Hebrew University.
- 48 -
Tali Yaron-Eldar joined our board of directors in January 2020. Ms. Yaron-Eldar is an Israeli attorney specializing in taxation and is the co-founder of Yaron-Eldar, Paller, Schwartz & Co., Law
Offices, a boutique firm specializing in tax law. Ms. Yaron-Eldar further serves as a director in various Israeli public companies. From 2004 until 2007, Ms. Yaron-Eldar was a partner at two law offices in
Israel. Between January 2004 and January 2008, Ms. Yaron-Eldar served as the Chief Executive Officer of Arazim Investment Company, and from 1998 until 2004, also served in various senior roles in the
Israeli Tax Authority, including as the Commissioner of Income Tax and Real Property Tax Authority of the State of Israel for a period of two years. Ms. Yaron-Eldar holds an LL.B. degree from Tel Aviv
University and an M.B.A. specializing in finance from Tel Aviv University. Ms. Yaron-Eldar is also a member of the Israeli Bar Association.
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 February 14, 2019, as amended on February 18, 2020, 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, 2019. The
compensation detailed in the table below refers to actual compensation granted or paid to the director or officer during the year 2019.
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
(U.S. dollars in thousands)
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)
254
220
127.3
78.8
53.7
70.6
-
42.9
-
-
-
-
-
-
-
-
-
-
-
-
38.1
11.5
5.6
-
5
362.7
231.5
175.8
78.8
58.7
(1)
(2)
(3)
(4)
(5)
“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 2019.
“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, 2019.
“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 $21,000). Mr. Philips is
entitled to 24 vacation days, convalescence pay of 10 days and sick days 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 6 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. Mr. Philips is also entitled to bonus payments in accordance with the
Compensation Policy.
- 49 -
(6)
(7)
(8)
(9)
For details on Mr. Wyler’s compensation terms as approved by our shareholders on February 14, 2019, see Item 7.B. “Related Party Transactions”, below. In February 14, 2019, 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 $220,000 for a full time position, as of January 1, 2019.
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 37,800 (approximately $11,000). 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.
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, on December 29, 2016 and on
December 31, 2019. For further details see Item 7.B. “Related Party Transactions”, below.
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.
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, 2020, our directors and executive officers beneficially owned 205,865 ordinary shares of the Company (of which 46,640 ordinary shares were held by a trustee for the benefit of
our directors and executive officers under our 2006 Plan, vested as of March 20, 2020 or within 60 days thereafter). 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.
- 50 -
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:
(cid:1966) A breach of the duty of care vis-a-vis us or vis-a-vis another person;
(cid:1966) 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;
(cid:1966) A monetary obligation imposed on him or her in favor of another person;
(cid:1966) 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;
(cid:1966) 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
(cid:1966) 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:
(cid:1966) 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.
(cid:1966) 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.
(cid:1966) 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.
(cid:1966) 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.
(cid:1966) 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.
(cid:1966) 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.
- 51 -
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:
(cid:1966) 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;
(cid:1966) an intentional or reckless breach of the duty of care, except for if such breach was made in negligence;
(cid:1966) an act done with the intention of unduly deriving a personal profit; or
(cid:1966) 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 February 14, 2019 and on February 18, 2020, following the approval by our compensation committee and board of directors, our shareholders approved an amendment to our Compensation
Policy which includes clauses allowing us to provide our directors and officers with insurance and 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:
(cid:1966) the maximum coverage amount under each policy shall not exceed the higher of: (i) $25 million; or (ii) 25% of our shareholders equity (based on our most recent financial statements at the time
of approval by our compensation committee) per incident and insurance period (for a one-year period) in addition to reasonable litigation expenses;
(cid:1966) the maximum yearly premium to be paid by us for each policy shall not exceed 5% of the aggregate coverage of such policy;
(cid:1966) the purchase of each policy shall be approved by our compensation committee (and, if required by law, by our board of directors) which shall determine that the policy reflects the current
market conditions, and it shall not materially affect our profitability, assets or liabilities.
- 52 -
Our Compensation Policy also allows us to purchase "run off" insurance policy for up to seven (7) years, subject to the following:
(cid:1966) The limit of liability of the insurer shall not exceed the greater of $25 million or 25% of our shareholders equity (based on the most recent financial statements at the time of approval by the
Compensation Committee) per incident and insurance period (for a one-year period) in addition to reasonable litigation expenses;
(cid:1966) The annual premium shall not exceed 500% of the last paid annual premium; and
(cid:1966) The purchase of such insurance policy shall be approved by the Compensation Committee (and, if required by law, by the board of directors) which shall determine that the insurance policy
reflects the current market conditions, and that it shall not materially affect the Company's profitability, assets or liabilities.
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 December 20, 2019 and ending
on December 31, 2020, as approved by our compensation committee and board of directors. The coverage amounts under such policy and the yearly premium to be paid by us for such policy are $19
million and $442,767, 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).
- 53 -
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 31, 2019, our shareholders
approved the appointment of Mr. Haim Ben-Simon and Ms. Tali Yaron-Eldar as our external directors for a three-year term commencing on December 31, 2019 and January 31, 2020, 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.
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.
- 54 -
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.
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).
- 55 -
Pursuant to the Companies Law, an independent director, within the meaning of such term under the Companies Law, can serve for a period of up to 9 years. Nevertheless, regulations
promulgated under the Companies Law provide that a company whose shares are listed on both the Nasdaq Global Market and the Tel Aviv Stock Exchange Ltd. may re-elect an independent director for
additional terms of service if the company’s audit committee and board of directors find that, in light of the person’s expertise and special contribution to the function of the board of directors and its
committees, his or her continued service as an independent director is to the benefit of the Company.
Mr. Danny Lustiger serves as our independent director for more than 9 years. On December 31, 2019, following the approval and recommendation of our board of directors and Audit Committee,
our shareholders approved the continued service of Mr. Danny Lustiger as a director of the Company for an additional term.
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.
- 56 -
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 each of Ms. Tali Yaron-Eldar and Mr. Haim Ben-Simon 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. Haim Ben-Simon, Mr. Danny Lustiger and Ms. Tali Yaron-Eldar. 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.
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.
- 57 -
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. Haim Ben-Simon, Mr. Danny Lustiger and Ms. Tali Yaron-Eldar. 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. Haim Ben-Simon, Mr. Danny Lustiger and Ms. Tali Yaron-Eldari. We believe that all of the members of our nominating committee are
independent of management, and satisfy the requirements of the NASDAQ rules.
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. Haim Ben-Simon, Mr. Danny Lustiger and Ms. Tali Yaron-Eldar.
Our current compensation policy, or the Compensation Policy, was approved by our shareholders on February 14, 2019 (as amended on February 18, 2020) and is in effect for a period of three
years from the date of approval. The Compensation Policy does not, by nature, grant any rights to our directors or officers. The Compensation Policy includes both long-term and short-term
compensation elements and is to be reviewed from time to time by our compensation committee and our board of directors, according to the requirements of the Companies Law.
- 58 -
Our Compensation Policy serves as the basis for decisions concerning the financial terms of employment or engagement of office holders, including exculpation, insurance, indemnification or any
monetary payment or obligation of payment with respect to employment or engagement. According to the Companies Law, the compensation policy must be approved (or reapproved) not longer than
every three years and relate to certain factors, including advancement of the company’s objectives, the company’s business plan and its long-term strategy, and creation of appropriate incentives for
office holders. It must also consider, among other things, the company’s risk management, size, and nature of its operations. The compensation policy must furthermore consider the following additional
factors:
•
•
•
•
•
•
•
the knowledge, skills, expertise, and accomplishments of the relevant office holder;
the office holder’s roles and responsibilities and prior compensation agreements with him or her;
the ratio between the terms offered and the average compensation of the other employees of the company, including those employed through manpower companies, and in particular the
ratio between the average wage and the median salary of such employees;
the impact of disparities in salary upon work relationships in the company;
the possibility of reducing variable compensation at the discretion of the board of directors;
the possibility of setting a limit on the exercise value of non-cash variable equity-based compensation; and
as to severance compensation, the period of service of the office holder, the terms of his or her compensation during such service period, the company’s performance during that period
of service, the person’s contributions towards the company’s achievement of its goals and the maximization of its profits, and the circumstances under which the person is leaving the
company
The compensation policy must also include the following principles:
•
•
•
•
the linkage between variable compensation and long-term performance and measurable criteria; however, in certain circumstances, we may grant up to three monthly salaries per year of
unmeasurable criteria for an office holder who is not our chief executive officer;
the ratio between variable and fixed compensation, and the ceiling for the value of variable compensation at the time of the payment (or with respect to variable equity compensation that
is not paid for in cash, a ceiling for their value on the grant date);
the conditions under which an office holder would be required to repay compensation paid to him or her if it was later shown that the data upon which such compensation was based
was inaccurate and was required to be restated in the company’s financial statements;
the minimum holding or vesting period for variable, equity-based compensation with a view to long-term incentives; and
• maximum limits for severance compensation
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.
- 59 -
6.D. EMPLOYEES
We currently have 11 employees, including employees in our subsidiaries, all of them employed in our general and administrative, finance and human resources divisions. Out of whom 6
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, 2020, our current directors and executive officers (eight persons) beneficially owned an aggregate of 205,865 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, 2020 or within 60 days. All of our directors or executive officers hold less than 1% of our
shares except for Mr. Wyler who holds, to the Company knowledge, approximately 159,218 ordinary, which is approximately 3.06% of the Company's outstanding shares. See Item 7.A. “Major
Shareholders” for more information regarding Mr. Wyler's holdings.
Incentive Plans
As of March 20, 2020, we had no outstanding options and/or unvested restricted shares. As of December 31, 2018, and 2019, the number of options reserved for issuance under our plans was
571,260.
As of March 20, 2020, or within 60 days thereafter, an aggregate of 235,790 ordinary shares has been reserved for issuance under the 2006 Plan. As of December 31, 2018, and 2019, the number of
restricted shares reserved for issuance under the 2006 Plan was 235,790.
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. 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.
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.
- 60 -
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, 2020 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:
The Capri Family Foundation (2)
Shareholding of all directors and officers as a group (eight persons)(3)
Name of Beneficial Owner
No. of Ordinary
Shares
Beneficially
Owned(1)
4,097,201
205,865
Percentage of
Ordinary Shares
Beneficially Owned
78.82%
3.96%
(1) Number of shares and percentage ownership is based on 5,216,256 ordinary shares outstanding as of March 20, 2020. Such number excludes 17,895 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, 2020 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 May 29,2019, and based on Amendment No. 6 to Schedule 13D filed with the SEC on May 29, 2019, by The Capri Family Foundation. According to such
Amendment No. 6 to Schedule 13D, Capri directly owns 4,097,201 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, of which 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, 2020
or within 60 days thereafter. Other than Shlomo (Tom) Wyler, all of our directors or executive officers hold less than 1% of our shares.
- 61 -
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, 2017, regarding ownership of our shares, and to date:
Beneficial Owner
The Capri Family Foundation
Date of filing
May 29, 2019
No. Of Shares Beneficially Held
4,097,201*
* The information is based on Amendment No. 6 to Schedule 13D filed with the SEC on June 19, 2019, by Capri, in connection with the acquisition of an additional 300,917 ordinary shares by Capri on
May 29, 2019, in a private transaction with an unrelated third party at a price of $10.464 per share.
All of our shares have the same voting rights.
On March 20, 2020, 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.
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. 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 which have been exercised into 20,000 ordinary shares NIS 0.65 nominal value each of the Company under the Company's 1999 Israeli Share Option Plan. All other terms of the options are
as stated in the Company's 1999 Israeli Share Option Plan.
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. Hilman, the executive chairman of our board of directors, and Mr. 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 May 16, 2016, and following the approval by our audit committee, compensation committee and board of directors, our shareholders approved the compensation terms of Mr. 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. was set at $200,000 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.
On February 14, 2019, following the approval by our compensation committee, audit committee and board of directors, our shareholders approved an extension for a three-year term, of our engagement
with Mr. Wyler's, including an adjustment to his compensation terms, in a manner that Mr. Wyler's annual gross base salary was set at $220,000 for a full time position, as of January 1, 2019.
- 62 -
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 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. On February 14, 2019, our shareholders approved, following the approval by our compensation committee and board
of directors, an extension of the engagement with Mr. Philips to an unlimited period. As such Mr. Philips’ monthly base gross salary is NIS 75,000 (approximately $20,800), and he is entitled to 24 vacation
days, convalescence pay of 10 days and sick days 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 6 months. During such advance notice period, Mr. Philips is entitled to all of the compensation elements, and to the continuation of vesting of any options or
restricted shares granted to him. Mr. Philips is also entitled to bonus payments in accordance with the Compensation Policy.
On December 31, 2019, and following the approval by our audit committee and board of directors, our shareholders approved an extension of the service agreement (which was originally signed
on December 13, 2013 and extended on December 29, 2016), between the Company and Mr. 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, 2019 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.
On December 31, 2019, our shareholders approved the appointment of Ms. Tali Yaron-Eldar and Mr. Haim Ben-Simon as external directors of the Company for a three-year term commencing on
January 31, 2020 and on December 31, 2019, 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.
- 63 -
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. In May
2018 and in November 2019, the parties entered into amendments to the Loan's agreement. For further details see Item 5.B. “Operating and Financial Review and Prospects - Liquidity and Capital
Resources” above.
On December 31, 2019, our shareholders approved, following the approval by our audit committee and board of directors, an extension to the lease agreement signed on December 29, 2016, with
an affiliate of Capri, or the Tenant. The lease will be in effect for a one-year term commencing on January 2, 2020, 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 lease agreement 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 $26,522.50, including sales tax. 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. 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.
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.
- 64 -
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, 2019, the Company indirect beneficial interest in the 2 Penn Property is 22.16%.
The general partner of the partnership and certain other limited partners of the Partnership, are persons or entities affiliated with Mr. 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, 2019 - 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.
- 65 -
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.
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.
- 66 -
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.
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.
- 67 -
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.
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.
- 68 -
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.
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, and additional hearings were held on November 19, 2017, December 5, 2017, February 25, 2018, October 7, 2018, December 2,
2018 and December 18, 2018.
On June 16, 2019, the District Court denied the motion to approve the filing of the derivative claim.
On September 22, 2019, the Applicants filed an appeal to the District Court's decision to the Supreme Court. On February 20, 2020, the Applicants submitted their written summations and we
should file our summations by May 30, 2020. The hearing of the appeal is scheduled to September 23, 2020.
- 69 -
Receipt of a Claim in Connection with an Option Agreement
On March 6, 2019, we were notified that Swiss Pro Capital Limited, a company organized under the laws of Switzerland, has filed a legal claim against our subsidiaries, Optibase RE 1 s.a.r.l and
Optibase Real Estate Europe SARL pursuant to which Swiss Pro mainly demands the exercise of a granted option to purchase 20% of the shares of Optibase RE 1 s.a.r.l, the owner of the Rümlang
property, or the Option, in connection with an option agreement between Swiss Pro and our subsidiaries, dated March 1, 2010, or the Agreement (for further details on the Agreement see Item 10.C.
“Material Contracts”).
Swiss Pro alleges that by calculating the formula under the Agreement, the exercise price of the Option is zero, and as such Swiss Pro claims that it holds 20% of the shares of Optibase RE 1
s.a.r.l. as of May 25, 2016, the date on which Swiss Pro has informed our subsidiaries about the exercise of the Option. In addition, Swiss Pro alleges that our subsidiaries be ordered to carry out the
actions required for the allotment of the exercisable shares, and demands that Optibase Real Estate Europe SARL be ordered to pay Swiss Pro an amount of CHF 400,000 for additional charges made since
the exercise of the Option and its alleged stake in the cash held by Optibase RE 1 s.a.r.l.
On July 29, 2019, our subsidiaries filed a statement of defense, categorically denying the allegations of Swiss Pro, and claiming that the option price reflects what is stated in the Agreement and
that, in complete contradiction to Swiss Pro's claims, they did not artificially raise the price of the Option as alleged. The parties were referred to mediation that ended without reaching a settlement. The
court is expected to set a preliminary hearing on the claim.
The filing of the legal claim was preceded by an exchange of letters between Swiss Pro and us during 2015 and 2016 in connection with Swiss Pro's claim for the exercise of the Option. We have
responded to the allegations then raised by Swiss Pro and rejected them all (see the disclosure of such exchange of letters in our annual reports on Form 20-F for the years 2015 through 2018). We
maintain our rejection of Swiss Pro's allegations and believe the legal claim to be without merit.
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 October 31, 2016, dismissing Eldista GmbH's claim (though it had not yet examined the issue of
the damages). Eldista GmbH filed an appeal against the judgment, but it was dismissed on June 12, 2017. On May 2, 2018, the court ruled that the damages owned to the tenant amount to CHF 52,916 plus
interest 5% as of June 4, 2014. An appeal has been filed by Eldista GmbH but it was dismissed by the supreme court on October 27, 2019. Eldista GmbH was therefore ordered to pay the tenant CHF 52,916
plus interest 5% as of June 4, 2014, as well as additional amount of CHF 17,000 as a participation for the tenant's legal fees.
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 (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 (excluding VAT) as well as approximately CHF 69,200 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.
- 70 -
Based on LEM’s submissions filed during the first hearing before the court, LEM is requesting a 20% rent reduction amounting to a capital amount of CHF 3,094,000 for the period starting from
February 1, 2012, until June 30, 2017, with 5% moratory interest per year starting from October 23, 2017, corresponding to CHF 154,700 per year, based on the various defects allegedly affecting the rented
premises. In addition, LEM is claiming for related damages an amount of CHF 167,721, subject to amplification, with 5% moratory interest per year starting from October 23, 2017, corresponding to CHF
8,386 per year. LEM’s claim for rent reduction was reduced to 10% from July 1, 2017, until repair of the alleged defects or entry into force of the judgment, that is to say a capital amount of CHF 714,000 if
considered from July 1, 2017, until December 31, 2019. LEM further demands to be reserved the right to claim the reimbursement of overpaid ancillary fees. A first hearing took place on June 26, 2018,
regarding lease matters, and a second hearing took place on November 7, 2018. The next hearing is not likely to happen before May 2020,. An out-of-court settlement was proposed by LEM’s counsel on
May 15, 2019 without prejudice, including the complete withdrawal of LEM’s pending claim in full and final settlement provided that Eldista Gmbh authorizes LEM to stay in the building after the end of
the lease for a determined period starting from April 1, 2020 until December 31, 2021 with a reduced rent of 20% justified by the market conditions that would correspond to a capital amount of CHF 1
million approximately. Eldista Gmbh made a counterproposal on August 29, 2019 of CHF 346,311.00 which was refused by LEM on September 9, 2019. LEM made a counterproposal at CHF 700,000.00 plus
the right to vacate the premises without any obligation to reinstate, to which Eldista Gmbh did not answer to date focusing on the proceedings.
In addition, LEM filed a new claim against Eldista Gmbh on January 27, 2020. LEM is claiming a first extension of its current lease until December 31, 2021, or until September 30, 2022 at the latest.
LEM is also claiming a rent reduction of 16.94% (approximately CHF 40,000 per month) from April 2020 until the end of the extension which corresponds to a total amount of CHF 1,188,750. A first
conciliation hearing is appointed on April 29, 2020.
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”.
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”. 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
On January 27, 2020, a new formal filing of a claim was submitted by LEM against Eldista Gmbh. For further details, see Item 8. “Financial Information - Legal Proceedings”.
- 71 -
On February 11, 2020, Optibase Bavaria had entered into a definitive agreement with an unrelated third party buyer, to sell the German Portfolio. For further details, see Item 10.C. “Material
Contracts”.
Since December 2019, we are witnessing the outbreak of novel coronavirus (COVID-19). For more details and possible implications on our business operation, see Item 3.D. “Risk Factors”, under
the heading “Risks Relating to the Economy, Our Financial Condition and Shareholdings”.
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. In addition, on April 29, 2015, our ordinary shares were
registered for trading on the Tel Aviv Stock Exchange under the symbol OBAS.
On March 20, 2020, the reported closing sale price of our ordinary shares on The NASDAQ Global Market was $10.05 per share and on the Tel Aviv Stock Exchange was NIS 34.01 per share.
9.B. PLAN OF DISTRIBUTION
Not applicable.
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.
- 72 -
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.
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 5,216,256 ordinary shares were issued and outstanding
as of March 20, 2020. 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.
- 73 -
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.
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.
- 74 -
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.
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:
(cid:1966) 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;
(cid:1966) the avoidance of any act in competition with the company’s business;
(cid:1966) the avoidance of exploiting any of the company’s business opportunities in order to gain a personal advantage for himself or for others; and
(cid:1966) 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.
- 75 -
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.
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.
- 76 -
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 February 14, 2019, 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. On February 18, 2020, following the approval by our compensation committee and our board of directors, our shareholders approved an amendment to compensation policy with respect
to the maximum aggregate annual premium payable for directors’ and officers’ liability insurance.
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.
- 77 -
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.
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.
- 78 -
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.
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 has expired at the end of eight
years from the entrance into the agreement, i.e.: in October 2017. For details on a legal claim filed by Swiss Pro against our subsidiaries, see Item 8. “Financial Information - Legal Proceedings”.
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.
- 79 -
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.
Sale of our German Commercial Properties Portfolio
On February 11, 2020, our wholly owned European subsidiary, Optibase Bavaria GmbH & Co. KG, or Optibase Bavaria, had entered into a definitive agreement with an unrelated third party buyer,
or the Buyer, to sell the German Portfolio.
Purchase Price
The total purchase price paid by Buyer at the closings of the transaction, is EUR 35 million (app. $38.9 million), or the Purchase Price.
Properties
In general, the German 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 2.9 million (approximately $3.2 million). The properties have an average occupancy rate of more than 97% of the total rental area, and an average
remaining lease term of approximately seven years.
Closing
The closing of the transaction is subject, among other things, to customary conditions, including (i) the waiver of a right of first refusal by the main tenant; and (ii) the waiver by the local
municipalities of their right of first refusal on each of the properties. The exercise of the right of first refusal in regard to certain properties, will not affect the closing of the transaction with respect to the
other properties.
The closing will be conducted in tranches with respect to certain groups of properties and is expected to occur over the course of second and third quarters of 2020.
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.
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.
- 80 -
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".
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 addition, Israeli citizens are freely to invest outside of Israel
and 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.
- 81 -
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.
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.
- 82 -
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. 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%.
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.
Individuals who are subject to tax in Israel are also subject to an additional tax at a rate of 3% on annual income exceeding NIS 649,560 for 2019 (and as of 2018, the additional tax was on annual
income exceeding NIS 641,880), which amount is linked to the annual change in the Israeli consumer price index, including, but not limited to, dividends, interest and capital gain.
- 83 -
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:
(cid:1966) broker-dealers,
(cid:1966) financial institutions,
(cid:1966) certain insurance companies,
(cid:1966) investors liable for alternative minimum tax,
(cid:1966) tax-exempt organizations,
(cid:1966) non-resident aliens of the U.S. or taxpayers whose functional currency is not the U.S. dollar,
(cid:1966) persons who hold the ordinary shares through partnerships or other pass-through entities,
(cid:1966) investors that actually or constructively own 10 percent or more of our voting shares, and
(cid:1966) 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.
For purposes of this summary, a U.S. Holder is:
(cid:1966) an individual who is a citizen or, a resident of the United States for U.S. federal income tax purposes;
(cid:1966) a partnership, corporation or other entity created or organized in or under the laws of the United States or any political subdivision thereof;
(cid:1966) an estate whose income is subject to U.S. federal income tax regardless of its source;
(cid:1966) 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
(cid:1966) 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.
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.
- 84 -
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.
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.
- 85 -
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.
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, Germany and the United States is subject to federal tax at the rate of approximately 29%, 24%, 16% and 21% respectively
in 2019.
10.F. DIVIDEND AND PAYING AGENTS
Not applicable.
- 86 -
10.G. STATEMENT BY EXPERTS
Not applicable.
10.H. DOCUMENTS ON DISPLAY
We are subject to the information reporting requirements of the Exchange Act, applicable to foreign private issuers, and under those requirements, we file reports with the SEC. Our filings with
the SEC are available to the public through the SEC’s website at http://www.sec.gov.
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, EUR and in U.S. dollars. Therefore, our results of operations may be seriously harmed by inflation in
Israel and currency fluctuations.
The inflation rate in Israel was approximately 0.4%, 0.8% and 0.6% in 2017, 2018 and 2019, respectively. The changes of the NIS against the dollar was an appreciation of approximately 9.8% in
2017, and a devaluation of approximately 8.1% in 2018, and an appreciation of approximately 10.9% in 2019. The change of the CHF against the dollar was an appreciation of approximately 4.4% in 2017,
and a devaluation of approximately 0.8% in 2018 and an appreciation of approximately 1.4% in 2019. The change of the Euro against the dollar was an appreciation of approximately 13.7% in 2017, a
devaluation of approximately 4.5% in 2018 and a devaluation of approximately 2.1% in 2019.
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.
- 87 -
Investments Risks
As of December 31, 2019, our available net cash was $12.6 million. As of December 31, 2019, 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”.
- 88 -
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
Not applicable.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
PART II
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, 2018. 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, 2018 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, 2018.
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.
- 89 -
(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 each of Ms. Tali Yaron-Eldar and Mr. Haim Ben-Simon is an “audit committee financial expert” and that each of them 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, 2019, 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 2018 and 2019 (in thousands of dollars):
Audit fees (1)
Audit-related fees (2)
Tax fees (3)
Total
2018
107
5
43
155
2019
112
5
38
155
(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.
- 90 -
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 2018 and 2019, 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.
- 91 -
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.
- 92 -
Page
F-2
F-3 - F-4
F-5
F-6
F-7
F-8 - F-9
F-10 - F-44
Page
F-44 –F-58
OPTIBASE LTD. AND ITS SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2019
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 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-44
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 Accountig 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, 2019 and 2018, the related consolidated statements of
operations, comprehensive income (loss), shareholders' equity and cash flows for each of the three years in the period ended December 31, 2018, and the related notes (collectively referred to as the
"financial statements”). In our opinion, the consolidate financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019 and 2018, and the results of
its operations and its cash flows for each of the three years in the period ended December 31, 2019, 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 $ 4,407 thousand as of December 31, 2019,
and the Company's share in its net loss amounted to approximately $ 4,859 thousand for the year ended December 31, 2019. 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 audit 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.
/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
April 1, 2020
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 $ 285 and $ 207 at December 31, 2019 and 2018, respectively)
Other accounts receivable and prepaid expenses
Property held for sale
$
Total current assets
LONG-TERM INVESTMENTS:
Long-term deposits
Right-of-use assets
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,
2019
2018
$
12,564
32
536
628
29,727
43,487
2,678
376
11,657
14,711
181,109
-
181,109
13,836
31
427
320
-
14,614
2,477
-
14,377
16,854
212,349
141
212,490
243,958
$
239,307
$
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
Lease liabilities
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, 2018 and 2017; Issued: 5,216,256 shares at December 31, 2019 and 2018;
Outstanding: 5,198,361 shares at December 31, 2019 and 2018
Additional paid-in capital
Treasury shares: 17,895 shares at December 31, 2019 and 2018
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.
April 1, 2020
Date of approval of the
financial statements
OPTIBASE LTD. AND ITS SUBSIDIARIES
December 31,
2019
2018
$
$
28,803
5,170
2,061
36,034
13,801
6,110
257
-
-
108,406
2,845
131,419
5,788
4,103
2,061
11,952
13,752
6,134
-
206
2,476
130,806
5,239
158,613
994
994
138,187
(87)
(428)
(86,822)
51,844
20,010
71,854
138,187
(87)
(706)
(84,829)
53,559
19,834
73,393
$
239,307
$
243,958
Amir Philips
Chief Executive Officer
F - 4
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
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 (loss)
Net income attributable to non-controlling interest
Net loss attributable to Optibase Ltd.
Net earnings per share:
Basic and diluted net earnings (loss) per share
OPTIBASE LTD. AND ITS SUBSIDIARIES
Year ended
December 31,
2018
2017
2019
$
16,144
$
16,608
$
16,587
2,948
4,321
3,047
10,316
5,828
722
(2,630)
3,920
(1,472)
(2,321)
127
2,120
2,991
4,317
3,500
10,808
5,800
607
(2,882)
3,525
(1,464)
(2,765)
(704)
2,077
(1,993) $
(2,781) $
3,057
4,209
2,698
9,964
6,623
597
(2,769)
4,451
(1,602)
(1,677)
1,172
2,295
(1,123)
(0.38) $
(0.54) $
(0.22)
$
$
Weighted average number of shares used in computing basic net earnings per share:
5,186,273
5,185,352
5,180,163
Weighted average number of shares used in computing diluted net earnings per share:
5,186,273
5,185,352
5,180,163
The accompanying notes are an integral part of the consolidated financial statements.
F - 5
OPTIBASE LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
U.S. dollars in thousands
Net income (loss)
Foreign currency translation adjustments
Financial liability related to hedging
Total comprehensive income (loss)
Net earnings attributable to non-controlling interests
Other comprehensive loss (income) attributable to non-controlling interests
Year ended
December 31,
2018
2019
2017
$
127
$
(704) $
393
137
657
(2,120)
(283)
(1,052)
88
(1,668)
(2,077)
207
Comprehensive income (loss) attributable to Optibase Ltd.
$
(1,746) $
(3,538) $
The accompanying notes are an integral part of the consolidated financial statements.
F - 6
1,172
3,357
113
4,642
(2,295)
(831)
1,516
OPTIBASE LTD. AND ITS SUBSIDIARIES
STATEMENTS OF 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, 2017
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
-
-
-
-
-
-
-
-
-
Balance as of December 31, 2017
993
138,170
(87)
Stock-based compensation
Issuance of shares upon exercise of
stock options
Dividend to non-controlling interests
Other comprehensive income (loss)
Equity component of transaction with
controlling shareholder
Net income (loss)
-
1
-
-
-
-
17
-
-
-
-
-
-
-
-
-
-
-
-
-
2,639
372
-
9
-
-
-
(757)
42
-
-
-
-
-
(1,123)
15
-
2,639
372
(1,123)
(82,048)
57,037
-
-
-
-
-
(2,781)
17
1
-
(757)
42
(2,781)
Balance as of December 31, 2018
994
138,187
(87)
(706)
(84,829)
53,559
Stock-based compensation
Issuance of shares upon exercise of
stock options
Dividend to non-controlling interests
Other comprehensive income (loss)
Equity component of transaction with
controlling shareholder
Net income (loss)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
247
31
-
-
-
-
-
-
(1,993)
-
-
-
247
31
(1,993)
-
(2,089)
831
-
2,295
20,031
-
-
(2,067)
(207)
-
2,077
19,834
-
-
(2,227)
283
-
2,120
15
(2,089)
3,470
372
1,172
77,068
17
1
(2,067)
(964)
42
(704)
73,393
-
-
(2,227)
530
31
127
Balance as of December 31, 2019
994
$
138,187
$
(87) $
(428) $
(86,822) $
51,844
$
20,010
$
71,854
The accompanying notes are an integral part of the consolidated financial statements.
F - 7
OPTIBASE LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
Cash flows from operating activities:
Net income (loss)
Adjustments required to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Stock-based compensation related to options and unvested shares
Increase in trade receivables
Equity share in losses of associates, net
Decrease in deferred tax liabilities
Decrease in land lease liabilities
Increase in lease liabilities
increase in right-of-use assets
Decrease (increase) in other accounts receivable and prepaid expenses
Increase (decrease) in accrued expenses, other accounts payable and other liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Investment in real estate property
Proceeds from (investments in) associates, net
Decrease (increase) in other long-term deposits
Year ended
December 31,
2018
2017
2019
$
127
$
(704) $
4,321
-
(105)
2,321
(140)
(106)
257
(376)
(665)
1,763
4,317
17
(109)
2,765
(173)
(108)
-
-
965
(103)
$
7,397
$
6,867
$
(1,109)
398
116
(2,764)
414
105
Net cash provided by (used in) investing activities
$
(595) $
(2,245) $
The accompanying notes are an integral part of the consolidated financial statements.
F - 8
1,172
4,209
15
(112)
1,998
(169)
(106)
-
-
(791)
1,685
7,901
(2,195)
3,338
265
1,408
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
Cash flows from financing activities:
Repayment of long-term bank loans and bonds
Dividend paid to non-controlling interests
Proceeds from (repayment of) controlling shareholders' loan
Net cash used in financing activities
Exchange differences on balances of cash and cash equivalents
Increase (decrease) in cash and cash equivalents and restricted cash
Cash and cash equivalents and restricted cash at the beginning of the year
Cash and cash equivalents and restricted cash at the end of the year
(a) Supplemental disclosures of cash flows information:
Cash and cash equivalents
Restricted cash
Total cash and cash equivalents and restricted cash
Net lease liabilities arising from obtaining Right of use assets
(b) Supplemental cash flows activities:
Cash paid during the year for:
Taxes
Interest
The accompanying notes are an integral part of the consolidated financial statements.
F - 9
OPTIBASE LTD. AND ITS SUBSIDIARIES
Year ended
December 31,
2018
2019
2017
(5,958) $
(2,227)
-
(6,558) $
(2,067)
(2,500)
(8,185)
(11,125)
112
(1,271)
13,867
(190)
(6,693)
20,560
12,596
$
13,867
$
$
12,564
32
$
13,836
31
12,596
$
13,867
$
22
$
-
$
1,433
2,320
$
$
2,521
2,484
$
$
(8,431)
(2,089)
5,118
(5,402)
629
4,536
16,024
20,560
20,268
292
20,560
-
2,744
2,554
$
$
$
$
$
$
$
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 1:-
GENERAL
a.
Optibase Ltd. (the "Company") was incorporated and commenced operations in 1990.
OPTIBASE LTD. AND ITS SUBSIDIARIES
The company through its subsidiaries operate in fixed-income real-estate. The company is engaged with 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.
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, 2019, the Company manages its activity through four 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, Optibase RES SARL in Luxembourg which was incorporated in June,
2018 and OPCTN SA, a Luxembourg company owned 51% by the Company which was incorporated in February 2011 ("Subsidiaries"), (collectively, the "Group").
b.
Investments in associates:
1.
Retail portfolio in Bavaria, Germany:
On December 18, 2014 the Company through 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 € 24,000,000
(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 € 4,750,000
(approximately $ 5,224 as of the purchase date).
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
In addition to the purchase price, the Company incurred acquisition costs, including real estate transfer taxes of € 2,075,000 (approximately $ 2,352 during 2015) and presented
in the consolidated statements of operations as other operating costs.
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
For details regarding the portfolio definitive sale agreement, see Note 19b.
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 has two major tenants: 18% and 16% of the Company revenues in each of the years ended December 31, 2019, 2018 and 2017. No other tenants accounted for more than
10% of the Company revenues.
For details regarding a dispute with major tenant to which OPCTN's subsidiary, Eldista Gmbh (“Eldista”), see Note 12d(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
OPTIBASE LTD. AND ITS SUBSIDIARIES
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, 2019 and 2018, which relates to the discontinued operations and presented in the consolidated balance sheets,
are summarized as follows:
Liabilities:
Total liabilities attributed to discontinued operations
$
2,061 $
2,061
Year ended
December 31,
2019
2018
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES
a.
Basis of presentation of the financial statements:
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 U.S dollar, CHF and EUR. 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:
Real estate properties 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, right-of-use assets and intangible assets:
Years
25 - 63
5 - 20
30
The Group's long-lived assets (assets group) to be held or used, including property and equipment, right of use assets and intangible assets subject to amortization 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 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, 2019 and 2018, 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, 2019 and 2018, the Company had outstanding hedging instruments in the
amount of $ 68 and $ 206 respectively, which included as of December 31, 2019 in short-term liabilities and as of December 31, 2018 in long-term liabilities, and a outstanding hedging
instruments in the amount of $ 458 and $ 313, respectively, which included in long-term Assets.
At times, the Company may use derivative instruments to manage exposure to variable interest and currency rate risk. Occasionally, the Company enters into interest and currency
rate swaps to manage its exposure to variable interest and currency rate risk and treasury locks to manage the risk of interest and currency 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 is a lessor under non-cancellable operating leases and generates revenues from fixed income real-estate according to ASC 842 which 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 contract conveys the rights to control the use of the asset to the lessee for a period in exchange to considerations.
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 tax expenses.
The Company believes that its tax positions are all highly certain of being upheld upon examination. As such, as of December 31, 2019 and 2018 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".
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.
During 2019 and 2018 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, 2019 and 2018.
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.
Recently issued and adopted accounting pronouncements:
In February 2016, the FASB issued ASU 2016-02, “Leases” ("ASC 842"), on the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e.,
lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the
lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight line
basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless
of their classification. Leases with a term of 12 months or less will be accounted for in a manner similar to the accounting under the prior guidance (ASC 840). The new standard
requires lessors to account for leases using an approach that is substantially equivalent to ASC 840 guidance for sales-type leases, direct financing leases and operating leases. The
new standard supersedes the previous leases standard, ASC 840, "Leases". The company elected the lessor practical expedient to not separate lease and non-lease components in
contract and instead to account for as a single lease component, if certain criteria are met.
The Company adopted the new standard as of January 1, 2019, using the modified retrospective approach. Consequently, prior period balances and disclosures have not been
restated. The Company have elected to utilize the available package of practical expedients permitted under the transition guidance within the new standard which does not require it
to reassess the prior conclusions about lease identification, lease classification and initial direct costs. The Company included in our balance sheet at adoption an operating right-of-
use assets, short term operating lease liabilities and long term operating lease liabilities of $ 463, $ 124 and $ 339, respectively. The standard did not materially impact our net earnings
and had no material impact on cash flows. For additional information regarding our accounting for leases, please refer to Note 7.
F - 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
New accounting pronouncements not yet effective:
OPTIBASE LTD. AND ITS SUBSIDIARIES
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses on Financial Instruments”, which requires that expected credit losses relating to financial assets
measured on an amortized cost basis and available for sale debt securities be recorded through an allowance for credit losses. ASU 2016-13 limits the amount of credit losses to be
recognized for available for sale debt securities to the amount by which carrying value exceeds fair value and also requires the reversal of previously recognized credit losses if fair
value increases. The new standard will be effective for interim and annual periods beginning after January 1, 2020, and early adoption is permitted. The Company do not expect this
standard to have a material effect on our consolidated financial statements.
F - 20
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, 2018
Additions
At December 31, 2018
Additions
Reclassification – Property held for sale
At December 31, 2019
Accumulated depreciation:
At January 1, 2018
Depreciation charge for the year
At December 31, 2018
Depreciation charge for the year
Reclassification - Property held for sale
At December 31, 2019
Real estate property, net:
At December 31, 2019
At December 31, 2018
OPTIBASE LTD. AND ITS SUBSIDIARIES
Land
Building
Condominium
units
Currency
translation
adjustment
Total
$
$
33,874
-
$
188,774
2,056
$
20,705
708
(3,410) $
(3,208)
33,874
-
(7,559)
26,315
-
-
-
-
-
-
190,830
934
(26,178)
165,586
21,205
3,931
25,136
3,948
(4,166)
24,918
21,413
173
-
21,586
2,114
392
2,506
392
-
2,898
(6,618)
1,981
-
(4,637)
(102)
(390)
(492)
417
-
(75)
239,943
(444)
239,499
3,088
(33,737)
208,850
23,217
3,933
27,150
4,757
(4,166)
27,741
$
$
26,315
$
144,836
$
18,688
$
(4,564) $
181,109
33,874
$
165,694
$
18,907
$
(6,126) $
212,349
Balance of property held for sale is comprised of Retail portfolio in Bavaria, Germany.
For details regarding the portfolio definitive sale agreement , see Note 19b.
Estimated depreciation expenses by years are as follows:
Year
2020
2021
2022
2023 and thereafter
F - 21
Estimated
depreciation
expenses
3,497
3,497
3,497
144,303
154,794
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, 2018
Additions
Disposals
At December 31, 2018
Additions
Reclassification – Property held for sale
At December 31, 2019
Accumulated amortization:
At January 1, 2018
Amortization charge for the year
Disposals
At December 31, 2018
Amortization charge for the year
Reclassification – Property held for sale
At December 31, 2019
Other assets, net:
At December 31, 2019
At December 31, 2018
OPTIBASE LTD. AND ITS SUBSIDIARIES
Above, below
market value of
in-place leases
Currency
translation
adjustment
Total
$
$
1,209
-
(1,062)
147
-
(74)
73
1,081
(6)
(1,062)
13
(19)
79
73
(58) $
-
(12)
(70)
(3)
-
(73)
(70)
(7)
-
(77)
4
-
(73)
$
$
-
$
134
$
-
$
7
$
1,151
-
(1,074)
77
(3)
(74)
-
1,011
(13)
(1,062)
(64)
(15)
79
-
-
141
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).
Balance of property held for sale is comprised of Retail portfolio in Bavaria, Germany.
For details regarding the portfolio definitive sale agreement , see Note 19b.
F - 22
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
Others
NOTE 6:-
LONG-TERM DEPOSITS
Bonds deposit (1)
Restricted account (2)
SWAP (3)
Other
OPTIBASE LTD. AND ITS SUBSIDIARIES
$
$
$
December 31,
2019
2018
$
113
257
258
628
$
December 31,
2019
2018
$
1,903
232
458
85
$
2,678
$
32
143
145
320
1,755
320
313
89
2,477
(1)
(2)
(3)
Bonds deposit of one payment of principal and interest reserves. See Note 11.
Restricted amount of $ 232 related to the hedging transaction, see details (3) below.
Hedging of cross currency interest rate swap transaction for the total amount of approximately NIS 34,200,000 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, 2019 the hedging amount is $
2,906.
NOTE 7:-
LEASES
In February 2016, the FASB issued ASU 2016-02, “Leases”, on the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors).
The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a
financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the
lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification.
The Company has elected the short-term lease exception for leases with a term of 12 months or less. As part of this election it will not recognize right-of-use assets and lease liabilities on the
balance sheet for leases with terms less than 12 months.
F - 23
OPTIBASE LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 7:-
LEASES (Cont.)
The Company has operating leases for office space and vehicles that expire through 2023.
Below is a summary of our operating right-of-use assets and operating lease liabilities as of December 31, 2019:
Operating right-of-use assets
Operating lease liabilities, current
Operating lease liabilities long-term
Total operating lease liabilities
Operating lease liabilities, current are included within other accounts payable and accrued expenses in the consolidated balance sheet.
Minimum lease payments for our right of use assets over the remaining lease periods as of December 31, 2019, are as follows:
Year ended December 31,
2020
2021
2022
2023
Total undiscounted lease payments
Less: Interest
Present value of lease liabilities
The weighted average remaining lease terms and discount rates for all of operating leases were as follows as of December 31, 2019:
Remaining lease term and discount rate:
Weighted average remaining lease term (years)
Weighted average discount rate
2.67
3.39%
F - 24
December 31,
2019
$
$
$
$
$
376
142
257
398
145
146
109
26
426
(28)
398
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 7:-
LEASES (Cont.)
The Company as Lessor:
Future minimum rental payments to be received under operating leases:
Year ended December 31,
2020
2021
2022
2023
2024 and Thereafter
Total future minimum rentals
OPTIBASE LTD. AND ITS SUBSIDIARIES
$
Operating
Leases
4,612
1,413
2,539
3,391
3,438
$
15,393
NOTE 8:-
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 income (loss)
Total investment
December 31,
2019
2018
$
$
4,025 $
(1,485)
710
3,250 $
4,025
(1,087)
486
3,424
b.
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.
F - 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 8:-
INVESTMENTS IN COMPANIES AND ASSOCIATES (Cont.)
c.
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.
OPTIBASE LTD. AND ITS SUBSIDIARIES
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 - 26
December 31,
2019
2018
13,142 $
(8,735)
4,407 $
13,142
(6,189)
6,953
December 31,
2019
2018
336,310 $
461,448 $
56,941 $
(11,106) $
346,267
451,914
44,876
(14,669)
$
$
$
$
$
$
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 9:-
OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Employees and payroll accruals
Accrued expenses
Government (mainly tax provision)
Advance tenants payments
Tenant security deposits
Trade payables
Lease liabilities
Total
NOTE 10:- LONG-TERM LOANS
OPTIBASE LTD. AND ITS SUBSIDIARIES
December 31,
2019
2018
$
$
245
2,597
878
504
124
591
231
$
5,170
$
193
2,165
460
649
125
511
-
4,103
a.
On October 29, 2009, Optibase SARL received a mortgage loan (the "Loan") from a financial institution in Switzerland, in the amount of CHF 18,800,000 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 376,000 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, 2019, the Company met the required covenants.
Maturities of the loan by years are as follows:
Year ended December 31,
2020 (current maturity)
Long-term portion:
2021
2022
2023
2024
Thereafter
Total
$
388
388
388
388
388
13,548
15,100
$
F - 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 10:- LONG-TERM LOANS (Cont.)
b.
On October 2011, OPCTN and Eldista entered into a CHF 100,000,000 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 2,000,000 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, 2019, the Company met these covenants.
OPTIBASE LTD. AND ITS SUBSIDIARIES
Maturities of the loan by years are as follows:
Year ended December 31,
2020 (current maturity)
Long-term portion:
2021
2022
2023
2024
Thereafter
Total
$
2,060
2,060
2,060
2,060
2,060
76,492
84,732
$
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 21,000,000 of which the Company utilized Euro 20,474,000. The effective interest rate was closed at 2.15%. The loan is repaid in quarterly installments of EUR
105,000 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, 2019, the Company met these covenants.
Maturities of the loan by years are as follows:
Year ended December 31,
2020 (current maturity)
F - 28
$
20,694
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 10:- 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.
On November 21, 2019 Optibase Inc., prolong the amortization of the outstanding principal balance of the loan in amount of $ 8,903, all terms remain unchanged. 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 Junuary 4, 2021 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, 2019 Loan issuance costs of $
81 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, 2019, the Company met these covenants.
Maturities of the loan by years are as follows:
Year ended December 31,
2020 (current maturity)
Long-term portion:
2021
e.
For information regarding a loan received from the controlling shareholder, see note 18b(5).
F - 29
$
$
228
8,574
OPTIBASE LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 11:-
LONG-TERM BONDS
In August 2015, the Company issued gross amount of NIS 60,000,000 (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.
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, 2019 the unamortized amount of the debt issuance costs is $ 54. The Company is required to meet certain covenants under this bonds. As of
December 31, 2019, the Company met these covenants.
Maturities of the bonds by years are as follows:
Year ended December 31,
2020 (current maturity)
Long-term portion:
2021
Total
NOTE 12:- COMMITMENTS AND CONTINGENT LIABILITIES
a.
Assets pledged as collateral:
$
2,892
2,845
2,845
$
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 10a.
b.
Israel Innovation Authority commitments:
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.
F - 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 12:- COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)
OPTIBASE LTD. AND ITS SUBSIDIARIES
c.
d.
1.
As of December 31, 2019, 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.
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, 2019, the Company has not drawn down any funds under the Loan Facility.
Legal claims and contingent liabilities:
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.
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.
F - 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 12:-
COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)
OPTIBASE LTD. AND ITS SUBSIDIARIES
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.
On May 29, 2017 the Company's 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, and additional hearings were held on November 19, 2017, December 5, 2017, February 25, 2018, October 7, 2018,
December 2, 2018 and December 18, 2018.
On June 16, 2019, the District Court denied the motion to approve the filing of the derivative claim.
On September 22, 2019, the Applicants filled an appeal to the District Court's decision to the Supreme Court. On February 20, 2020, the applicants submitted their written summations
and the Company should file its summations by May 30, 2020. The hearing of the Appeal is scheduled to September 23, 2020.
At this stage the Company cannot provide an assessment as to the chances of the claim and the exposure to the Company.
2.
On March 6, 2019, the Company has notified that Swiss Pro Capital Limited, a company organized under the laws of Switzerland, has filed a legal claim against the Company's
subsidiaries, Optibase RE 1 s.a.r.l and Optibase Real Estate Europe SARL. The matter of the claim is an option agreement signed between the parties on March 1, 2010, whereby the
plaintiff was given the option for 8 years to purchase 20% of the shares of Optibase RE1, which holds a building in Switzerland, at a price to be calculated on the option exercise date
according to a formula set forth in the agreement. In the statement of claim, it is claimed that starting at the end of 2014, the plaintiff approached the Company to check the possibility
of exercising the option. Accordingly, the plaintiff requested to get data about the property in order for it to be able to check the updated option price. According to the plaintiff, after
it was ignored by the Company, the option price as finally presented by the Company does not reflect the correct option price in accordance with the intent of the parties to the
agreement and in accordance with the formula specified therein, and the Company artificially raised the option price.
Thus, according to the plaintiff, for the price of the options to be without financial merit, Optibase REE did not draw dividends available for distribution from Optibase RE1. In
addition, the Company did not refinance the property, and even imposed excess management expenses and other unnecessary expenses on Optibase RE1.
F - 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 12:-
COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)
OPTIBASE LTD. AND ITS SUBSIDIARIES
The plaintiff claims that the correct option exercise price, and as it was actually exercised on May 25, 2016, is zero Swiss Francs, and it seeks for the court to issue a declaratory order
under which it is entitled to receive 20% of the shares of Optibase RE1 at a price of zero Swiss Francs, and to issue orders to remove the discrimination, including that the Company
must pay the plaintiff a sum of 400,000 Swiss Francs. On July 29, 2019 the Companies filed a statement of defence.
The Company categorically deny the allegations raised in the statement of claim, and claim that the option price as given over by them reflects what is stated in the option agreement
and that, in complete contradiction to the plaintiff's claims, they did not artificially raise the price of the option as alleged.
The parties were referred to mediation that ended without reaching a settlement. The court is expected to set a preliminary hearing on the claim.
At this stage the Company cannot provide an assessment as to the chances of the claim.
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 961,000 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 157,000 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 Eldista GmbH's claim (though it had not yet examined the
issue of the damages). Eldista GmbH filed an appeal against the judgment, but it was dismissed on June 12, 2017. On May 2, 2018, the court ruled that the damages owned to the
tenant shall amount to approximately CHF 53,000 plus interest 5% as of June 4, 2014. An appeal has been filed and is currently pending before the supreme court. Should the supreme
court confirm the first judgment, Eldista GmbH will most likely have a counterclaim against the former real estate agency that was managing the CTN Complex, although there is also a
possibility that a judge would consider that the latter committed no breach or that only a portion of the damage can be recovered by the agency.
On October 27, 2019 the judgment which dismissed the apal filed by Eldista. Eldista was therefore ordered to pay the tenant CHF 53,000 plus interest 5% as of June 4, 2014, as well as
an amout of CHF 17,000 as a participation for the tenant legal fees. These amounts were paid in Junuary and February 2020.
On March 1 2017, the Company's 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 279,000 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 2,400,000 ((excluding VAT) as well as approximately CHF 69,000 as
indemnification for consequential damages for the years 2014 and 2015. LEM also reserves its claims regarding damages suffered before year 2014.
F - 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 12:-
COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)
OPTIBASE LTD. AND ITS SUBSIDIARIES
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.
Based on LEM’s submissions filed during the first hearing before the court, LEM is requesting a 20% rent reduction amounting to a capital amount of CHF 3,094,000 for the period
starting from February 1, 2012, until June 30, 2017, with 5% moratory interest per year starting from October 23, 2017, corresponding to approximately CHF 154,000 per year, based on
the various defects allegedly affecting the rented premises. In addition, LEM is claiming for related damages an amount of approximately CHF 168,000, subject to amplification, with
5% moratory interest per year starting from October 23, 2017. LEM’s claim for rent reduction was reduced to 10% from July 1, 2017, until repair of the alleged defects or entry into force
of the judgment, that is to say a capital amount of approximately CHF 714,000 if considered from July 1, 2017, until December 31, 2019. LEM further demands to be reserved the right to
claim the reimbursement of all ancillary costs paid in axcess to Eldista, without however indicating any amount to support its claim.
A first hearing took place on June 26, 2018, before the first instance court for lease matters, and a second hearing took place on November 7, 2018.
Following an appeal filed by Eldista on September 12, 2019 against a procedural ordinance of the court rendered on August 30, 2019 regarding the non limitation of the scope of the
investigation phase contrarily to Eldista's request in this respect to accelerate the duration of the proceedings, followed by an appeal with the Swiss Supreme Court filed on February
21, 2020, a decision (expected to be negative given the restrictive conditions applying for such appeal) is expected from the Swiss Supreme Court for the next weeks.
The change of President that took place in August 2019, and the appeals made in September 2019 and February 2020 by Eldista, did not accelerate the starting of the proceedings and
would thus postpone the possible risk of Eldista of being condemned to pay LEM the requested amounts.
An out-of-court settlement was proposed by LEM’s counsel on May 15, 2019 without prejudice, including the complete withdrawal of LEM’s pending claim in full and final settlement
provided that Eldista authorizes LEM to stay in the building after the end of the lease for a determined period starting from 1st April 2020 until December 31, 2021 with a reduced rent
of 20% justified by the market conditions that would correspond to a capital amount of CHF 1,000,000 approximately.
Eldista made a counterproposal on August 29, 2019 of CHF 346,000 which was refused by LEM on September 9, 2019. LEM made a counterproposal at CHF 700,000 plus the right to
vacate the premises without any obligation to reinstate, to which Eldista did not answer to date focusing on the proceedings.
For further details regarding new litigation between Eldista and LEM see note 19a.
As of December 31, 2019, the Company has sufficient provisions to cover the expected outcome of this claim.
F - 34
OPTIBASE LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 13:- 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, 2019 and 2018, 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 $ 68
and $ 206, respectively, as of December 31, 2019 is included in short-term liabilities and as of December 31, 2018 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, 2019 and 2018, 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
$ 458 and $ 313, 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.
NOTE 14:- TAXES ON INCOME
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.
2.
3.
4.
A corporate income federal 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 Global Intangible Low-Taxed Icome GILTI tax imposes a tax on foreign income in
excess of a deemed return on tangible assets of foreign corporations.
F - 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 14:- TAXES ON INCOME (Cont.)
b.
Corporate tax rates:
OPTIBASE LTD. AND ITS SUBSIDIARIES
Israeli companies are generally subject to corporate tax on their taxable income. As of 2019 and 2018 the corporate tax rate is 23% (in 2017 and 2016, the corporate tax rate was 24% 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. 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 may be subject to the following statutory federal (approximate) tax rates:
Luxemburg
Switzerland
United States
Germany
c.
Tax assessments:
The Company has final tax assessments in Israel through the tax year 2014.
d.
Deferred tax assets and liabilities:
Year ended
December 31,
2018
2017
2019
29%
24%
21%
16%
29%
24%
21%
16%
29%
24%
34%
16%
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.
F - 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 14:- TAXES ON INCOME (Cont.)
Significant components of the Company and its subsidiary deferred tax assets are as follows:
Deferred tax assets:
Net Operating losses and other temporary diffs.
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:
OPTIBASE LTD. AND ITS SUBSIDIARIES
$
December 31,
2019
2018
28,941 $
1,466
193
30,600
(5,437)
(10,020)
(3,331)
(18,788)
(25,613)
25,892
1,472
196
27,560
(5,362)
(10,058)
(2,571)
(17,991)
(23,321)
$
(13,801) $
(13,752)
Through December 31, 2019, Optibase Ltd. had net operating losses carry-forward for tax purposes in Israel of approximately $ 66,000 which may be carried forward and offset against
taxable income in the future, for an indefinite period.
As of December 31, 2019, Optibase Inc. had U.S. federal net operating loss carry-forward of approximately $ 53,000 that can be carried forward and offset against taxable income for 20
years, no later than 2039. 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 - 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 14:-
TAXES ON INCOME (Cont.)
f.
Reconciliation of the theoretical tax expenses to the actual tax expenses:
OPTIBASE LTD. AND ITS SUBSIDIARIES
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,
2018
2017
2019
Income before taxes as reported
$
3,920
$
3,525
$
Theoretical tax benefit computed at the statutory rate 23% for the years 2019 and 2018 and 24% for 2017
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
902
101
7
-
465
(40)
37
811
52
2
-
446
47
106
Income tax expense
$
1,472
$
1,464
$
4,451
1,068
(226)
33
4,225
(3,600)
(80)
182
1,602
g.
Income before taxes on income consists of the following:
Domestic
Foreign
F - 38
Year ended
December 31,
2018
2019
$
$
(179) $
4,099
(2,515) $
6,040
3,920
$
3,525
$
2017
(84)
4,535
4,451
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 14:-
TAXES ON INCOME (Cont.)
h.
Income tax expenses are comprised as follows:
Current
Deferred
Domestic
Foreign
NOTE 15:-
SHAREHOLDERS' EQUITY
a.
General:
OPTIBASE LTD. AND ITS SUBSIDIARIES
Year ended
December 31,
2018
2017
2019
$
$
$
$
$
1,612
(140)
$
1,637
(173)
1,472
$
1,464
$
$
-
1,472
$
-
1,464
1,472
$
1,464
$
1,771
(169)
1,602
-
1,602
1,602
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.
F - 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 15:-
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, 2019 was 571,260.
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, 2019 an aggregate sum of 235,790 ordinary shares has been reserved for issuance under the 2006 Plan, respectively.
d.
The total equity-based compensation expense related to all of the Company's equity-based awards, recognized for the years ended December 31, 2019, 2018 and 2017. During 2019
and there were no new grants.
F - 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 16:-
FINANCIAL EXPENSES, NET
Financial income (expenses):
Interest
Re-measurement of derivatives
Foreign currency translation adjustments
Other
NOTE 17:- GEOGRAPHIC INFORMATION
Summary information about geographic areas:
OPTIBASE LTD. AND ITS SUBSIDIARIES
2019
$
Year ended
December 31,
2018
2017
(2,546) $
188
(272)
-
(2,827) $
(562)
507
-
$
(2,630) $
(2,882) $
(3,143)
616
(565)
323
(2,769)
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, 2019, 2018 and 2017 and real estate property net as of December, 31, 2019, 2018 and 2017:
2019
2018
2017
Total revenues
Real estate
property, net
Total revenues
Real estate
property, net
Total revenues
Real estate
property, net
Switzerland
Germany(*)
United States
$
$
11,975
3,180
989
$
162,422
-
18,687
$
12,322
3,261
1,025
$
162,706
30,736
18,907
$
12,288
3,268
1,031
165,981
32,152
18,593
$
16,144
$
181,109
$
16,608
$
212,349
$
16,587
$
216,726
(*) For details regarding the portfolio definitive sale agreement , see Note 19b.
F - 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 18:- 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 79% of the Company's ordinary shares.
b.
Related party transactions:
1.
2.
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. On February 14, 2019, following the approval by the Company's compensation
committee, audit committee and board of directors, the Company's shareholders approved an extension for a 3 year term, of the engagement with Mr. Wyler's, including an
adjustment to his compensation terms, in a manner that Mr. Wyler's annual gross base salary was set at $ 220 for a full time position, as of January 1, 2019.
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 € 4,000 plus applicable value added tax (if
applicable) and reimbursement for expenses incurred up to € 12,000 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. On December 31, 2019, 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, 2019 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.
F - 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 18:- MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS (Cont.)
OPTIBASE LTD. AND ITS SUBSIDIARIES
3.
4.
5.
On October 22, 2014, following the approval by the Company's audit committee and board of directors the Company's 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, 2019 registration has not been implemented yet.
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. On December 31, 2019, the Company's shareholders approved, following the approval by the Company's audit committee and
board of directors, the extantion of the lease agreement. The new lease will be in effect for a one-year term commencing on January 2, 2020, 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 $ 27.3, including sales tax. 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. In May 2018, the parties entered into
an amendment to the Loan's agreement, under which the Company reapid the Company's controlling shareholder $ 2,500 on account of the Loan's account. The repayment by
the Company of the remaining Loan's amount of approximately $ 2,618 has been postponed from April 1, 2019 to April 1, 2020, however, the Company may prepay the Loan
prior to such date at its sole discretion without any penalty. On September 30, 2019 the parties entered into an amendment no.2 to the Loan's agreement, under which the
remaining loan amount of approximately $ 2,618 shall be postponed to October 1, 2020. The remaining terms of the original agreement shall remain unchanged. 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, 2019 an amount of $ 205 was recorded as a finance expense and
an amount of $ 76 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.
F - 43
OPTIBASE LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)
NOTE 18:- MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS (Cont.)
6.
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) $ 20,000.
NOTE 19:-
SUBSEQUENT EVENTS
a.
On Junuary 27, 2020, a formal filing of a claim was submitted by LEM against Eldista.
b.
c.
LEM is claiming a first extension of its current lease until December 31, 2021, or until September 30, 2022 at the latest. LEM is also claiming a rent reduction of 16.94% (that is a
reduction of approximately CHF 40,000 per month) from April 2020 until the end of the extension (the latest term being 30 September 2022) which corresponds to a total amount of CHF
1,189,000. A first conciliation hearing is appointed on April 29, 2020.
On February 11, 2020 the Company by its wholly owned European subsidiary, Optibase Bavaria GmbH & Co. KG, had entered into a definitive agreement with an unrelated third party
buyer, to sell its retail portfolio in Germany comprised of twentyseven (27) separate commercial properties, located in Bavaria, Germany, for an aggregate cash consideration of EUR
35,000,000 (approximately $ 38,900). The closing of the transaction is subject, among other things, to customary conditions, including (i) the waiver of a right of first refusal by the
main tenant; and (ii) the waiver by the local municipalities of their right of first refusal on each of the properties. The exercise of the right of first refusal in regard to certain properties,
will not affect the closing of the transaction with respect to the other properties.
The closing will be conducted in tranches with respect to certain groups of properties and is expected to occur over the course of first and second quarters of 2020.
The property net balanc is approximately $ 29,700 (including PPA in amount of $ 157) and presented in the Company's balance sheet as property held for sale.
In December 2019, a novel strain of coronavirus (COVID-19) was reported in China and has since been reported in other countries. On March 11, 2020 the World Health Organization
declared COVID-19 as a global pandemic and recommended containment and mitigation measures worldwide. The current outbreak, including the resulting travel restrictions and
quarantines already imposed by several countries, present concerns that may dramatically affect the Company's ability to conduct the Company's business effectively and may affect
the Company’s ability to dispose of or liquidate part of its real estate. The Company may suffer decline in rents or an increased incidence of defaults under existing leases and in
general declining demand for real estate. If the Company cannot operate the Company's properties so as to meet the Company's financial expectations, the Company's business,
financial condition, results of operations, cash flow or the Company's ability to satisfy the Company's debt service obligations may be negatively impacted. At this stage, the
Company is unable to assess the scope of the impact on the business and operations and in the event that the economic effect of the outbreak deepens and has a long term effect on
the global economy, the Company's business and operations may be adversely effected.
F - 44
300 RIVER HOLDINGS, LLC
(a Delaware limited liability company)
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019
F - 45
300 RIVER HOLDINGS, LLC
(a Delaware limited liability company)
Contents
Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated balance sheets as of December 31, 2019 and 2018
Consolidated statements of operations for the years ended December 31, 2019, 2018 and 2017
Consolidated statements of members’ deficit for the years ended December 31, 2019, 2018 and 2017
Consolidated statements of cash flows for the years ended December 31, 2019, 2018 and 2017
Notes to consolidated financial statements
F - 46
Page
F - 47
F - 48
F - 49
F - 50
F - 51
F - 52
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, 2019 and 2018, and the related consolidated statements of operations,
members' deficit, and cash flows for each of the years in the three year period ended December 31, 2019, 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, 2019 and 2018, and the consolidated results of its operations and its
cash flows for each of the years in the three year period ended December 31, 2019, 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 and in accordance with auditing standards generally accepted in the United States of America. 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. 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.
/s/ EISNERAMPER LLP
We have served as the Company's auditor since 2011
EISNERAMPER LLP
New York, New York
April 1, 2020
F - 47
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
$39,238,904 and $38,752,061, respectively.
Tenant accounts receivable
Current
Unbilled straight-line rent
Prepaid expenses and other assets
Deferred leasing costs, net of accumulated amortization of $8,747,598
and $6,496,670, respectively.
LIABILITIES AND MEMBERS' DEFICIT
Lease financing obligation, less unamortized value of deferred lease
financing costs of $8,781,489 and $8,874,841, including accrued
interest of $3,676,289 and $2,866,379, respectively.
Notes payable
Mortgage payable, net of unamortized deferred financing costs of
$1,782,839 and $2,394,103, respectively
Accounts payable, accrued expenses and other liabilities
Below market lease values, net of accumulated amortization of
$47,539,090 and $47,043,159, respectively
Members' deficit
See notes to consolidated financial statements
F - 48
December 31, 2019
December 31, 2018
$
$
224,159,928
3,006,645
13,036,134
223,511
215,113,786
6,078,386
29,707,831
710,354
507,467
16,625,604
456,149
309,695
10,657,818
116,622
19,566,806
20,375,889
$
277,582,244
$
283,070,381
$
214,894,800
10,698,891
$
213,991,538
3,200,000
173,217,161
10,204,136
172,605,897
8,014,555
838,107
1,334,038
409,853,095
399,146,028
(132,270,851)
(116,075,647)
$
277,582,244
$
283,070,381
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 $704,616, $755,554, and $93,350, respectively and
related party interest of $811,050, $14,729, and $3,693,394 respectively.
Net loss
See notes to consolidated financial statements
F - 49
2019
2018
2017
$
$
25,091,596
17,333,020
495,931
$
19,912,661
12,429,451
516,929
16,356,447
12,268,628
520,668
42,920,547
32,859,041
29,145,743
14,174,470
13,158,869
7,901,058
1,221,311
12,375,251
12,844,531
4,188,424
1,068,504
9,974,917
11,923,628
6,275,477
796,197
36,455,708
30,476,710
28,970,219
6,464,839
2,382,331
175,524
(22,660,043)
(21,682,362)
(17,688,251)
$
(16,195,204) $
(19,300,031) $
(17,512,727)
300 River Holdings, LLC
(a Delaware limited liability company)
Consolidated Statements of Members' Deficit
Balance - December 31, 2016
Net loss
Contributions
Balance - December 31, 2017
Net loss
Distributions
Balance - December 31, 2018
Net loss
Balance - December 31, 2019
See notes to consolidated financial statements
$
$
$
(79,354,787)
(17,512,727)
103,206
(96,764,308)
(19,300,031)
(11,308)
(116,075,647)
(16,195,204)
$
(132,270,851)
F - 50
300 River Holdings, LLC
(a Delaware limited liability company)
Consolidated Statements of Cash Flows
Years 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
Changes in assets and liabilities:
Tenant accounts receivable
Prepaid expenses and other assets
Accounts payable, accrued expenses and other liabilities
2019
2018
2017
$
(16,195,204) $
(19,300,031) $
(17,512,727)
14,879,085
(495,931)
(14,729)
(5,967,786)
809,910
(197,772)
(339,527)
3,980,206
13,130,805
(516,929)
14,729
(1,637,458)
777,495
425,829
143,693
(369,200)
10,068,269
(520,668)
-
(3,412,660)
748,099
(391,942)
956,073
(2,390,516)
Net cash used in operating activities
(3,541,748)
(7,331,067)
(12,456,072)
Cash flows from investing activities:
Additions to deferred leasing costs
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
Distributions to members
Contributions by members
Net cash provided by financing activities
(Decrease) increase in cash, cash equivalents, and escrows
Cash, cash equivalents and escrows at beginning of period
(1,753,551)
(21,947,030)
(4,466,356)
(17,226,847)
(4,435,230)
(31,538,381)
(23,700,581)
(21,693,203)
(35,973,611)
7,498,891
-
-
-
-
-
3,200,000
-
-
-
(11,308)
-
26,600,000
(101,600,000)
175,000,000
(3,056,305)
-
103,206
7,498,891
3,188,692
97,046,901
(19,743,438)
35,786,217
(25,835,578)
61,621,795
48,617,218
13,004,577
Cash, cash equivalents and escrows at end of period
$
16,042,779
$
35,786,217
$
61,621,795
Supplemental disclosures of cash flow information:
Interest paid
Supplemental disclosures of noncash investing activities:
Accrued additions to real estate
Accrued additions to deferred 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
$
21,158,942
$
20,133,281
$
19,299,760
$
$
1,185,419
245,930
$
$
2,649,609
557,636
$
$
862,636
292,345
December 31, 2019
3,006,645
$
13,036,134
December 31, 2018
6,078,386
$
29,707,831
December 31, 2017
1,600,282
$
60,021,513
$
16,042,779
$
35,786,217
$
61,621,795
Amounts included in segregated cash and other escrows as of December 31, 2019, 2018, and 2017 represent tenant security deposits, cash received through the Company's lockbox account and monies
required to be set aside by the Mortgage in connection with the Mortgage note payable.
See notes to consolidated financial statements
F - 51
300 RIVER HOLDINGS, LLC
(a Delaware limited liability company)
Notes to Consolidated Financial Statements
December 31, 2019, 2018 and 2017
NOTE A - ORGANIZATION
300 River Holdings, LLC, a Delaware limited liability company ("Holdings"), was formed on September 21, 2010.
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 tangible and
intangible assets at 300 South Riverside Plaza, Chicago, IL (the "Property").
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.
[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-quality 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 (5 years). Such amortization is included in interest expense in the accompanying consolidated statement of operations.
Deferred leasing commissions and deferred leasing costs incurred prior to January 1, 2018 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.
Tenant Improvements are being depreciated on the straight-line basis over the life of the associated tenant lease. Machinery and Equipment are being depreciated on the straight-line
basis over an estimated useful life of 5 years. The leasehold interest in the platform on which the building sits is being amortized over the life of the lease (99 years).
F - 52
300 RIVER HOLDINGS, LLC
(a Delaware limited liability company)
Notes to Consolidated Financial Statements
December 31, 2019, 2018 and 2017
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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, 2019 and 2018.
[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.
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:
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. Reimbursements of the tenant’s share of certain operating
expenses and real estate taxes are generally recognized when earned from tenants.
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.
F - 53
300 RIVER HOLDINGS, LLC
(a Delaware limited liability company)
Notes to Consolidated Financial Statements
December 31, 2019, 2018 and 2017
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In accordance with the provisions of 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 as of December 31,
2019 and 2018.
[9] Debt issuance costs:
In accordance with 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 are 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 April 1, 2020, the date the financial statements were available for issuance.
NOTE C – RECENTLY ISSUED ACCOUNTING STANDARDS
In September 2016, FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses" (ASU 2016-13). ASU 2016-13 requires measurement and recognition of expected credit losses for
financial assets held. The update is effective for the Company beginning January 1 2023. The Company is continuing to evaluate this guidance however, it does not expect the adoption of
ASU 2016-13 to have a significant impact on its financial statements.
NOTE D - REAL ESTATE
As of December 31, 2019 and 2018 the Company's real estate consisted of the following:
Leasehold interest
Building and improvements
Tenant improvements
Equipment
Less: accumulated depreciation
Depreciation expense was $11,436,698 and $9,854,853 for the years ending December 31, 2019 and 2018, respectively.
F - 54
December 31,
2019
2018
$
$
25,310,232
177,320,972
97,931,143
1,729,420
25,310,232
175,272,024
79,497,251
1,729,420
302,291,767
281,808,927
(78,131,839)
(66,695,141)
$
224,159,928
$
215,113,786
300 RIVER HOLDINGS, LLC
(a Delaware limited liability company)
Notes to Consolidated Financial Statements
December 31, 2019, 2018 and 2017
NOTE E - IN-PLACE AND OTHER LEASE VALUES AND BELOW MARKET LEASE VALUES
As of December 31, 2019 and 2018, the Company's in-place and other lease values and below market lease values consisted of the following:
In-place and other lease values
Less: accumulated amortization
Below market lease values
Less: accumulated amortization
Amortization for the next four years is as follows:
2020
2021
2022
2023
NOTE F - LEASE FINANCING OBLIGATION
December 31,
2019
2018
$
39,462,415
$
39,462,415
(39,238,904)
(38,752,061)
$
223,511
$
710,354
December 31,
2019
2018
$
(48,377,197) $
(48,377,197)
47,539,090
47,043,159
$
(838,107) $
(1,334,038)
Year Ending
December 31,
In-Place and
Other
Lease Values
Below
Market
Lease Values
$
116,257 $
44,484
44,484
18,286
(274,517)
(233,748)
(233,748)
(96,094)
On February 10, 2015 (the "Sale Date"), the Company sold the land where the Property is situated (the “Land”) for $220,000,000 (the "Obligation Principal") and simultaneously entered into
a related lease (the “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 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 ASC Topic 842, the sale of the Land 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, 5.02% thru
January 31, 2019, 5.11% thru January 31, 2020 and 5.21% thereafter, as a result of the change in CPI creating an increased minimum rent payment. Given the current effective rate of 5.11%
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, 2019,
2018 and 2017 the required minimum rent payments made by the Company were approximately $10,575,000, $10,376,000, and $10,162,000 respectively. Total interest expense for the lease
financing obligation for the years ended December 31, 2019, 2018 and 2017 was approximately $11,386,000, $11,153,000, and $10,910,000 respectively.
F - 55
300 RIVER HOLDINGS, LLC
(a Delaware limited liability company)
Notes to Consolidated Financial Statements
December 31, 2019, 2018 and 2017
NOTE G – MORTGAGE PAYABLE
A-Note
B-Note
Mezz Note
Less: unamortized debt issuance costs
Rate
December 31,
2019
100,000,000
50,000,000
25,000,000
175,000,000
$
4.61%* $
5.80%*
8.46%*
2018
100,000,000
50,000,000
25,000,000
175,000,000
(1,782,839)
$
173,217,161
(2,394,103)
172,605,897
$
*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 the 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, 2019 and 2018 the total balance of these accounts was approximately $9,654,000 and $27,968,000, respectively.
The Company can prepay the Senior Notes without penalty following the fourth anniversary of the Mortgage Closing Date.
Under the Senior Note 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, 2019 and
2018 the balance of this account was approximately $3,382,000 and $1,740,000, respectively.
[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 Statements
December 31, 2019, 2018 and 2017
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, 2019, 2018 and 2017 was approximately $0, $0, and $2,169,000 respectively.
[2] Notes Payable:
During 2016 and 2017, the Company issued notes in the amount of $41,600,000, $17,950,000 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, provided for in the Company's operating agreement. The notes issued during 2016 and 2017 were paid off on the
Mortgage Closing Date with the funds received from the mortgage.
During 2018, the Company issued notes in the amount of $3,200,000 to members and affiliates of the Company. The notes provided for interest at 12% per annum through maturity in
November 2020. During 2019, The Company issued notes in the amount of approximately $7,499,000 under similar terms. Principal and interest were payable from available cash flow, as
provided in the Company's operating agreement. Total interest expense for the notes payable was approximately $811,000, $15,000, and $3,397,000 in 2019, 2018 and 2017, of which
approximately $776,000, $15,000, and $1,524,000, was with members and affiliates of the Company, respectively.
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 two largest tenants in the Property (who collectively occupy approximately 25% of the building's rentable square footage during 2019) accounted for approximately 30% of the
building's base rental income for the year ended December 31, 2019. The leases with such tenants expire from April of 2026 through June of 2031. For the year ended December 31, 2018, base rent
from the two largest tenants in the Property (who collectively occupy approximately 25% of the building's rentable square footage during 2018) accounted for approximately 36% of the building's
base rental income For the year ended December 31, 2017, base rent from the five largest tenants in the Property (who collectively occupied approximately 45% of the building's rentable square
footage during 2017) accounted for approximately 69% of the building's base rental income.
[3]
As of December 31, 2019, future minimum rentals under the Company's operating leases with its tenants,
for the next five years and thereafter are approximately as follows:
2020
2021
2022
2023
2024
Thereafter
F - 57
$
Total
23,288,000
23,736,000
24,297,000
23,826,000
22,585,000
114,164,000
$ 231,896,000
300 RIVER HOLDINGS, LLC
(a Delaware limited liability company)
Notes to Consolidated Financial Statements
December 31, 2019, 2018 and 2017
NOTE J - RELATED PARTY TRANSACTIONS
During the years ended December, 31, 2019, 2018 and 2017 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 as defined in the annual management agreement. The Company incurred approximately $1,221,000,
$1,068,000, and $796,000 for the year ended December 31, 2019, 2018 and 2017 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, $133,000, and $96,000 for the years
ended December 31, 2019, 2018 and 2017 respectively. In addition, affiliates of the Managing member were paid approximately $57,000, $240,000, and $201,000, for the years ended December
31, 2019, 2018 and 2017, respectively. These amounts are included in legal and professional fees.
Advances from affiliates represent operating expenses on behalf of the Company by an affiliate. Such balances are non-interest bearing and are due on demand.
NOTE K – SUBSEQUENT EVENTS
Through April 1, 2020 the Company borrowed $5,785,000 evidenced by notes of which $5,585,000 was borrowed from members and affiliates of the Company under substantially the same
terms as described in Note H[2].
In February 2020, the Company paid off approximately $1,474,000 of the notes issued to members and affiliates during 2019.
NOTE L – CONTINGENCIES AND OTHER UNCERTAINTIES
The extent to which the Company’s business may be affected by the current outbreak of the Coronavirus will largely depend on both current and future developments, including its
duration, spread and treatment, and related advisories and restrictions, all of which are highly uncertain and cannot be reasonably predicted.
If the Company is negatively impacted for an extended period because tenants are unable to pay their rent, the Company’s business and financial results could be materially and adversely
impacted.
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 behalf.
SIGNATURES
Date: April 1, 2020
OPTIBASE LTD.
By:
/s/ Amir Philips
Name: Amir Philips
Title: Chief Executive Officer
- 93 -
Exhibit
Number
Description of Document
EXHIBIT INDEX
1.1
1.2
2.1*
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
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).
Description of Share Capital.
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).
- 94 -
Exhibit
Number
Description of Document
4.16
4.17
4.18
4.19
4.22
4.23*
4.24*
6.1
8.1*
11.1
12.1*
12.2*
13.1*
13.2*
15.1*
15.2*
101*
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 (incorporated by reference to
Exhibit 4.18 to the Registrant’s Annual Report on Form 20-F for the fiscal year ended December 31, 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).
Compensation Policy of Optibase Ltd. as amended on February 18, 2020.
Assets Sale Agreement between Optibase Bavaria GmbH & Co., Optibase Bavaria Holding GmbH & Co and Deutsche Konsum REIT-AG, dated February 10, 2020 (unofficial English
translation).
Form of Letter of Indemnification between Optibase, Ltd. and its directors and officers, as Amended on December 21, 2017 (incorporated by reference to Exhibit 6.1 to the Registrant’s
Annual Report on Form 20-F for the fiscal year ended December 31, 2017).
List of the subsidiaries of Optibase Ltd.
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, 2019, formatted in XBRL (eXtensible Business Reporting
Language): (i) Consolidated Balance Sheets as of December 31, 2019 and 2018; (ii) Consolidated Statements of Operations for the years ended December 31, 2019, 2018 and 2017; (iii)
Consolidated Statements of Comprehensive Income for the years ended December 31, 2019, 2018 and 2017; (iv) Consolidated Statements of Changes in Shareholders’ Equity for the
years ended December 31, 2019, 2018 and 2017; (v) Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017; and (vi) Notes to Consolidated
Financial Statements.
* Filed herewith
- 95 -
The following descriptions of our share capital and provisions of our amended and restated articles of association are summaries and do not purport to be complete. Our amended and restated articles of
incorporation are filed with the SEC as an exhibit to this Annual Report on Form 20-F.
DESCRIPTION OF SHARE CAPITAL
Exhibit 2.1
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.
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 5,216,256 ordinary shares were issued and outstanding as of
March 20, 2020. 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.
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.
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:
● 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.
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 February 14, 2019, 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. On February 18, 2020, following the approval by our compensation committee and our board of directors, our shareholders approved an amendment to compensation policy with respect to the
maximum aggregate annual premium payable for directors’ and officers’ liability insurance.
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.
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.
COMPENSATION POLICY
OPTIBASE LTD.
Compensation Policy for Executive Officers and Directors
(As Adopted by the Shareholders on February 14, 2019 and as amended on February 18, 2020 )
Exhibit 4.23
A.
B.
C.
D.
E.
F.
G.
H.
I.
Overview and Objectives
Base Salary and Benefits
Cash Bonuses
Equity-Based Compensation
Retirement and Termination of Service Arrangements
Exemption, Indemnification and Insurance
Arrangements upon Change of Control
Board of Directors Compensation
Miscellaneous
Table of Contents
A - 2
Page
A - 3
A - 4
A - 5
A - 7
A - 7
A - 8
A - 9
A - 10
A - 10
A. Overview and Objectives
1.
Introduction
This document sets forth the Compensation Policy for Executive Officers and Directors (this "Compensation Policy" or "Policy") of Optibase Ltd. ("Optibase" or the "Company"), in accordance
with the requirements of the Companies Law of 1999 (the "Companies Law").
Compensation is a key component of Optibase's overall human capital strategy to attract, retain, reward, and motivate highly skilled individuals that will enhance Optibase's value and otherwise
assist Optibase to reach its business and financial long term goals. Accordingly, the structure of this Policy was established to tie the compensation of each officer to Optibase's goals and
performance.
For purposes of this Policy, "Executive Officers" shall mean "Office Holders" as such term is defined in Section 1 of the Companies Law, excluding, unless otherwise expressly indicated herein,
Optibase's directors; and "Directors" shall mean the Optibase's directors, as shall be from time to time, including the Executive Chairperson, unless otherwise expressly indicated herein.
This Compensation Policy shall serve as Optibase’s Compensation Policy for three (3) years, commencing as of its adoption.
The Compensation Committee and the Board of Directors of Optibase (the "Compensation Committee" and "Board" respectively) shall review and reassess the adequacy of this Policy from time to
time, as required by the Companies Law.
2. Objectives
Optibase's objectives and goals in setting this Compensation Policy are to attract, motivate and retain highly experienced personnel who will provide leadership for Optibase's success and enhance
shareholder value, while supporting a performance culture that is based on merit, and rewards excellent performance in the long term, while recognizing Optibase's core values. To that end, this
Policy is designed, among others:
2.1.
To closely align the interests of the Executive Officers with those of Optibase's shareholders in order to enhance shareholder value;
2.2.
To provide the Executive Officers with a structured compensation package, putting the emphasis on a proper balance between the fixed components, i.e., the base salaries and benefits,
and on the variable compensation, such as bonuses and equity-based compensation in order to minimize potential conflicts between the interests of Executive Officers and those of
Optibase;
2.3.
To strengthen the retention and the motivation of Executive Officers in the long term.
3. Compensation structure and instruments
Compensation instruments under this Compensation Policy may include the following:
•
•
•
•
•
Base salary;
Benefits;
Cash bonuses;
Equity based compensation; and
Retirement and termination of service arrangements.
A - 3
4. Overall Compensation - Ratio Between Fixed and Variable Compensation
This Policy aims to balance the mix of "Fixed Compensation" (comprised of base salary and benefits) and "Variable Compensation" (comprised of cash bonuses and equity based compensation) in
order to, among other things, appropriately incentivize Executive Officers to meet Optibase's short and long term goals while taking into consideration the Company’s need to manage a variety of
business risks.
The total Variable Compensation of each Executive Officer (as well as the Executive Chairman of the Board ("Executive Chairman")) shall not exceed 60% of the total compensation package of such
Executive Officer (and the Executive Chairman) on an annual basis. The Compensation Committee and Board believe that such range expresses the appropriate compensation mix in the event that
all performance objectives are achieved and assumes that all compensation elements are granted with respect to a given year.
5.
Intra-Company Compensation Ratio
In the process of drafting this Policy, Optibase’s Board and Compensation Committee have examined the ratio between employer cost, as such term is defined in the Companies Law, associated
with the engagement of the Executive Officers (as well as the Executive Chairman) and the average and median employer cost associated with the engagement of the other employees of Optibase
(the "Ratio"). The Compensation Committee and Board believe that the current Ratio does not adversely impact the work environment in Optibase.
B. Base Salary and Benefits
6. Base Salary
6.1.
The base salary varies between Executive Officers (among themselves) and the Executive Chairman of the Board, and is individually determined by the Compensation Committee and the
Board (unless other approvals are required under any applicable law) according to the educational background, prior vocational experience, qualifications, role, business responsibilities,
past performance and previous compensation arrangements of such Executive Officer and Executive Chairman of the Board.
6.2.
The maximum monthly base salary for each of the following roles shall be as follows:
(i)
(ii)
Chief Executive Officer ("CEO") – up to NIS 100,000 for a full time position
CEO of the Company's subsidiary ("Subsidiary CEO") – up to NIS 90,000 for a full time position;
(iii)
Executive Officer who is not a director, CEO or Subsidiary CEO – up to NIS 50,000 for a full time position
Such amounts may be linked to increases in the Israeli Consumer Price Index ("Israeli CPI") or to the representative rate of exchange of the US dollar, as the case may be.
6.3.
The Executive Chairman may be paid management fee in amount that shall not exceed NIS 50,000 per month.
7. Benefits
7.1.
In addition to the base salary, the following benefits may be granted to the Executive Officers in order, among other things, to comply with legal requirements:
• Vacation days in accordance with market practice and applicable law;
• Sick days in accordance with market practice and applicable law;
• Convalescence pay according to applicable law;
A - 4
• Monthly remuneration for a study fund, as allowed by applicable tax law and with reference to Optibase’s practice and common market practice;
• Contribution by Optibase on behalf of the Executive Officer to an insurance policy or a pension fund, as allowed by applicable tax law and with reference to Optibase’s policies and
procedures and common market practice; and
• Contribution by Optibase on behalf of the Executive Officer towards work disability insurance, as allowed by applicable tax law and with reference to Optibase’s policies and
procedures and common market practice.
7.2. Optibase may offer additional benefits to its Executive Officers, including but not limited to: communication, company car and travel benefits, insurances, other benefits (such as
newspaper subscriptions, academic and professional studies), etc., including their gross up.
7.3. Optibase may reimburse its Executive Officers and its Executive Chairman for reasonable work-related expenses incurred as part of their activities, including without limitations, meeting
participation expenses, reimbursement of business travel including a daily stipend when traveling and accommodation expenses. Optibase may provide advance payments to its
Executive Officers in connection with work-related expenses.
7.4. Non-Israeli Executive Officers may receive other similar, comparable or customary benefits as applicable in the relevant jurisdiction in which they are employed.
8.
Signing Bonus
At the Compensation Committee’s and Board’s discretion, Optibase may grant a newly recruited Executive Officer a signing bonus. The signing bonus shall not exceed two (2) monthly base
salaries of such Executive Officer.
C. Cash Bonuses
9. Annual Bonuses
9.1.
9.2.
9.3.
9.4.
9.5.
The payment of annual bonuses to the Executive Chairman and any Executive Officer for any particular fiscal year shall be subject to the fulfillment (in addition to the fulfillment of the
applicable objectives set forth below as the case may be) of any one of the two following criteria: (a) that Optibase's EBITDA was at least USD $10 million (on a consolidated basis)
during such fiscal year; or (b) that Optibase's net profit for such fiscal year was at least USD $500,000, net of equity gains or losses, and net of non-recurring expenses related to the
purchase or disposal of real estate investments.
The Compensation Committee and Board may decide, at their sole discretion, to grant annual bonuses to the Executive Chairman and the Executive Officers, subject to the fulfillment of
the pre-conditions for payment of bonuses as detailed in section 9.1 above.
The annual bonus to the Executive Chairman and the CEO will be based on measurable criteria. The measurable criteria and their relative weight shall be determined by the Compensation
Committee and the Board in respect of each calendar year. These measurable criteria may include, inter alia, objectives relating to the annual income, annual profit (net profit, pre tax
profit), budget, annual EBITDA, acquisition and/or disposal of assets, financing, re-financing and fundraising.
In addition, the Company may grant the CEO a bonus of up to three (3) monthly base salaries, at the sole discretion of the Compensation Committee and Board, based on the CEO's
contribution to the Company.
The Company may also grant, subject to the approval of the Compensation Committee and the Board, an annual bonus to its Executive Officers (other than the CEO) for their
contribution to the Company. Such grants may be based in whole or in part on discretion, provided that they do not exceed the ceiling specified in section 9.6 below.
A - 5
9.6.
9.7.
The annual bonus that may be paid to the Executive Officers for any fiscal year shall not exceed six (6) monthly base salaries to the CEO, and three (3) monthly base salaries to any other
Executive Officer (excluding the CEO). The annual bonus that may be paid to the Executive Chairman for any fiscal year shall not exceed two (2) monthly payments of management fee.
The Board, following the recommendation of the Compensation Committee, shall be entitled to decrease the annual bonus to be paid to the Executive Chairman and/or Executive Officers
based on measurable criteria (if such criteria were determined) or cancel such grant of bonuses altogether in its sole discretion, even in the event measurable criteria were determined and
met..
10. Special Bonuses
In addition to the annual bonus, Optibase may grant its Executive Chairman and Executive Officers (other than the CEO) a special bonus as an award for special achievements (such as in
connection with mergers and acquisitions, offerings, achieving target budget or business plan under exceptional circumstances or, regarding the Executive Officers, special recognition in case of
retirement) at the discretion of the Compensation Committee and Board which shall not exceed three (3) monthly base salaries for any Executive Officer (other than the CEO) and two (2) monthly
payments of management fee for the Executive Chairman.
11. Pro Rata Payment
Should the employment or service of the Executive Chairman or any Executive Officer terminate prior to the end of a fiscal year, Optibase may pay the Executive Chairman or the Executive Officer
his or her pro rata share of that fiscal year’s bonus, based on the period the Executive Chairman or such Executive Officer was employed by the Company or has served in the Company.
12. Compensation Recovery ("Clawback")
12.1.
In the event of an accounting restatement, Optibase shall be entitled to recover from its Executive Chairman or Executive Officers the bonus compensation in the amount in which such
bonus exceeded what would have been paid under the financial statements, as restated, provided that a claim is made by Optibase prior to the third anniversary of fiscal year end of the
restated financial statements.
12.2. Notwithstanding the aforesaid, the compensation recovery will not be triggered in the following events:
• The financial restatement is required due to changes in the applicable financial reporting standards; or
• The Compensation Committee has determined that clawback proceedings in the specific case would be impossible, impractical or not commercially or legally efficient; or
• The amount to be paid under the clawback proceedings is less than 10% of the relevant bonus received by the Executive Chairman or Executive Officer.
12.3. Nothing in this Section 12 derogates from any other "clawback" or similar provisions regarding disgorging of profits imposed on the Executive Chairman and Executive Officers by virtue
of applicable securities laws.
A - 6
D. Equity-Based Compensation
13. General and Objectives
13.1. The Compensation Committee and Board may grant from time to time equity-based compensation which will be individually determined and awarded according to the performance,
educational background, prior business experience, qualifications, role and the personal responsibilities of the Executive Officer. Equity-based compensation may also be awarded to the
Directors, subject to the provisions of the Companies Law and the regulations thereunder and the receipt of all additional approvals that may be required under the Companies Law.
13.2. The main objectives of the equity-based compensation is to enhance the alignment between the Executive Officers' and Directors' interests with the long term interests of Optibase and
its shareholders, and to strengthen the retention and the motivation of Executive Officers in the long term. In addition, since equity-based awards are structured to vest over several
years, their incentive value to recipients is aligned with longer-term strategic plans.
13.3. The equity based compensation offered by Optibase is intended to be in a form of share options, restricted shares and/or other equity based awards, such as RSUs, in accordance with
the Company's incentive plan in place as may be updated from time to time.
14. Fair Market Value
The fair market value of the equity-based compensation for each Executive Officer and each Director shall not exceed USD $200,000, as shall be determined according to acceptable valuation
practices at the time of grant.
15. Additional Terms
15.1. Subject to any applicable law, Optibase may determine, at the Compensation Committee and the Board’s discretion, the tax regime under which equity-based compensation may be
granted, including a tax regime which will maximize the benefit to the Executive Officers and Directors.
15.2. All equity-based incentives granted to Executive Officers and Directors shall be subject to vesting periods in order to promote long-term retention of such recipients. Unless otherwise
determined in a specific award agreement approved by the Compensation Committee and the Board, grants to Executive Officers shall vest gradually over a period of at least two years.
15.3. All other terms of the equity awards shall be in accordance with Optibase's incentive plans and other related practices and policies. Accordingly, the Board may, following approval by
the Compensation Committee, extend the period of time for which an award is to remain exercisable and make provisions with respect to the acceleration of the vesting period of any
Executive Officer's or Director's awards, including, without limitation, in connection with a corporate transaction involving a change of control, subject to any additional approval as may
be required by the Companies Law.
E. Retirement and Termination of Service Arrangements
16. Advanced Notice Period
16.1. Optibase may provide each Executive Officer, according to his or her seniority in the Company, his or her contribution to the Company’s goals and achievements and the circumstances
of retirement, a prior notice of termination of up to three (3) months, except for the CEO whose prior notice may be of up to six (6) months. During such advance notice period, the
Executive Officer may be entitled to all of the compensation elements, and to the continuation of vesting of his or her options, restricted shares or RSUs.
16.2. Optibase may waive the Executive Officer’s services to the Company during the advance notice period and pay the amount payable in lieu of notice, plus the value of benefits.
A - 7
17. Adjustment Period/Retirement Bonus
In addition to the advance notice period, the Compensation Committee and Board may provide an additional adjustment period/retirement bonus that will be determined, among other things, taking
into consideration the Executive Officer's seniority in the Company, performance during employment, contribution to Optibase achieving its goals and the circumstances of retirement or
termination. The maximum adjustment period/retirement bonus that may be paid to each Executive Officer is as follows:
17.1. CEO – for seniority of up to 5 years – the CEO will not be entitled to any Adjustment Period; seniority between 5 to 10 years – up to 4 monthly base salaries; and seniority of 10 years or
more – up to 8 monthly base salaries.
17.2. Executive Officer (except the CEO) – for seniority of up to 5 years – such Executive Officer will not be entitled to any Adjustment Period; seniority between 5 to 10 years – up to 2
monthly base salary; and seniority of 10 years or more – up to 4 monthly base salaries.
The amounts for the adjustment period and the retirement bonus to be granted to an Executive Officer shall be calculated on the Executive Officer’s gross base salary without benefits, bonuses or
grants which were granted to him or her during the Executive Officer's employment.
18. Additional Retirement and Termination Benefits
Optibase may provide additional retirement and terminations benefits and payments as may be required by applicable law (e.g., mandatory severance pay under Israeli labor laws), or which will be
comparable to customary market practices.
19. Non-Compete Grant
Upon termination of employment and subject to applicable law, Optibase may grant to its Executive Officers a non-compete grant as an incentive to refrain from competing with Optibase for a
defined period of time. The terms and conditions of the Non-Compete grant shall be decided by the Board and shall not exceed such Executive Officer's monthly base salary multiplied by six (6).
F. Exemption, Indemnification and Insurance
20. Exemption
Optibase may exempt in advance and retroactively its directors and Executive Officers, from any liability to the Company, in whole or in part, for damages in consequence of his or her duty of care
vis-a-vis the Company, to the fullest extent permitted by law and subject to the provisions of the Company’s articles.
21. Indemnification
Optibase may indemnify its directors and Executive Officers to the fullest extent permitted by applicable law, for any liability and expense that may be imposed on the director or the Executive
Officer, as provided in the Indemnity Agreement between such individuals and Optibase, all subject to applicable law and the Company’s articles of association.
22. Insurance
22.1. Optibase will provide "Directors’ and Officers’ Liability Insurance" (the "Insurance Policy") for its directors and Executive Officers as follows:
• The annual premium to be paid by the Optibase shall not exceed 5% of the aggregate coverage of the Insurance Policy;
A - 8
• The limit of liability of the insurer shall not exceed the greater of $25 million or 25% of the Company’s shareholders equity (based on the most recent financial statements of the
Company at the time of approval by the Compensation Committee) per incident and insurance period (for a one-year period) in addition to reasonable litigation expenses;
• The purchase of each Insurance Policy shall be approved by the Compensation Committee (and, if required by law, by the Board) which shall determine that the Insurance Policy
reflects the current market conditions, and it shall not materially affect the Company's profitability, assets or liabilities.
22.2. Upon circumstances to be approved by the Compensation Committee (and, if required by law, by the Board), Optibase shall be entitled to enter into a "run off" Insurance Policy of up to
seven (7) years, with the same insurer or any other insurer, as follows:
• The limit of liability of the insurer shall not exceed the greater of $25 million or 25% of the Company’s shareholders equity (based on the most recent financial statements of the
Company at the time of approval by the Compensation Committee) per incident and insurance period (for a one-year period) in addition to reasonable litigation expenses;
• The annual premium shall not exceed 500% of the last paid annual premium; and
• The purchase of such Insurance Policy shall be approved by the Compensation Committee (and, if required by law, by the Board) which shall determine that the Insurance Policy
reflects the current market conditions, and that it shall not materially affect the Company's profitability, assets or liabilities.
22.3. Optibase may extend the Insurance Policy in place to include cover for liability pursuant to a future public offering of securities as follows:
• The additional premium for such extension of liability coverage shall not exceed 50% of the last paid annual premium; and
• The purchase of such Insurance Policy shall be approved by the Compensation Committee (and if required by law, by the Board) which shall determine that the Insurance Policy
reflects the current market conditions, and it does not materially affect the Company's profitability, assets or liabilities.
G. Arrangements upon Change of Control
23. The following benefits may be granted to the Directors and/or Executive Officers in addition to the benefits applicable in the case of any retirement or termination of service upon a "Change of
Control" following of which the employment of the Executive Officer is terminated or adversely adjusted in a material way:
23.1. Vesting acceleration of outstanding options or restricted shares.
23.2. Extension of the exercising period of options or restricted shares for Optibase’s Executive Officers for a period of up to one (1) year and two (2) years, respectively, following the date of
termination of employment.
23.3. For Executive Officers only - up to an additional six (6) months of continued base salary and benefits following the date of employment termination (the "Additional Adjustment
Period"). For avoidance of doubt, such additional Adjustment Period shall be in addition to the advance notice and adjustment periods pursuant to Sections 14 and 15 of this
Compensation Policy.
23.4. For Executive Officers only - a cash bonus not to exceed together with the annual cash bonus, up to eighteen (18) monthly base salaries, in the case of the CEO, and nine (9) monthly
base salaries, in the case of other Executive Officers (excluding the CEO).
A - 9
H. Board of Directors Compensation
24. All the Directors, excluding the Executive Chairman, shall be entitled to an equal annual and per-meeting compensation.
25. The compensation of the Directors (including external directors and independent directors, but excluding the Executive Chairman) shall not exceed the maximum amounts provided in the Companies
Regulations (Rules Regarding the Compensation and Expenses of an External Director) of 2000, as amended by the Companies Regulations (Relief for Public Companies Traded in Stock Exchange
Outside of Israel) of 2000, as such regulations may be amended from time to time ("Compensation of Directors Regulations").
26. Directors may be granted equity-based compensation in accordance with the principles detailed in this Policy, and subject to the provisions of the Companies Law and the regulations thereunder.
27. Optibase's external and independent Directors may be entitled to reimbursement of expenses in accordance with the Compensation of Directors Regulations. Optibase’s Directors, excluding external
and independent Directors, may be entitled to reimbursement of work-related expenses, including meeting participation expenses, reimbursement of business travel including a daily stipend when
traveling and accommodation expenses. Optibase may provide advance payments to its Directors in connection with work-related expenses.
I. Miscellaneous
28. This Policy is designed solely for the benefit of Optibase. Nothing in this Compensation Policy shall be deemed to grant any of Optibase’s Executive Officers, Directors or employees or any third
party any right or privilege in connection with their employment by the Company. Such rights and privileges shall be governed by the respective personal employment agreements.
29. This Policy is subject to applicable law and is not intended, and should not be interpreted as limiting or derogating from, provisions of applicable law to the extent not permitted, nor should it be
interpreted as limiting or derogating from the Company’s articles of association.
30. This Policy is not intended to affect current agreements nor affect obligating customs (if applicable) between the Company and its Executive Officers or Directors as such may exist prior to the
approval of this Compensation Policy.
31.
In the event of amendments made to the Companies Law or any regulations promulgated thereunder providing relief in connection with Optibase’s compensation to its Executive Officers and
Directors, Optibase may elect to act pursuant to such relief without regard to any contradiction with this Policy.
32. The Compensation Committee and Board may determine that none or only part of the payments, benefits and perquisites shall be granted, and is authorized to cancel or suspend a compensation
package or part of it.
A - 10
Exhibit 4.24
in extract form, excluding conveyance in sub-clause 16.2
Deed Roll No. 67/2020
- Original document written on one side throughout -
- Copies and duplicates written on both sides -
Executed
in Berlin
Today, 10 February 2020, the following persons appeared before me, the
undersigned Notary
Dr. Andreas Manthey,
Joachimsthaler Straße 24, 10719 Berlin,
1. Mr. Julius Falcinelli, born on 27/01/1993, with business address at Lenbachplatz 5, 80333 Munich,
2. Mr. Alexander Kroth, born on 04/07/1982,
3.
Mr. Christian Hellmuth, born on 24/12/1979, the second and third persons appearing having their business address at August-Bebel-Straße 68, 14482 Potsdam.
The first person appearing identified himself by presenting his valid identity card with a photograph; the second and third persons appearing are known to the notary.
The notary explained the prohibition on cooperation pursuant to § 3(1)(7) of the German Notarial Recording Act. The persons appearing answered in the negative the notary's question as to whether there
was any such prior involvement.
The first person appearing declared in advance that he is not acting on his own behalf, but on the basis of a notarial and apostilled power of attorney dated 28 January 2020, which was available in the
original at the time of notarial recording and is annexed as Appendix A, for
OPTIBASE BAVARIA Holding GmbH,
registered in the Commercial Register of the Munich District Court under HRB 215136
whose statutory seat is in Munich and whose registered office is at Lenbachplatz 5, 80333 Munich,
which in turn is acting in its capacity as a personally liable shareholder with sole power of representation of
OPTIBASE BAVARIA GmbH & Co. KG,
registered in the Munich District Court Commercial Register under HRA 102469
whose statutory seat is in Munich and whose registered office is at Lenbachplatz 5, 80333 Munich,
The second and third persons appearing then declared in advance that they would not make the following declarations on their own behalf either, but in the capacity of officers with joint representation
authority of
subsequently referred to as the “Seller”
Deutsche Konsum REIT-AG,
whose statutory seat is in Broderstorf;
with business address at 14482 Potsdam, August-Bebel-Straße 68,
registered in the Rostock District Court Commercial Register under HRB 13072,
Tax No. 046/100/02493, Potsdam Tax Office
- subsequently referred to as the “Buyer”-
- the Seller and the Buyer shall also be subsequently referred to individually as a Party and collectively as the Parties.
The notary hereby certifies in accordance with §21 of the German Federal Notaries Code on the basis of the inspection of entry HRB 13072 in the Rostock District Court’s electronic commercial register on
23/01/2020 that Deutsche Konsum REIT-AG and the second and third persons appearing are registered there as its officers with joint power of representation.
At the notary’s request, the Seller and Buyer confirmed that they are each acting on their own behalf and for their own account, i.e. not, for example, as trustees for third-party economic beneficiaries.
The notary also drew the attention of the persons appearing to the fact that a transparency register is kept (§18(1), (2) of the German Anti-Money Laundering Act), in which the information on the
beneficial owner listed in §19 of the German Anti-Money Laundering Act must be recorded, insofar as this information does not emerge from publicly accessible registers, and that the company is
responsible for the procurement of this information and its electronic transmission to the transparency register (§ 20(1), (2) of the German Anti-Money Laundering Act).
The notary pointed out that in the event of the sale of all or a substantial part of the Seller's assets, a notarial resolution of the Seller's shareholders in accordance with §§179, 179a of the German Stock
Corporation Act in which they have agreed to the subsequent sale of the object of purchase to the Buyer may be required analogously for the Seller’s representation in this deed. The corresponding
apostilled shareholders' resolution of 06/02/2020 in Deed No. 361/2020 of the notary Ram Ephrati, Herzliya, Israel, is annexed to this deed as Appendix B.
The persons appearing, acting in the aforementioned capacities, then asked the officiating notary to record the following in their presence:
Real Estate Purchase Agreement with Conveyance
for the transfer of real estate, a heritable building right and a condominium unit at 27 locations
of the “Optibase” real estate portfolio
Page 2 of 36
CONTENTS
PREAMBLE
0.1
0.2
0.3
§ 1
§ 2
§ 3
§ 4
§ 5
§ 6
§ 7
§ 8
§ 9
§ 10
§ 11
§ 12
§ 13
§ 14
§ 15
§ 16
§ 17
§ 18
§ 19
§ 20
§ 21
§ 22
§ 23
§ 24
§ 25
SECTION II APPENDIX 1
PORTFOLIO
REFERENCE DEED
CANCELLATION OF PRIOR AGREEMENTS
DEFINITIONS
PROPERTY
SALE
PURCHASE PRICE
VAT
DUE DATE, PAYMENT AND DEFAULT
TRANSFER OF OWNERSHIP, TRANSFER OF IRGHTS AND OBLIGATIONS, DEVELOPMENT
PERIOD BETWEEN NOTARIAL RECORDING AND TRANSFER DATE
TENANCY AND OTHER USAGE AGREEMENTS
ASSUMPTION OF PROPERTY CONTRACTS
ASSIGNMENT OF CLAIMS
INSURANCE
SELLER’S WARRANTY / LIABILITY
ENVIRONMENTAL DAMAGE
SELLER’S TAX EXEMPTION
PRIOR NOTICE OF CONVEYANCE AND CONVEYANCE
AUTHORITY TO CHARGE
RIGHTS OF WITHDRAWAL
COSTS AND REAL ESTATE TRANSFER TAX
NOTIFICATIONS AND DECLARATIONS
EXECUTUON OF THE AGREEMENT
INFORMATION
LEGAL SUCCESSION
CONFIDENTIALITY
MISCELLANEOUS
Page 3 of 36
4
4
5
6
6
7
9
10
10
11
14
16
16
19
19
20
20
24
25
26
27
29
31
32
32
33
34
34
34
36
0.1
Portfolio
The following 27 individual objects of purchase together constitute the Optibase property portfolio:
PREAMBLE
Name
Individual object of purchase 1
Individual object of purchase 2
Individual object of purchase 3
Individual object of purchase 4
Individual object of purchase 5
Individual object of purchase 6
Individual object of purchase 7
Individual object of purchase 8
Individual object of purchase 9
Individual object of purchase 10
Individual object of purchase 11
Individual object of purchase 12
Individual object of purchase 13
Object
Beratzhausen property
Cham property
Chamerau heritable building right
Falkenstein property
Fürstenstein property
Gangkofen property
Hartkirchen-Pocking property
Hidring-Windorf property
Ingolstadt fractional ownership unit
Kempten-Lenzfried property
Kissing property
Lam property
Lenggries property
Page 4 of 36
Address:
Staufferstraße 7, Beratzhausen
Darsteiner Straße 10, Cham
In der Grube 2, Chamerau
Nähe Dr.-Josef-Kiener-Straße, Regensburger Straße
Falkenstein
12,
Vilshofener Straße 13, Fürstenstein
Schmidsöder Weg 6, Frontenhausener Straße 2c, Gangkofen
Marktplatz 5b, Pocking
Turmstraße 2a, Hidring
Krumenauerstraße 50, 52, 54, 56, 58 and 60, Ingolstadt
Wettmannsberger Weg 1, Nähe Wettmannsberger Weg,
Kempten (Allgäu)
Bahnhofstraße 40c, Nähe Bahnhofstraße, Kissing
Arberstraße 74, Lam
Bergbahnstraße 5, Lenggries
Individual object of purchase 14
Individual object of purchase 15
Individual object of purchase 16
Individual object of purchase 17
Individual object of purchase 18
Individual object of purchase 19
Individual object of purchase 20
Individual object of purchase 21
Individual object of purchase 22
Individual object of purchase 23
Individual object of purchase 24
Individual object of purchase 25
Individual object of purchase 26
Individual object of purchase 27
0.2
Reference Deed
Neudorf-Sehmatal property
Neunburg vorm Wald property
Obertraubling property
Pfaffenhausen property
Rinchnach property
Rossbach property
Ruderting property
Scheyern property
Schöllnach property
Spiegelau property
Straßkirchen property
Untergriesbach property
Viechtach property
Wegscheid property
Crottendorfer Straße 3, Neudorf
Amberger Straße 14, Nähe Amberger Straße, Neunburg vorm
Wald
Edekastraße 5, Obertraubling
Industriestraße 4, Pfaffenhausen
Herrnmühle 2, Rinchnach
Bahnhofstraße 3, Rossbach
Passauer Straße 26b, Ruderting
Fernhager Straße 1, Scheyern
Gewerbepark Leutzing 2, Schöllnach
Konrad-Wilsdorf-Straße 1a, Spiegelau
Nähe Bayerwaldstraße
Kreuzwiesenweg 1, Untergriesbach
Mönchshofstraße 60, Viechtach
Oberfeld, Wegscheid
Unless expressly noted otherwise, all appendices to which reference is made in this deed are part of the further deed of 10 February 2020 (Deed No. 66/2020 of the officiating notary) already drawn
up by the officiating notary Dr. Andreas Manthey in this matter - referred to herein as the “Reference Deed”. These appendices are only annexed to the Reference Deed, but not to this protocol.
The original Reference Deed is available today. After information was provided by the officiating notary, reference is hereby made to the Reference Deed in accordance with §13a of the Notarial
Recording Act. Acting in the above-mentioned capacities, the persons appearing declare that they are fully aware of the Reference Deed’s contents and that they hereby fully integrate the
Reference Deed’s entire contents into this Purchase Agreement. After further information was provided by the officiating notary, the persons appearing waived a (second) reading of the
Reference Deed and as well as the Reference Deed’s annexation to this record. If reference is made in the Reference Deed to documents which are not themselves contained in the Reference
Deed, the parties agree that these should not form part of the Agreement, unless these are publicly accessible documents which do not require notarial recording in order to become part of this
contract (such as laws, ordinances, DIN standards). The list of appendices to the Reference Deed is annexed to this deed as Appendix 1.
Page 5 of 36
The parties confirm that the notary's clerk, Ms Linda Schellknecht, was authorised to act for the parties during the Reference Deed’s execution; as a precautionary measure, all declarations made
and received by the notary's clerks in the Reference Deed are hereby approved.
0.3
Cancellation of prior agreements
This document fully replaces all pre-contractual agreements between the contractual parties, in particular the Letter of Intent dated 16-17 January 2020, such that none of the contractual parties
can derive any claims or rights therefrom.
On this basis, the parties now hereby agree the following:
§ 1
DEFINITIONS
“Redemption Amounts” shall have the meaning defined in sub-clause 6.5
"Bank Working Days" shall have the meaning defined in sub-clause 25.1
"Reference Deed" shall have the meaning defined in the Preamble
“Development Charges” shall have the meaning defined in sub-clause 7.3.1
“Due Date Notification” shall have the meaning defined in sub-clause 6.1
“Due Date” shall have the meaning defined in sub-clause 6.1
“Due Date Conditions” shall have the meaning define in sub-clause 6.1
“Property” shall have the meaning defined in sub-clause 2.1
"Entire Property" shall have the meaning define din sub-clause 2.1
“Buyer” has the meaning defined in the recitals
“Object of Purchase” shall have the meaning defined in sub-clause 3.1
Page 6 of 36
“Purchase Price” shall have the meaning defined in sub-clause 4.1
“Cancellation Costs” shall have the meaning defined in sub-clause 18.5
“Tenant” shall have the meaning defined in sub-clause 9.1.1
“Tenancy Agreements” shall have the meaning defined in sub-clause 9.1.1
“Notary” shall have the meaning defined in sub-clause 25.2
"Party” shall have the meaning defined in the recitals
"Portfolio" shall have the meaning defined in sub-clause 2.1
“Transfer Date” shall have the meaning defined in sub-clause 7.1
"Environmental Damage" shall have the meaning defined in sub-clause 14.1
“Signature Date” shall have the meaning defined in sub-clause 13.5
"Seller" shall have the meaning defined in the recitals
“Seller Warranties” shall have the meaning defined in sub-clause 13.5.
§ 2
PROPERTY
2.1
The Seller is registered as the owner or holder of the heritable building right or co-owner of the 25 properties, a heritable building right and a condominium unit described in Appendix 2.1
(subsequently referred to individually as the “Property” or collectively as “Entire Property”) in the Land Register, Register of Heritable Building Rights and Condominium Register. Recent
extracts from the Land Register, Register of Heritable Building Rights and Condominium Register are annexed as Appendix 2.1.
The definition of the respective property is solely dependent on the Land Register description in Appendix 2.1. The Parties agree that claims and rights due to possible deviations in the size of the
property from the land register area specifications are excluded.
The individual object of purchase 3 exclusively comprises the hereditary building right for the building erected on the property In der Grube 2 in Chamerau (registered in the Chamerau Land
Register, Vol. 33 Folio 1336, BV No. 17, Plot 160). The individual purchase object 9 exclusively comprises the individual ownership of the store marked No. 12 in the partition plan as well as a co-
ownership share of 2,000/10,000 in the property Krumenauerstraße 50, 52, 54, 56, 58 and 60 in Ingolstadt (entered in the Ingolstadt Condominium Register, Vol. 812 Folio 34277, BV No. 1, Plot
2268/4). All other individual objects of purchase include the respective real property with all rights, obligations, legal constituent elements including the structural facilities and appurtenances
listed above, insofar as they are the Seller’s property.
Page 7 of 36
With regard to the individual object of purchase 10 (Kempten-Lenzfried), the Seller concluded a property exchange agreement subject to a condition precedent with BreFa Bauunternehmung GmbH
on 23 October 2018 (Deed No. B 2396/2018 of notary Dr. Lorenz Bülow, Kempten, the “Kempten Exchange Agreement”). A copy of the Kempten Exchange Agreement is annexed as Appendix 2.1a.
On the basis of the Kempten Exchange Agreement, among other things, a partial area of approx. 345 m² of individual purchase object 10 is to be transferred to BreFa Bauunternehmung GmbH,
which is the owner of the neighbouring property, while a partial area of approx. 555 m² of the neighbouring property is to be added to individual purchase object 10. The conditions precedent
agreed in the Kempten Exchange Agreement have not yet been satisfied. Consequently, the parties to the Kempten Exchange Agreement each have the right to withdraw from the Kempten
Exchange Agreement as of 1 April 2019. The Seller has not yet exercised the right of withdrawal and the Seller has not yet received a declaration of withdrawal from the owner of the neighbouring
property. The Seller hereby assigns to the Buyer, subject to a condition precedent and with the effect of discharging its obligations, all rights and obligations under the Kempten Exchange
Agreement as of the date of transfer of the individual object of purchase. The Buyer accepts this assignment and at the same time undertakes to indemnify the Seller upon first demand against all
claims of third parties arising from or in connection with the conclusion, execution and possible cancellation of the Kempten Exchange Agreement. BreFa Bauunternehmung GmbH’s consent shall
be obtained for the assignment regulated above, and the Seller shall immediately request this after today. As long as this consent has not been obtained, the Parties shall act from an economic
standpoint as if consent had been given and the assumption of the Kempten Exchange Agreement had become effective on the transfer date. If BreFa Bauunternehmung GmbH’s required consent
to the assignment of the rights and obligations under the Kempten Exchange Agreement is refused, the Seller is entitled and obliged to inform the Buyer accordingly and to declare withdrawal from
the Kempten Exchange Agreement. In the event of withdrawal, mutual claims of the Parties are excluded.
2.2
2.3
2.4
2.5
As can be seen from Appendix 2.1, there are charges registered against the respective property in Section II of the Land Register.
As can be seen from Appendix 2.1, there are charges registered against the respective property in Section II of the Land Register.
The Land Charges Register was not inspected by the Seller or the officiating notary. The Buyer had the opportunity to obtain information itself and to inspect the Land Charges Register (if such a
register is kept for individual properties). The Seller declares that it has not applied for any changes with regard to the land charges information provided in the data room in accordance with sub-
clause 13.3 and that, to its knowledge, the respective municipalities have no outstanding applications for recording in the Land Charges Register.
The officiating notary has assessed the contents of the Land Register, Register of Heritable Building Rights and Condominium Register on the basis of the inspection of electronic land register
excerpts of 07/02 and 10/02/2020, respectively, and hereby confirms the completeness and correctness of the status of the entries in sub-clauses 2.1, 2.2 and 2.3 and that at the time of the
inspection, and that at this time, with the exception of the following applications, the land registry office had no outstanding application. Following an inspection of the list of pending land
registration requests, the applications listed in Appendix 2.5 are pending. The Seller declares that it has lodged no other applications beyond this.
2.6
The respective property has been developed and (with the exception of individual object of purchase 1 concerning the property in Beratzhausen, for which a termination agreement subject to a
condition precedent has been concluded with the previous tenant) let.
The Buyer is aware that photovoltaic systems have been installed on the roofs of some individual objects of purchase. In this context, the Seller has pointed out to the Buyer that it has no
knowledge of who has installed these facilities and that therefore the ownership of these facilities has not been conclusively clarified and no documents are available to the Seller in this regard.
Installation of the photovoltaic systems by a previous owner of the property in question or the tenant of the respective individual purchase object cannot be ruled out. The Buyer waives the
assertion of any claims or rights against the Seller arising therefrom or in this connection and acknowledges this condition of the respective individual objects of purchase items concerned as
being contractually compliant.
Page 8 of 36
2.7
2.8
2.9
The Buyer shall assume all (i) land charges mentioned in sub-clause 2.2 in conjunction with Appendix 2.1 and Appendix 2.5, (ii) land charges and restrictions in the Land Register, Register of
Heritable Building Rights and Condominium Register registered with the Buyer’s consent or cooperation; (iii) charges recorded in the Land Charges Register or whose registration has been
requested, as well as (iv) future charges and restrictions provided for in this Purchase Agreement, including the charges and restrictions still to be registered from the Kempten Exchange
Agreement, without compensation and without offsetting against the total purchase price or the individual purchase prices and with continued acquiescence and performance. Similarly, the Buyer
shall also assume the agreements and obligations under the law of obligations contained in the respective approval documents and declarations of obligation for the registration or recording, or
upon which they are based, with the release of the Seller with effect from the Transfer Date. The Buyer shall also assume any and all existing and future land charges and restrictions which are not
evident from the Land Register or other registers, unregistrable or previously established. The Seller declares that it is not aware of any previously established easements.
The Seller shall delete from the Land Register at its expense all land charges that will not be assumed by the Buyer, in particular all land charges in section III of the land registers. The Seller hereby
approves and requests their cancellation.
After today, the Buyer intends to enter into negotiations with the current charge-holder DZ HYP regarding the possible financing of individual objects of purchase. In the event that the Buyer
notifies the Seller in writing (email sufficient) by 21 February 2020 that it has agreed a binding term sheet with DZ HYP on the basis of a financing confirmation, the Parties will examine and agree on
the possibilities for the Buyer to assume the land charges recorded in the land registers. If the Parties do not agree on the final wording of a notarial addendum to the Purchase Agreement
regulating this outcome by 28 February 2020, the negotiations shall be deemed to have failed and the release of land charges and cancellation shall be carried out in accordance with the above sub-
clause 2.8. There is no obligation for either party to conclude a corresponding addendum to the Purchase Agreement.
§ 3
SALE
3.1
The Seller hereby sells to the Buyer, who accepts this in sole ownership - or in relation to the heritable building right the same - the respective property described in Appendix 2.1 together with all
essential components and appurtenances, as far as these are the Seller’s property (where each individual property shall be referred to in each case as the “Object of Purchase” or “Individual
Object of Purchase”, and all individual objects of purchase shall be collectively referred to as the “Entire Object of Purchase”)
Page 9 of 36
3.2
The contractual parties hereby clarify that the sales of the 27 individual objects of purchase agreed in this deed are each legally independent purchase agreements, which are each executed
independently, unless otherwise expressly agreed in this deed (“Individual Sales”). However, the individual sales are grouped together in this deed due to their connectedness and for reasons of
simplification.
3.3
The property of third parties is excluded from the sale.
§ 4
PURCHASE PRICE
4.1
4.2
4.3
The (net) purchase prices for the respective individual objects of purchase are contained in Appendix 4.1 annexed to this deed (“Individual Purchase Prices").
In accordance with Appendix 4.1, the (net) purchase price for the entire object of purchase is
35,000,000 euro
(in words: Thirty-five million euro) (“Total Purchase Price”).
To secure the Buyer’s payment obligations under this Purchase Agreement, the Buyer has this day furnished the Seller with the original of a directly enforceable guarantee from ODDO BHF
Aktiengesellschaft with registered office in Frankfurt am Main in the amount of 3,500,000 euro, a copy of which is annexed as Appendix 4.3 to this deed for information purposes. In the event of the
Buyer’s withdrawal in accordance with § 18.3.1 the Seller is entitled to satisfy the claim for payment of the contractual penalty from the guarantee. Otherwise, the Seller shall release the guarantee to
the Buyer (i) either immediately after receipt of payment of all individual purchase prices owed by the Buyer under this Agreement for the entire object of purchase or (ii) in the event of a
cancellation of this Purchase Agreement which is not based on a (partial) payment default by the Buyer, after submission to the land registry of the enforceable application for cancellation of the
priority notices of conveyance registered in accordance with § 16.1.1 in the Buyer’s favour.
The notary informed the persons appearing of the risks associated with the immediate release of the guarantee – Buyer’s unsecured advance payment – and has discussed possibilities to avoid
them - e.g. escrow deposit with the notary and release only after the occurrence of the event of default; the parties insist on immediate handover.
§ 5
VAT
5.1
Seller and Buyer hereby confirm that they are each entrepreneurs within the meaning of § 2 of the German Value Added Tax Act. The Seller hereby confirms that it acquired the respective objects
of purchase with the intention of long-term letting and that since the acquisition it has either let them or (if vacant) has had the intention of letting them. The Buyer confirms that it intends to
continue the Seller's previous letting activities. The Parties therefore assume that the sale transactions that are the Agreement’s object each constitute a case of a sale of a business as a going
concern under §1(1a) of the German VAT Act. Accordingly, the sale of the respective objects of purchase is not subject to VAT.
Page 10 of 36
5.2
5.3
5.4
5.5
Under §1(1a)(3) of the German VAT Act, the Buyer assumes the Seller’s legal position for VAT purposes in relation to the respective object of purchase and, in accordance with §15a(10)(1) of the
German VAT Act, it shall continue the input tax adjustment periods of the Seller (and any previous owners) within the framework of a legal succession under VAT law. The Seller undertakes to
provide the Buyer with a compilation of the relevant tax-relevant data available to it in this respect no later than three months following the Transfer Date.
Irrespective of the corresponding assumption of a sale of a business as a going concern within the meaning of § 1(1a) of the German VAT Act, the following applies: In accordance with § 9 of the
German VAT Act, the Seller hereby waives the tax exemption under § 4(9)(a) of the German VAT Act and opts for VAT liability with regard to the sale of all objects of purchase (option for 100%
VAT liability).
If, contrary to the contractual parties’ opinion, the competent tax authorities do not deem the sale of an object of purchase a sale of a business as a going concern but as a transfer of real estate
liable to VAT, as the recipient of services under the VAT option in accordance with § 13b(2)(3) in conjunction with (5)(1) of the German VAT Act, the Buyer shall be liable for the VAT incurred as a
result of the VAT-liable sale of the objects of purchase. In this case, the Seller undertakes, in accordance with §14a(5) of the German VAT Act, to issue an invoice with the information specified in
§14(4) of the German VAT Act, but without a tax statement. The contracting parties hereby clarify that this Agreement does not constitute an invoice within the meaning of §14(1)(1) of the German
VAT Act.
If assets are also transferred on the basis of this Agreement which do not fall within the scope of a sale of a business as a going concern and to which §13b of the German VAT Act is not
applicable, the Seller shall be liable for value added tax in accordance with §13a(1)(1) of the German VAT Act. The Buyer shall pay the Seller the VAT amount due in this connection separately (in
addition to the part of the purchase price attributable to these assets). A corresponding additional payment of VAT shall fall due for payment within four weeks of the Buyer’s receipt of an invoice
in accordance with statutory provisions. The Seller shall issue the Buyer with an invoice in proper form for these other assets in accordance with §§ 14, 14a of the German VAT Act.
§ 6
DUE DATE, PAYMENT AND DEFAULT
6.1
The officiating notary shall confirm to the parties - separately for each individual object of purchase - in writing and in advance to the email addresses stated in sub-clause 20.1 (a “Due Date
Notification” in each case) that
6.1.1
the recording in the Land Register or Condominium Register of the priority notices of conveyance of the respective individual purchase object or the priority notice of transfer of the
heritable building right in the hereditary building land register of the individual purchase object 3 in the Register of Heritable Building Rights approved in sub-clause 16.1 has been
carried out, whereby priority may only be assigned in accordance with the land charges indicated in Appendix 2.1, Appendix 2.1a and Appendix 2.5 and such land charges whose priority
entry the Buyer has accepted in each case; and
Page 11 of 36
6.1.2
the officiating notary has received the respective required waivers or negative clearance certificates regarding statutory pre-emptive rights; and
6.1.3
6.1.4
the officiating notary has at his disposal all notices of discharge or cancellation documents in a form suitable for the land register in accordance with §29 of the Land Registry Code for
all land charges with priority over or of equal ranking with the Buyer's priority notice and not assumed by the Buyer. Regarding the notices of discharge or cancellation documents, only
such trust conditions that do not contradict this Purchase Agreement and which can be fulfilled from the respective individual purchase price will be or have been imposed on the
officiating notary; and
only in relation to the individual objects of purchase 1-4, 6, 9-17, 21-23 and 26: the pre-emptive right holder’s declaration of renunciation, including the renunciation of the property
owner’s pre-emptive right concerning the Chamerau heritable building right, is available to the officiating notary in a form suitable for the land register in accordance with § 29 of the
Land Register Code or the officiating notary does not become aware of any exercise of the pre-emptive right within two months and one week of receipt of his inquiry concerning the pre-
emptive right from the pre-emptive right holder; and
6.1.5
only with regard to individual object of purchase 23: the officiating notary has received the approval in line with restructuring law provisions for the sale of the property; and
6.1.6
6.1.7
only with regard to the individual object of purchase 9: the officiating notary has at his disposal the consent of the other co-owner of retail shops on the ground floor to the sale in
accordance with §9 of Appendix I to the Condominium Declaration of 30/12/1986 (Deed No. 3794/1986 of notary Dr. Claus Gastroph, Ingolstadt) in a form suitable for the land register
pursuant to § 29 of the Land Registry Code; and
the officiating notary has at his disposal all other official approvals or other documents that may be required for the execution of this Agreement in line with land registry procedure
(however, with the exception of the tax office certificate of good standing).
The due date notifications shall be accompanied by uncertified copies of the documents mentioned in sub-clauses 6.1.1 to 6.1.7 where relevant.
6.2
The individual purchase prices in accordance with Appendix 4.1 shall fall due as follows:
6.2.1
6.2.2
A first tranche of the individual purchase prices shall fall due on the last banking day of the month for which the officiating notary has sent the due date notifications for at least six
individual objects of purchase at least ten banking days prior to the last banking day of such month and these have been received by the Buyer. If pre-emptive rights are exercised, the
individual objects of purchase for which the due date notification would otherwise have been sent if the pre-emptive right had not been exercised shall continue to be taken into account
as due for payment in the above calculation.
In each case, a further tranche of the individual purchase prices shall fall due on the last bank working day of the month for which the officiating notary has sent the due date
notifications for at least six further individual objects of purchase in each case at least ten bank working days before the last bank working day of such month and these have been
received by the Buyer. Sub-clause 6.2.1, sentence 2 shall apply accordingly.
Page 12 of 36
6.2.3
Once the purchase prices for less than six individual objects of purchase are still outstanding, the remaining individual purchase prices shall be due for payment individually on the last
banking day of the month for which the officiating notary has sent the due date notification for the respective individual objects of purchase at least ten banking days before the last
banking day of such month and these have been received by the Buyer.
The Buyer is free to effect payment at any time, after receipt of a due date notification according to sub-clause 6.1 even before the due date, with the consequence of the transfer of possession
(sub-clause 7.1).
The officiating notary is furthermore instructed to send a notification on the status of the settlement by email to all contractual parties on the fifth calendar day of each month or, if this is not a bank
working day, on the respective following first bank working day, for the first time on 5 March 2020, notifying them of the properties for which the due date requirements have been met. If this is not
yet the case, a negative notification shall be sent for each property where necessary.
6.3
6.4
6.5 When the respective purchase price tranches fall due in accordance with sub-clause 6.2 the respective individual purchase price shall be paid in such a way that the Buyer cancels and discharges
liabilities from land charges it has not assumed in respect of the respective individual purchase object directly with respect to the respective charge holder. The Seller shall request the
corresponding cancellation approvals or notices of discharge from the charge holders as well as the amounts (“Redemption Amounts") required for the redemption of the real rights in rem not
assumed by the Buyer (as well as for the redemption of the claims upon which the real rights in rem are based) and shall forward these to the officiating notary. If the cancellation documents
required for the redemption have not been lodged within eight weeks of the date of notarial recording at the latest, the notary is instructed to request the necessary cancellation documents from the
charge holders concerned. In the relationship between Buyer and Seller, the redemption amounts stated by the charge holders shall be deemed applicable. Neither the Buyer nor the officiating
notary is obliged to verify the correctness of this information. On the due date, the Buyer shall be entitled and obliged to pay the redemption amounts directly to the respective charge holders in
fulfilment of any conditions imposed on the officiating notary and on the instruction of the officiating notary. The charge holders are not entitled to any direct right arising from this agreement. The
redemption amounts shall be credited against the purchase price.
Other than this, the respective individual purchase price shall be paid into the following account of the Seller:
Bank:
IBAN:
BIC:
Commerzbank Munich
DE70 7004 0041 0279 8775 00
COBADEFFXXX
In respect of
Individual purchase price for property [Description]
The Seller shall be entitled to designate a different bank account to the Buyer or the officiating notary with a notice period of ten bank working days, but by the time of the dispatch of the due date
notification at the latest. The account last notified by the Seller at the time is decisive for contractually-compliant payment.
Page 13 of 36
6.6
6.7
6.8
The Parties agree that the due date notification is a prior event within the meaning of § 286(2)(2) of the German Civil Code; and the Buyer shall therefore be in default if it fails to pay the respective
individual purchase price on time without a reminder from the Seller being required. The timeliness of the payment is not determined by the dispatch of the money, but rather by its complete and
contractually-compliant receipt and the irrevocable credit in the account of the Seller or the charge-holder. All payments shall be made by the Buyer free of conditions, costs and expenses (in
particular without deductions etc.). A deposit shall not be considered as payment. If payments are not made on time, interest shall be charged on the respective amount from the due date at an
annual rate of 9 percentage points above the base interest rate. Other rights and claims of the Seller remain unaffected.
The Seller shall confirm in writing (email is sufficient) to the officiating notary (with a copy to the Buyer) when the respective individual purchase price has been paid in full.
Offsetting and the assertion of rights of retention and rights to withhold performance against the purchase price claim is excluded, unless offsetting or rights of retention or rights to withhold
performance are based on undisputed or legally established (counter)claims.
§ 7
TRANSFER OF OWNERSHIP, TRANSFER OF IRGHTS AND OBLIGATIONS, DEVELOPMENT
7.1
Ownership of the respective individual object of purchase shall pass to the Buyer on the first day of the month following full payment of the respective individual purchase price (12:00 a.m). The
day of the transfer of ownership is also referred to in this Purchase Agreement as the “Transfer Date”. The Buyer is entitled and also obliged to take direct possession of the individual object of
purchase on the Transfer Date; the parties hereby waive any formal handover.
7.2
Transfer of rights and obligations
7.2.1
7.2.2
The rights as well as the obligations and costs, the risk of accidental deterioration and accidental loss as well as the duties of care of the respective individual object of purchase or to
the respective individual object of purchase shall pass to the Buyer on the Transfer Date.
The Buyer shall assume in the Seller’s place the rights and obligations resulting from the possession and ownership of the respective individual object of purchase on the Transfer Date.
All property taxes and current public charges relating to the respective individual object of purchase, the costs of energy, water supplies and disposal services as well as all other
charges shall be borne by the Seller in relation to the Buyer until the Transfer Date (not including the latter), if necessary on a prorated basis, and, unless otherwise expressly agreed in
this Purchase Agreement; these shall be at the Buyer’s expense thereafter (including the Transfer Date). The Seller and the Buyer shall settle accounts with each other on the
aforementioned basis, if possible within one month after the respective transfer date, and shall carry out a settlement of payments.
Page 14 of 36
7.2.3
Within one month of the Transfer Date, the Seller shall hand over to the Buyer documents available to it or to third parties it has commissioned which relate to the management of the
respective individual object of purchase. The Seller points out in this connection that the documents are partly available as copies only. The Seller is entitled to retain copies of these
documents or - if it has to keep or needs originals due to existing statutory obligations or to enforce its own claims - to hand over copies to the Buyer and to retain the originals for this
period.
7.3
Development charges, contributions and compensatory levies
7.3.1
7.3.2
Improvement contributions under § 127(1) of the German Federal Building Code, levies under § 127(4) of the German Federal Building Code, development levies pursuant to the relevant
municipal tax laws or local ordinances, other contributions and claims similar to contributions as well as resident contributions, including cost reimbursement claims, as well as the
corresponding costs for utility connections and connections for public waste management authorities (collectively referred to as "Development Charges”) shall be borne by the Seller
for those measures which have been invoiced up to the date of this notarial recording (receipt decisive), irrespective of the creation of the contribution debt under public law. Other than
these, the Buyer shall bear the development charges. The Seller declares that, with the exception of the facts disclosed in the due diligence process, it has no knowledge of any
outstanding contributions for measures carried out and not yet invoiced.
The provisions of sub-clause 7.3.1 shall apply to any compensatory amounts within the meaning of §§154 et seq. of the German Federal Building Code as well as for compensatory levies
and compensatory payments (e.g. for compensatory measures under nature conservation law in accordance with §§ 135a of the German Federal Building Code or in the context of
reallocation procedures) and other obligations under the relevant nature conservation and landscape laws (carrying out green space management measures, compensatory and/or
replacement measures, etc.) apply analogously.
7.3.3
The parties shall indemnify each other against any claims contradicting the above distribution in the internal relationship.
7.4
Transfer of the heritable building right agreement for individual purchase object 3
With effect from the transfer date of individual object of purchase 3, the Buyer shall take over the heritable building right agreement of 13 May 1997, contained in Appendix 7.4 with all its
components and addendum, each with all rights and obligations under the law of obligations and in rem relating to the period from the transfer date of individual object of purchase 3, in particular
and without restriction the obligation to pay the ground rent to the property owner. The Buyer shall impose on its legal successors obligations under the heritable building right agreement with the
obligation of further transfer.
The Buyer hereby submits to immediate enforcement with respect to the property owner (i) on the grounds of its obligation to pay the annual ground rent of currently 17,207.40 euro and (ii) on the
grounds of the increase amounts resulting from the indexation clause in Section F No. 2 of the heritable building right agreement in respect of its entire assets. An enforceable copy, in extracts,
shall be issued to the property owner upon request without proof that the due date has been reached. This shall not result in a reversal of the burden of proof.
Page 15 of 36
7.5
Transfer of condominium declaration
With effect from the transfer date of the individual object of purchase 9, the Buyer shall adhere to the condominium declaration and Condominium Bylaws of 30 December 1996 together with
supplements of 26 April 1990 and 27 July 1990, which are contained in Appendix 7.5a with all rights and obligations concerning the period from the Transfer Date. From the Transfer Date of
individual purchase object 9 the Buyer is obliged to pay the levy to the administrator.
Similarly, with effect from the transfer date of individual purchase object 9, the Buyer shall assume all rights and obligations arising from the homeowners’ association meetings and the agreements
made there. The minutes from 2016 to 2019 are contained in Appendix 7.5b.
The Buyer shall impose the outstanding obligations arising from this Real Estate Purchase Agreement and the Condominium Bylaws on individual legal successors in title with an obligation of
subsequent imposition.
7.6
Transfer of obligations under the Purchase Agreements
With effect from the Transfer Date with regard to the respective individual object of purchase, the obligations arising from the Purchase Agreements or the Kempten Exchange Agreement in
relation to the respective individual object of purchase as listed in Appendix 2.1a and Appendix 7.6 to this deed shall pass to the Buyer. The Buyer shall indemnify the Seller from this point in time
against any claims in this connection. The Buyer shall impose the obligations under the respective purchase agreement on legal successors in the ownership of the respective individual purchase
objects, with the obligation of subsequent imposition, insofar as the obligations have not been fulfilled.
§ 8
PERIOD BETWEEN NOTARIAL RECORDING AND TRANSFER DATE
8.1
The Seller shall continue to cause the individual objects of purchase to be administered with the care previously exercised until the respective transfer date and shall provide the Buyer with
information upon request. This does not include any measures outside ongoing administration/maintenance/repair and no measures which would mean an improvement of the quality of the
individual objects of purchase owed. The Seller shall henceforth inform the Buyer of any new material events or circumstances affecting the respective individual object of purchase.
With regard to possible destruction, damage or wear and tear occurring up to the Transfer Date, reference is made to sub-clause 13.4.
8.2
In all other respects, the provisions of sub-clause 9.1.6 shall apply in addition.
§ 9
TENANCY AND OTHER USAGE AGREEMENTS
9.1
Assumption of tenancy and other usage agreements
Page 16 of 36
9.1.1
9.1.2
9.1.3
9.1.4
9.1.5
9.1.6
The tenancy and other usage agreements listed in Appendix 9.1.1 to this deed exist as of today with the tenants listed therein. On the respective transfer date, the Buyer shall, with the
concomitant release of the Seller and in its place, assume the tenancy and other usage agreements listed in Appendix 9.1.1 as well as those tenancy and other usage agreements which
the Seller has concluded with the consent of the Buyer, insofar as these have not already ended on the respective transfer date (collectively referred to as “Tenancy Agreements” and
the respective tenants and authorised users shall be referred to as “Tenants”).
The Seller and the Buyer shall place each other in the same position as if the tenancy agreements assumed by the Buyer in accordance with sub-clause 9.1.1 had been transferred in their
entirety to the Buyer on the respective transfer date.
The Buyer is obliged with respect to the Seller to grant the tenants the rights to which they are contractually entitled under the assumed tenancy agreements for the period following the
respective transfer date.
The Seller hereby assigns to the Buyer, who accepts, subject to the condition precedent on the basis of and with effect from the respective transfer date, all claims arising from the
tenancy agreements which concern the period from the transfer date. The Seller shall remain entitled to claims against the tenants for rent and ancillary costs as well as other claims for
the period up to the transfer date. The Seller authorises and empowers the Buyer, subject to a condition precedent on the basis of and with effect from the transfer date, to assert the
rights arising from the tenancy agreements from the transfer date to the extent that the Buyer is entitled to them under this Purchase Agreement, including the right to give notice and to
amend and conclude tenancy agreements. At the Buyer's request, the Seller shall issue a separate power of attorney or title document (Section 172 of the German Civil Code) concerning
this authorization and power of attorney. The Buyer shall indemnify the Seller against any claims of the tenants as a result of the exercise of this authorisation/power of attorney. The
notary is authorised and instructed to issue to the Buyer, at its request, extracts from this deed from the respective transfer date only with the power of attorney.
Immediately after the respective transfer date, the Seller and the Buyer shall inform the tenants of the completed sale and the associated change of landlord in a joint letter in accordance
with the sample annexed as Appendix 9.1.5 .
The conclusion of new tenancy agreements and the amendment of existing tenancy agreements, including the cancellation of tenancy agreements, shall henceforth require the Buyer’s
prior consent, which the Buyer may only refuse for good cause. The Seller is currently in negotiations with the tenants of the individual objects of purchase 10, 13 and 21 regarding the
conclusion of additional tenancy agreements. The details of the content of the negotiations are set out in Appendix 9.1.6. The Seller shall henceforth coordinate closely with the Buyer
with regard to the negotiations with the tenants and shall not conclude the contractual supplementary agreements under negotiation without the Buyer’s prior consent. This applies
both to any contractual negotiations conducted by the Seller and to any letting activities relating to the individual objects of purchase.
Page 17 of 36
The Buyer is aware that an extension of the demised premises has been agreed with the tenant of the individual purchase object 13 in the tenancy agreement addenda Nos. 4 to 7.
Completion and handover of the extended demised premises is still pending and will be carried out by the Seller, if necessary also after the transfer date. The parties will coordinate in
confidence in this respect. Pending measures shall be completed by the Seller and the essentially faultless handover to the Lessee shall be evidenced by a handover protocol. The
Buyer will only object to the conclusion of any agreements necessary in this connection for good cause.
9.2
Operating and Ancillary Costs
The following applies with regard to invoicing the tenants for apportionable operating and ancillary costs:
9.2.1
9.2.2
The settlement for the settlement periods already completed on the respective transfer date is the Seller’s responsibility. The Buyer shall be responsible for settlement for the current
settlement period and for subsequent settlement periods. Furthermore, within one month of the respective transfer date, the Seller shall settle with the Buyer the operating and ancillary
costs for the current settlement period already paid to it or the performance otherwise provided to it by the tenants for the current settlement period as well as the operating and ancillary
costs it has paid for the respective object of purchase for the current settlement period, taking into account the cut-off date-related apportionment in accordance with sub-clause 7.2 .
The balance resulting from this settlement shall be settled immediately between the parties.
Regarding any vacancies during the relevant settlement period, it shall be assumed for the preparation of the annual ancillary costs settlement that the Seller is the fictitious tenant of
these vacant spaces until the transfer date and the Buyer from the transfer date. If the settlements for the settlement period running on the respective transfer date show credit balances
in favour of a tenant as against the individual tenants, the Buyer shall pay these to the respective tenant and shall indemnify the Seller against claims of the tenant based on these credit
balances. If the settlements concerning the ongoing settlement period result in additional claims against the tenants, these shall accrue to the Buyer.
9.3
Advance payments of rent and ancillary costs
The Seller shall immediately pay out to the Buyer, on a prorated basis if necessary, any advance payments of rent and ancillary costs of the tenants received by the Seller, which relate wholly or
partly to the period following the respective transfer date. Conversely, the Buyer shall immediately forward to the Seller, on a prorated basis if necessary, any payments it receives for the period up
to the respective transfer date.
9.4
Security deposits
The security deposits paid by the tenants to date are set out in Appendix 9.4 annexed to this deed. The Seller is henceforth no longer entitled to draw upon these security deposits or any other
security deposits that may be provided by the tenants up to the transfer date on account of any claims it may have against the tenants.
Page 18 of 36
The parties are aware that tenants may claim the return of the security deposits from the Seller upon termination of the respective tenancies if the security deposit is not returned to the tenants by
the Buyer or its legal successor. Against this background, the parties agree that the Seller will request the tenants concerned to submit a written declaration by the respective transfer date in which
the respective tenant agrees to a transfer of existing security deposits to the Buyer with the effect of discharging the obligation and waives any claim against the Seller for return of the security
deposit. If the tenants make a corresponding declaration, the Seller shall transfer the corresponding security deposit to the Buyer within four weeks of the respective transfer date. If the tenants
have not yet made such a declaration by the transfer date or have refused such consent, the Seller is entitled to return the corresponding security deposit to the respective tenant, but only with the
express notice that the return does not constitute a waiver of the security deposit.
§ 10 ASSUMPTION OF PROPERTY CONTRACTS
10.1
The Buyer shall assume the contracts mentioned Appendix 10.1 to this deed as well as those contracts connected with the management of the respective individual objects of purchase concluded
by the Seller or its legal predecessor (collectively referred to as “Property Contracts”) by taking the Seller’s place in these contracts with the effect of releasing the Seller from its obligations on the
respective transfer date. The Seller shall only be entitled to any rights and claims arising from these contracts if these relate to the period prior to the respective transfer date and if the Seller needs
these to fulfil any claims of the Buyer arising from this contract or in the event of claims by tenants or against tenants due to rights and claims arising from the period up to the transfer date.
Correspondingly, any (special) termination rights agreed in the property contracts shall remain in force until such a contract is transferred to the Buyer. The Seller shall only initiate the termination
of such a contract in agreement with the Buyer and at the latter’s request.
10.2
The Buyer undertakes to fulfil the obligations arising from the property contracts from the respective transfer date and to indemnify the Seller against all claims of the respective contractual
partners of the property contracts.
10.3 Where necessary, the Seller and the Buyer shall coordinate with each other with regard to the assumed property contracts and shall support each other in the transfer of these contracts to the
Buyer - especially with respect to the respective contractual partners. The Seller and the Buyer shall act as if the property contracts as a whole had been transferred to the Buyer on the respective
transfer date, even in relation to such contracts where the respective contractual party objects to the transfer to the Buyer. If a contractual partner objects to the transfer of the property contract,
the Seller shall terminate the contract at the next possible date. Until such time, the parties to the contract shall act in their internal relationship as if the property contract had been transferred to the
Buyer.
§ 11 ASSIGNMENT OF CLAIMS
11.1 With effect from the respective transfer date, the Seller shall assign to the Buyer any claims which may still exist at this point in time and to which it is entitled against third parties in connection
with the construction, acquisition, management and operation of the individual objects of purchase and in connection with any renovation or repair measures it carried out due to planning and/or
construction defects or in the event of deterioration of the respective individual object of purchase.
Page 19 of 36
The same shall apply to any claims for damages or compensation, including those arising from a neighbourly community relationship, which relate to the period following the respective transfer
date and to which the Seller is entitled due to the execution of construction projects or exploitations on neighbouring properties or public roads against neighbours, parties involved in
construction, private or public builders or other third parties due to damage or other impairments of the respective individual object of purchase. The Buyer accepts these assignments. However,
the Seller shall not be liable for the assignability, existence, recoverability and enforceability of the aforementioned claims. If the assignment is only possible with the consent of a third party and
such consent is refused, the Seller and the Buyer shall, in their internal relationship, act as if the assignment had been effective.
Excluded from this are the claims asserted within the scope of the legal dispute referred to in sub-clause 13.6.4 to which the Seller shall remain entitled until the final conclusion of the proceedings
there.
11.2
If the Seller is entitled to proprietary rights of use and modification in connection with the respective individual object of purchase, the Seller shall assign these rights of use and modification with
effect from the respective date of transfer to the Buyer, who shall accept these assignments. However, the Seller shall not be liable for the assignability, existence, recoverability and enforceability
of the aforementioned claims.
11.3
If and insofar as the Seller is liable to the Buyer under this contract, the Buyer shall be obliged to reassign the relevant claims to the Seller upon the Seller's written request.
§ 12
INSURANCE
12.1
The Seller shall only maintain the insurance policies it maintains for the respective individual object of purchase until the respective transfer date. Being aware of the legal provisions regarding
assumption of the property insurance policies taken out by the Seller in accordance with §§ 95 ff. of the German Insurance Contract Act, the Buyer hereby waives, also with direct effect with
respect to the insurer of the currently existing property insurance policies for the individual properties, the continuation of the insurance contracts maintained for the respective individual purchase
object beyond the transfer date; claims for any damage incurred before the respective transfer date shall remain unaffected. The Buyer is hereby informed that it has to provide for its own
insurance of the respective individual object of purchase from the respective transfer date. The Buyer is aware of the risks which may arise for it if it does not ensure insurance cover from the time
of handover by taking out new insurance policies.
12.2
The Buyer shall indemnify the Seller against third party claims arising from the legal concept of property owner’s liability, insofar as these are caused by damage during the period from the
respective transfer date until the transfer of ownership in the land register.
§ 13
SELLER’S WARRANTY / LIABILITY
13.1 Unless expressly agreed otherwise in this Purchase Agreement, the respective individual object of purchase is sold in its current, used and age-related condition as is, excluding any liability for
legal and material defects. The Seller shall not be liable for matters related to the area, quality, condition, usability or a certain earning capacity of the respective individual object of purchase over
and above the Seller's warranties declared in sub-clause 13.6 ff. The parties agree that the risk of future usability, rentability and/or developability of the individual objects of purchase lies solely
with the Buyer. Even if the Buyer has disclosed its intentions in this regard to the Seller prior to the Agreement’s conclusion, these intentions shall not form the basis of this Agreement.
Page 20 of 36
13.2
13.3
The Buyer had the opportunity to conduct a technical, economic, tax and legal due diligence inspection in advance. Within the scope of this inspection, the Buyer has inspected the individual
objects of purchase, among other things, with the participation of experts or caused such inspections to be undertaken by experts and has had the opportunity to make further enquiries, obtain
information and inspect registers on its own initiative. After the conduct of the due diligence, the parties renegotiated and adjusted the total purchase price accordingly.
The Seller has provided the Buyer with documents and other information about the respective individual objects of purchase in a Drooms GmbH web-based data room (“Data Room”). The data
room’s contents are summarized in the data room index annexed as Appendix 13.3a and are deemed known. A data carrier (DVD) containing a complete storage of the data room was handed over to
the officiating notary today by the Parties for evidence purposes for safekeeping alongside the deed until 31 December 2024 with the instruction to keep it and to provide each party with a full or
partial copy at their written request and at their expense. The notary has advised that he has not checked the data carrier in terms of content nor technically. The Parties hereby release the notary
from liability for the data carrier’s correctness in terms of content and/or technical intactness or for its continued intactness for the duration of the deposit. The notary is not liable for any damage
to the data carrier, for example caused by its age.
Seller and Buyer agree and clarify that the documents placed in the data room are partly not up-to-date and also incomplete. However, the Buyer and its advisers had sufficient opportunity to
independently obtain information and documents concerning the individual objects of purchase to the required extent.
The fact that the Seller has made these documents and information available to the Buyer does not constitute a guarantee, quality agreement or assurance. The Seller’s liability is based exclusively
on this Agreement. The Seller is also not liable for declarations of third parties. However, to the Seller’s knowledge, the documents in the data room are not incorrect in essential points. The
questions asked by the Buyer during the due diligence phase and the responses received are annexed as Appendix 13.3b.
13.4 Destruction, damage (“Deterioration”) of the respective individual object of purchase occurring up to the respective transfer date, which is not caused by contractual use, constitutes mere wear
and tear or occurs due to age, shall only be remedied by the Seller to the extent that it has caused this intentionally or through gross negligence. Other deterioration are deemed to be contractually-
compliant and shall be accepted by the Buyer without adjustment of the respective individual purchase price.
If deterioration occurs up to the transfer date with respect to an individual purchase object, and the elimination of this deterioration is likely to require an amount of more than 20% of the individual
purchase price to be paid for the individual purchase object concerned, each party is entitled to withdraw from the respective individual Purchase Agreement, but not to withdraw from this
Purchase Agreement as a whole. Such a withdrawal shall be declared in writing to the other contractual party within two months of the occurrence of the deterioration.
Page 21 of 36
If the deterioration is based on an insured event, the Seller is authorized, and even obliged in the event of liability on its part, to pay to the Buyer the insurance payout it receives instead of the
elimination of the deterioration by the Seller.
In the event of withdrawal in accordance with this sub-clause, all the contractual parties’ claims against each other on the grounds of partial non-execution and cancellation are excluded, and this
contract shall continue to apply unchanged with regard to the other objects of purchase.
13.5
Subject to the provisions of sub-clause 13.7 ff., the Seller declares to the Buyer in the form of an independent guarantee under §311 (1) of the German Civil Code (subsequently referred to as
“Seller's Warranties") that the declaration in sub-clause 13.6 is correct as at the date of the notarial recording of this Purchase Agreement (subsequently referred to as the “Signature Date”),
unless expressly stated otherwise. Declarations of knowledge of the Seller refer in each case to the time two bank working days before today's notarial recording. The Parties agree that the Seller's
warranties do not constitute guarantees for the quality of an item within the meaning of §§ 443 of the German Civil Code and do not constitute an agreement on the quality of an item under § 434 (1)
of the German Civil Code.
13.6
Seller Warranties
The Seller gives the following guarantees in the sense of independent guarantee undertakings according to § 311(1) of the German Civil Code:
13.6.1
As far as the Seller is aware, only the tenancy agreements listed in Appendix 9.1.1 exist with regard to the respective individual object of purchase.
13.6.2
As far as the Seller is aware, none of the tenancy agreements listed in Appendix 9.1.1 have been cancelled or terminated, unless disclosed accordingly.
13.6.3
13.6.4
As far as the Seller is aware, no advance dispositions have been made in respect of tenancy-related claims and claims for advance payment of operating and ancillary costs for the period
following the transfer date which will not be cancelled at the time of transfer.
As far as the Seller is aware, no legal disputes concerning the respective individual object of purchase which would affect the Buyer after the transfer date are pending as of this day,
unless expressly disclosed. However, the Buyer is aware that the Seller, as claimant, is currently conducting a lawsuit against the architects and general contractors commissioned with
the planning and construction of the building on individual object of purchase 2 (Cham) due to defects in the parking area. The lawsuit pending before the Regensburg District Court
under reference number 11 O 4/18 will be continued by the Seller and will not be transferred to the Buyer. The Seller intends to conclude this process by means of a settlement which will,
among other things, stipulate that the defendants will have to remedy the defects and that the costs incurred will be borne proportionately by the parties to the dispute and, if applicable,
by the tenant of the individual object of purchase 2. There is no obligation on the Seller’s part to conclude a settlement. The Buyer will only object to the conclusion of a supplementary
agreement with the tenant which may be necessary in this connection for good cause. The Buyer shall grant the Seller or third parties commissioned by the Seller access to the individual
object of purchase 2 at any time after prior announcement in order to carry out the work required to eliminate the defect.
Page 22 of 36
13.6.5
As far as it is aware, the Seller has not entered into any employment relationships in respect of the individual objects of purchase it has sold which are transferred to the Buyer by the
execution of this Purchase Agreement in accordance with § 613a of the German Civil Code. The Seller shall indemnify the Buyer against any claims by the Seller’s employees and against
reasonable costs of legal defence incurred in this connection.
13.7 Claims for breach of the aforementioned Seller warranties
13.7.1
13.7.2
13.7.3
If one or more Seller Warranties are incorrect, the Buyer shall give the Seller the opportunity to restore the contractually-compliant condition that would exist if the statements made in
this Purchase Agreement as Seller Warranties were correct.
The Buyer shall grant the Seller a reasonable period of time in each case to bring about the contractually-compliant condition in accordance with sub-clause 13.7.1 with the declaration
that it will refuse to bring about the contractual condition after expiry of this period. The setting of a grace period may be dispensed with if the creation of the contractual condition is not
possible or economically unreasonable or is finally refused by the Seller.
If restitution in kind or monetary compensation is not possible or unreasonable for the Seller, the Seller shall compensate the Buyer for the direct loss arising therefrom. Indirect or
consequential losses, loss of profit (except loss of rent), internal administrative or fixed costs, and reduced company and property value are not liable to compensation. Any purchase
price factors, multipliers or even possible leverage effects shall not be taken into account in the calculation of any losses.
13.7.4
For clarification: A right of withdrawal or any other form of cancellation of this Purchase Agreement due to the violation of a Seller warranty is excluded.
13.8
Limitation of liability
Regarding any claims and rights of the Buyer arising from or in connection with this Purchase Agreement, the following provisions shall apply exclusively - without prejudice to sub-clause 13.10:
13.8.1
Claims and rights of the Buyer under this Purchase Agreement are excluded if and to the extent that the Buyer, its advisers or other third parties commissioned by the Buyer to carry out
the inspection had or could have had knowledge of the circumstances, state of affairs or facts giving rise to liability on the Seller’s part. This also includes information or circumstances
that have arisen or could have arisen from the property inspections as well as from registers, official documents or enquiries made with authorities. The information and circumstances
provided to the Seller by the Buyer shall be deemed known to the Buyer.
13.8.2
Knowledge
(a)
Insofar as the knowledge of the Seller is relevant in or in connection with this Purchase Agreement, only the positive knowledge of Mr. Julius Falcinelli, who is responsible on
the Seller’s side as Senior Manager for the ongoing management of the individual objects of purchase, is relevant.
Page 23 of 36
(b)
(c)
The Seller points out that it has not made any enquiries or further investigations prior to this sale. The Buyer accepts this fact.
The parties confirm for the avoidance of doubt that the above provisions of this sub-clause section I13.8.2 only concern an attribution of information/knowledge and not the
establishment of personal liability of the person referred to in sub-clause 13.8.2(a).
Any liability of the Seller arising from and in connection with this Agreement, regardless of the legal basis, requires that (i) damage in an individual case amounts to at least 10,000 euro,
and (ii) the individual damages to be considered accordingly exceed a total amount of 150,000 euro (“Threshold Value”). In these cases, the Seller shall therefore only be liable if and
insofar as the total damage exceeds the threshold value (exemption limit). Furthermore, the damage to be compensated per individual object of purchase, for whatever reason, is limited to
a maximum of 10% of the respective individual purchase price.
Excluded herefrom is the claim to the transfer of ownership and tax exemption claims.
The Parties expressly declare that all claims and rights of the Buyer arising from or in connection with this Purchase Agreement, in particular in the event of a breach of a Seller warranty,
are exclusively and conclusively regulated in this Purchase Agreement and all other or further legal claims in this connection for cancellation, withdrawal, reduction, non-performance or
for other legal reasons as well as any claims arising from or in connection with pre-contractual obligations under §311 (2) of the German Civil Code , deliberation breach of a contractual
duty or due to disruption or frustration of purpose are excluded - subject to the provision of sub-clause 13.10.
13.8.3
13.8.4
13.9 All claims and rights of the Buyer arising from and in connection with this Purchase Agreement, in particular also due to any breach of Seller warranties, are subject to a limitation period of 12
months from the respective transfer date. Notwithstanding the foregoing, the Buyer's claim for the transfer of ownership shall lapse after three years from the notarial recording of this Purchase
Agreement. The prescription period for tax exemption claims shall be in line with § 15.
13.10 All exclusions and limitations of liability contained in this Purchase Agreement shall not apply to liability for losses resulting from death, physical injury or sickness if the Seller is responsible for
the breach of duty, for other damages based on an intentional breach of duty by the Seller or on an intentional breach of duty by the Seller's legal representative or vicarious agent and for
fraudulently concealed defects.
§ 14 ENVIRONMENTAL DAMAGE
14.1
“Environmental damage” within the meaning of this Purchase Agreement shall be all soil, soil air, leachate, surface water and groundwater contamination, pollutants, other detrimental changes in
water properties within the meaning of §§ 22, 34 of the German Water Resources Management Act, damage to species and natural habitats, warfare agents and explosive ordnance, and waste.
Environmental damage includes in particular harmful soil changes, suspected areas, contaminated sites and areas suspected of being contaminated within the meaning of §2 of the German Federal
Soil Protection Act or within the meaning of §2 of the German Environmental Damage Act, as well as hazardous substances or preparations present in or on buildings within the meaning of §3a
Chemicals Act or Directive 67/548/EEC. If reference is made in this paragraph to statutory provisions or regulations, the relevant definitions shall be supplemented by the relevant statutory
regulations, administrative provisions and technical directives, including (other) European legal requirements.
Page 24 of 36
14.2
14.3
14.4
The Seller is not required to procure the freedom of the respective individual purchase object from environmental damage, unless otherwise regulated in this Purchase Agreement. Any liability of
the Seller resulting from environmental damage is excluded, subject to the provisions of sub-clause 13.10. The Seller declares that it has not inspected the individual objects of purchase for
environmental damage, but that it is otherwise unaware of the existence of such environmental damage, except where documents in this respect have been disclosed in the due diligence process.
The Buyer shall indemnify the Seller against public law and civil law obligations arising from claims relating to environmental damage, in particular claims for and costs of investigations,
monitoring, safeguarding, remediation or cleansing of such environmental damage. Sub-clause 13.10 remains unaffected. Each Party shall immediately inform the other in writing if environmental
damage is discovered.
The exclusion of liability under sub-clause 14.2 and the indemnity under sub-clause 14.3 shall also apply for the benefit of such persons or companies who are responsible for the Seller's liability for
environmental damage, such that such persons or companies are directly entitled under this provision (genuine contract for the benefit of third parties) within the meaning of §328 (1) of the German
Civil Code.
14.5 Any compensation claims of the Buyer against the Seller and/or the persons and companies mentioned in sub-clause 14.4 in particular according to § 24(2) of the German Federal Soil Protection
Act and/or § 9(2) of the German Environmental Damage Act, are excluded.
§ 15
SELLER’S TAX EXEMPTION
15.1
15.2
If the Buyer is the subject of a tax demand in accordance with §75 of the German Tax Code, §§ 11 (2), 12 of the German Property Tax Act, §1 (1a) of the German VAT Act in connection with the
acquisition of the respective individual object of purchase, the Seller shall immediately indemnify the Buyer against such taxes and additional tax payments.
If input tax adjustments pursuant to §15a of the German VAT Act are effected within the scope of the legal succession for VAT purposes (see sub-clause 5.2), which are based on changes in the
circumstances underlying the original input tax deduction that have occurred up to the transfer date, in particular due to the continuation of a use of an individual object of purchase detrimental to
input tax that began before the transfer date, the Seller shall indemnify the Buyer against input tax adjustments insofar as these relate to input tax deducted by the Seller.
15.3
The Buyer shall immediately inform the Seller of any such demand from the tax office, shall, at the Seller's request, lodge all available appeals against such a demand and shall conduct the appeal
proceedings in accordance with the Seller's instructions. All costs arising from this, in particular the fees of lawyers and tax consultants and procedural costs shall be borne by the Seller.
The Seller is entitled to refunds of taxes and ancillary services related thereto (e.g. due to a successfully conducted appeals procedure), if and to the extent that it has previously secured exemption
therefrom.
Page 25 of 36
15.4
The Buyer's claims under this sub-clause § 15 shall not lapse before the expiry of six months from the notice of liability or the tax assessment on which the demand is based has become formally
and materially effective. It is clarified that any different prescription periods agreed elsewhere in this Agreement and any other exclusions, limitations or allowances of liability shall not apply to
claims arising from this sub-clause § 15.
15.5
The Buyer shall notify the competent tax office of the acquisition of the respective transferred business (individual object of purchase) and provide the Seller with a copy of the notification without
being requested to do so. Delays in the notification shall be at the Buyer’s expense.
§ 16 PRIOR NOTICE OF CONVEYANCE AND CONVEYANCE
16.1
Prior notice of conveyance
16.1.1
16.1.2
16.1.3
To secure the claim to transfer of title, the Seller hereby consents and the Seller and the Buyer hereby request the entry of a priority notice of conveyance in the Buyer’s favour in a
priority position in the land register for the respective individual object of purchase, with the remark that the secured claim cannot be assigned without the owner’s consent.
The Buyer hereby requests for the respective priority notice of conveyance to be deleted again at the same time as its registration as owner, unless interim registrations have been made
or interim applications have been made which the Buyer has not approved, accepted or agreed to.
The priority notice of conveyance on the respective individual object of purchase is subject to cancellation. The condition shall be satisfied if the notary applies to the land registry for
cancellation of the priority notice by means of a notarial deed of ownership. The notary is irrevocably instructed to submit the application to the respective land registry only when the
Seller requests him to do so and the following conditions are met:
(a)
(b)
(c)
(d)
The notary has issued the due date notification according to sub-clause 6.1 for an individual object of purchase and
the Seller has declared to the notary in accordance with sub-clauses 18.3 and 18.4 and enclosing copies of the relevant documents (setting of a grace period; declaration that no
payment has been made even within the grace period that it is withdrawing from this Purchase Agreement with regard to the individual object of purchase for which the due
date notification was issued, due to the Buyer’s defaulting on payment, and
the notary has notified the Buyer in writing that he will submit the application for cancellation to the land registries after the expiry of one month, and
the time limit referred to in sub-clause (c) has expired without the notary having received a joint instruction to the contrary from the Seller and the Buyer or a court decision
prohibiting the cancellation at least temporarily, or (alternatively, under subparagraphs (a) to (d))
Page 26 of 36
(e)
the Seller has demonstrated to the notary that the Buyer has unequivocally refrained from executing the Purchase Agreement in relation to one or more individual objects of
purchase(s), e.g. by a declaration of withdrawal.
16.1.4
The Parties hereby irrevocably instruct the officiating notary, i.e. revocable or modifiable henceforth only with the consent of all Parties, to submit the application for registration of the
priority notice of conveyance with respect to the respective individual object of purchase to the land registry without delay.
§ 17 AUTHORITY TO CHARGE
17.1
The Seller undertakes to cooperate in the creation of charges to finance the purchase price (with the exception of the individual purchase object 23) without assuming personal liability or costs if
the following security agreements (sub-clauses 17.2 and 17.3) are made at the same time and are reproduced in the deed of charge. However, despite the Seller's cooperation, it is solely the Buyer's
responsibility to ensure that any necessary financing is available when the purchase price falls due.
The Seller authorises the Buyer, in each case exempt from the restrictions of § 181 of the German Civil Code, to perform the following legal acts:
Charges over the individual objects of purchase (with the exception of individual object of purchase 23) may be created in favour of a bank in any amount with annual interest rates of up to 20%
and a one-off ancillary payment in any amount. For this purpose, the Seller hereby consents to and requests the entry of the land charges including submission to enforcement in rem in accordance
with § 800 of the German Code of Civil Procedure) in the land register and consent to all declarations necessary for obtaining a ranking. The Buyer hereby assumes the personal payment
obligations and in this respect submits itself to enforcement. Furthermore, by virtue of the priority notice of conveyance, it also recedes in rank behind the land charges including interest and
ancillary payments.
Page 27 of 36
17.2
The power of attorney shall be limited in the internal relationship to the extent that the Seller does not assume any personal liability to the charge-holder and the charges only serve to secure the
payments financed by the charge-holder and actually made to the Seller in accordance with the contractual agreements until payment of the respective individual purchase price. Compliance with
this restriction does not have to be proven to the land registry.
17.3
The power of attorney is further limited in that the deed pf charge shall reflect the following terms already hereby agreed by the Seller and the Buyer, and the terms Buyer, Seller and Contract shall
be as defined in this Purchase Agreement:
“The Buyer hereby irrevocably instructs the charge-holder to disburse the corresponding loan amounts only in accordance with the provisions of this Purchase Agreement for
the repayment of the individual purchase price and not to make any other disbursements of any kind or to commit to such disbursements before the disbursement of the
individual purchase price.
The charge-holder may only realise or retain the charges as security to the extent that payments with repayment effects on the Buyer’s purchase price debts have actually been
made. All further declarations of purpose, security and realisation agreements within or outside of this Purchase Agreement or the deed of charge shall only apply after the
individual purchase price has been paid in full. From this point in time, they shall be deemed the new guarantor for and with respect to the Buyer. If the Seller withdraws from the
contract due to default on the Buyer’s part or if the contract is cancelled or not executed for other reasons, the charge-holder shall hand over to the notary the formally effective
cancellation approval and any charge certificate that may have been issued, solely concurrently against repayment of the purchase price parts paid to the Seller from the secured
loan with redemption effect without assertion of interest, a discount or other conditions and costs. The charge shall be created in such a way that an assignment or a waiver of
the charge is excluded until the transfer of ownership has been registered.
The Seller does not assume any personal payment obligations or other personal debt obligations in connection with the creation of a land charge. The Buyer undertakes to
indemnify the Seller against all costs and other consequences of the creation of a land charge.
The Buyer shall assume the land charges upon transfer of ownership with continued acquiescence and performance. All ownership rights and claims for restitution, which are
connected with the requested charges, are hereby transferred to the Buyer with effect from payment of the purchase price. Consent is given to a corresponding entry in the land
register."
17.4
The land charge created on the basis of this authorisation to charge may remain in existence even after transfer of ownership. The Seller shall transfer all rights to this land charge to which it is
entitled, in particular owner's rights and restitution claims, with effect from payment of the purchase price, in any event from transfer of ownership and shall consent to the corresponding entry in
the land register.
Page 28 of 36
17.5
17.6
17.7
The Seller does not assume any personal payment obligations or other personal debt obligations in connection with the creation of a land charge. The Buyer undertakes to indemnify the Seller
against all costs and other consequences of the creation of a land charge.
The Seller and the Buyer authorise the following employees in the notary's office: Linda Schellknecht, Olga Winter, Antje Zehden and Edita Durakovic, in each case individually and with release
from any personal liability, to make the declarations required for the creation and registration of land charges in accordance with para. 1 on their behalf, and in particular to subject the Buyer for the
amount of the land charge together with interest and ancillary payments to personal enforcement against its entire assets as well as the object of purchase in accordance with § 800 of the German
Code of Civil Procedure.
The Notary is hereby instructed to transmit enforceable copies of the deed of charge to the charge-holder or to place them into legal circulation only after the relevant individual purchase price has
been paid or the Notary has received the written and irrevocable declaration of the charge-holder to be obtained by the Buyer in which the Buyer confirms that it will observe the above security
purpose agreement, restrictions and payment instruction.
17.8 Notarial recordings based on the above authorisation may only be made before the recording notary or his officially appointed representative at this notarial office.
17.9
The above restrictions on the authorisation to charge and the instructions to the notary shall only apply in the internal relationship of the contractual parties and in relation to any charge-holders,
but not to third parties, in particular not to the land registry.
§ 18 RIGHTS OF WITHDRAWAL
18.1 Non-compliance with the due date conditions
Both Parties are each entitled to withdraw from this Purchase Agreement in relation to an individual purchase object if the due date conditions for the sale of the individual purchase object in
question have not been met by 31 July 2020.
18.2
Exercise of pre-emptive rights
18.2.1
In the event of the exercise of a (statutory or in rem) pre-emptive right to purchase an individual object of purchase, the Seller shall be entitled to withdraw from this Purchase Agreement
in relation to the individual object of purchase affected by the exercise of the pre-emptive right, for which the pre-emptive right is (wholly or partially) exercised. The Buyer also has the
right to withdraw from this Purchase Agreement for an individual object of purchase affected by the exercise of the pre-emptive right, provided that this relates to a substantial part (i.e. a
part which restricts the usability of the respective individual object of purchase and which restricts the rights of a tenant of the affected individual object of purchase), but not to the
entire individual object of purchase.
Page 29 of 36
18.2.2
18.2.3
In the event of the exercise of a pre-emptive right (statutory or in rem), the Seller shall assign its claims arising from the contract with the party entitled to pre-emption to the Buyer to the
extent that the Buyer has already paid the purchase price for the individual object of purchase concerned. The Buyer hereby accepts the assignment. In such case, the Buyer's rights of
withdrawal in relation to those individual objects of purchase for which no pre-emptive right was exercised are excluded.
If a statutory pre-emptive right is only exercised in respect of an insignificant part of an individual object of purchase (i.e. a part which does not restrict the usability of the respective
individual object of purchase and which does not trigger any rights of a tenant of the affected individual object of purchase), the Buyer - unless the Seller withdraws from the contract in
accordance with sub-clause 18.2.1 - shall continue to remain liable to pay the entire respective individual purchase price in accordance with this contract. In return, the Seller assigns to
the Buyer the claims against the party entitled to pre-emption for payment of the individual purchase price or the statutory compensation. Within the scope of the exercise of the pre-
emptive right, the Seller shall be released from its performance obligations towards the Buyer; likewise, the due date condition according to sub-clause 6.1.2 (negative clearance
certificate/waiver) shall not apply to this part of the individual object of purchase. Further claims, in particular a right of withdrawal and claims for damages or reimbursement of expenses
of the Buyer against the Seller, are excluded in such a case.
18.2.4
In the event of the exercise of a pre-emptive right or the refusal of an official permit or its issuance subject to a condition or requirement, the notice shall be served on the parties
themselves. Neither the officiating notary nor his notarial staff are authorised to receive such documents.
18.3
Payment default
18.3.1
If the Buyer is wholly or partly in default of the payment of the individual purchase price for an individual object of purchase for more than ten bank working days and if the Buyer does
not effect the purchase price payment within a grace period of at least ten further bank working days to be set by the Seller in writing, the Seller may, at its option, withdraw from this
Purchase Agreement in relation to the respective individual object of purchase affected by the default of payment or in relation to the entire object of purchase.
18.3.2
The right to exercise this right of withdrawal shall not apply if the Buyer has paid the full individual purchase price plus the accrued default interest in accordance with the contract
before the Seller has declared withdrawal.
18.4 General rules on withdrawal
18.4.1
The withdrawal shall be notified in writing to the officiating notary. The parties hereby irrevocably authorise the officiating notary, i.e. revocable or modifiable henceforth only with the
consent of all parties, and with exemption from the restrictions of § 181 of the German Civil Code, to receive the declarations of withdrawal. The withdrawal shall become effective upon
receipt of the declaration of withdrawal by the officiating notary.
18.4.2
The right of withdrawal is excluded for the party responsible for the reason for withdrawal.
Page 30 of 36
18.4.3
The right to withdraw from the Agreement shall lapse as soon as the reason for withdrawal has completely disappeared before one of the parties has effectively declared withdrawal.
18.4.4
18.4.5
The reimbursement of any purchase price payments made shall be effected concurrently against cancellation of the priority notice in the Buyer’s favour and any financing charges of the
Buyer. The consequences of withdrawal are otherwise determined in accordance with §§ 346 ff. of the German Civil Code.
Claims for compensation shall remain unaffected in the event that one of the parties is at fault in accordance with this Purchase Agreement. In the event of the Seller’s withdrawal from
an individual object of purchase or from the entire object of purchase in accordance with sub-clause 18.3.1, the Buyer shall owe the Seller a fixed contractual penalty of 3,500,000 euro
The assertion of other or further claims in connection with the payment default and the non-execution of this Agreement are excluded in the event of a withdrawal according to sub-
clause 18.3.1.
18.5 Costs in the event of withdrawal
18.5.1
18.5.2
18.5.3
In the event of withdrawal on the basis of sub-clause 18.1, the Seller shall bear proportionately the costs of the cancellation of the individual purchase agreement affected by the
withdrawal, provided that wilful intent or gross negligence is imputable to the Seller in relation to the non-occurrence of a due date condition. Apart from this, the parties shall bear their
own costs.
In the event of a cancellation on the basis of sub-clause 18.2 , the parties shall each bear half of the costs of the cancellation attributable to the individual purchase agreement affected
by the rescission. Apart from this, the parties shall bear their own costs.
In the event of a withdrawal on the basis of sub-clause 18.3, the Buyer shall bear the notary, court and registration costs attributable to the individual purchase agreement affected by
the withdrawal, which are incurred during the notarial recording, execution and cancellation of this contract or individual purchase agreements. Apart from this, the parties shall bear their
own costs.
§ 19 COSTS AND REAL ESTATE TRANSFER TAX
19.1
The notarial and court costs for the notarial recording and execution of this Purchase Agreement, including the Reference Deed, as well as the real estate transfer tax shall be borne by the Buyer.
However, the Seller shall bear the costs for the cancellation of any land charges not assumed by the Buyer under the terms of this Purchase Agreement, as well as the costs incurred for the bank
guarantee.
19.2
Each party shall bear the costs of the consultants it engages.
19.3
The Buyer shall pay the notary, court and registration fees it owes as well as the real estate transfer tax in each case without delay and shall immediately demonstrate the respective payment to the
Seller at its request.
Page 31 of 36
19.4 Any brokerage/agency fee payable to Perelman Real Estate Investment House Ltd. shall be paid by the Buyer.
§ 20 NOTIFICATIONS AND DECLARATIONS
20.1 All notifications and declarations to be made to the Seller or the Buyer in connection with the execution or implementation of this Purchase Agreement shall be written in German and, unless
expressly agreed otherwise, shall be transmitted in writing or by another means of transmission previously accepted by the party concerned to the domestic receiving agents of the party concerned
at the last domestic address indicated by the party concerned. The authorised receiving agents designated by the parties are - until notification of a change in accordance with sub-clause 20.3.
20.1.1
for the Seller OPTIBASE BAVARIA GmbH & Co. KG:
To:
Address:
Tel.:
Fax:
Email:
Mr. Julius Falcinelli
c/o Montana Asset Management, Lenbachplatz 5, 80333 Munich
089-242 169 800
089-242 169 8029
julius@montano.eu
20.1.2
for the Buyer Deutsche Konsum REIT-AG:
To:
Address:
Tel.:
Fax:
Email:
Mr. Alexander Kroth /
Mr. Christian Hellmuth
August-Bebel-Straße 68
14482 Potsdam
+49 (0)331 740 076 512
+49 (0)331 740 076 520
ak@deutsche-konsum.de /
ak@deutsche-konsum.de
20.2
The parties shall also appoint the contact persons designated by them above as their domestic receiving and notification agents for the purpose of bringing an action and for the service of
documents in any legal proceedings.
20.3 Until the appointment of a new domestic contact person and the communication of their complete contact details in accordance with the requirements set out in sub-clause 20.1, the last contact
person communicated (unilaterally) irrevocably to the other parties shall be deemed to be the relevant party’s authorised recipient and agent for service.
§ 21 EXECUTUON OF THE AGREEMENT
21.1
The officiating notary is commissioned and authorized with the execution and enforcement of this deed, unless otherwise expressly stipulated in this deed. The officiating notary shall obtain all
official approvals and declarations; subject to sub-clause 18.2.4 , these shall become effective with respect to all Parties upon receipt by the notary; and the notary is released from the restrictions
of § 181 of the German Civil Code in this respect.
Page 32 of 36
21.2 All land register applications contained in this deed can also be made separately by the notary and withdrawn separately.
21.3
21.4
21.5
The parties hereby authorise for themselves and their legal successors, with the exclusion of personal liability, the employees of the notary's office Linda Schellknecht, Olga Winter, Antje Zehden
und Edita Durakovic, each with business address at Joachimsthaler Straße 24, 10719 Berlin, each acting on their own, with exemption from the restrictions of § 181 of the German Civil Code and with
the right to grant sub-powers of attorney, to make and accept all declarations which may still be necessary or useful for the amendment, supplementation, implementation or enforcement of this
Purchase Agreement, in particular to the land registry office - as well as for the purposes of a supplementary notarial recording required pursuant to § 2 sub-clause 2.9. The authorised
representatives are in particular authorised to declare or repeat the conveyance, to make declarations of identity and to approve and apply for entries in the land register. All declarations of the
authorised representatives are only effective if they are made to a notarial record or signature certification of the officiating notary. The power of attorney also extends to the filing of declarations
of cancellation, corrections to this Purchase Agreement, declarations of priority and the withdrawal of applications. The power of attorney is unrestricted in relation to the land registry. In the
internal relationship it may only be used after prior draft approval by the Parties, which the land registry does not need to review.
The powers of attorney shall be effective immediately, irrespective of the existence of any official approvals or other impediments to the effectiveness of this Purchase Agreement. The powers of
attorney shall expire four weeks after this Purchase Agreement’s complete implementation and execution.
In the event of full or partial cancellation or non-execution of this Purchase Agreement, the power of attorney shall also grant authority for the deletion of the priority notice of conveyance granted
in accordance with sub-clause 16.1. The authorised representatives are hereby irrevocably instructed by the Parties, i.e. revocable or modifiable henceforth only with the consent of all parties, to
make immediate use of their power of attorney in such cases in accordance with the provisions of this Purchase Agreement.
§ 22
INFORMATION
The officiating notary informed the persons appearing that
− the Buyer only acquires the ownership/heritable building right of the individual object of purchase upon registration in the land register,
− for the transfer of ownership, inter alia, the certificate of good standing for real estate transfer tax purposes must be available and the court costs must be paid,
− the parties are legally liable to the tax authorities as joint debtors for the real estate transfer tax and for notary and court costs in the external relationship,
− agreements made outside this deed may lead to the invalidity of the entire Agreement.
Page 33 of 36
§ 23 LEGAL SUCCESSION
The Buyer shall impose all its obligations and duties assumed in connection with this Purchase Agreement or on the basis of this Purchase Agreement on all its possible legal successors in title
and shall in turn require them to comply with and pass on these obligations and duties accordingly in such a way that the Seller shall also obtain the same claims against any further, direct or
indirect legal successor as against the Buyer under this Purchase Agreement. The obligations shall be assumed by the respective legal successors as a real contract for the Seller’s benefit in
accordance with § 328(1) of the German Civil Code. The Buyer shall suitably demonstrate compliance to the Seller.
§ 24 CONFIDENTIALITY
24.1
The Parties shall treat the conclusion and content of this Purchase Agreement, including all appendices and the Reference Deed, the amount of the individual purchase prices and the total
purchase price as well as all information/knowledge which they have received in connection with the preparation and/or conclusion of this Purchase Agreement as strictly confidential and shall not
disclose this to third parties. However, this does not apply to companies affiliated with the Parties and to the Parties' advisors, provided that they are subject to legal confidentiality.
24.2
Press releases and information to third parties concerning this transaction require prior mutual agreement between the Parties.
However, mandatory statutory duties of disclosure and information (e.g. pursuant to the German Stock Corporation Act) are reserved and remain unaffected.
§ 25 MISCELLANEOUS
25.1
For the purposes of this Purchase Agreement, bank working days are all days on which commercial banks in Munich are generally open (“Bank working days”).
25.2
25.3
The term “Notary” within the meaning of this document means the undersigned notary as well as his successor in office, his officially appointed representative(s) and any other notary associated
with him in the exercise of his profession (“Notary”).
The assumption of rights or obligations or contractual relationships or the entry into rights or obligations or contractual relationships by the Buyer in the Seller’s place in the course of this
Purchase Agreement shall - unless expressly agreed otherwise - in each case be subject to a condition precedent on and effective from the respective transfer date. The same shall apply insofar as
the Seller assigns to the Buyer movable items, claims or transfers rights or security or the rights and claims relating to these to the Buyer within the scope of this Purchase Agreement. The
assignment of rights and claims shall also be subject to cancellation of this Purchase Agreement or its cancellation or non-execution for any other reason, unless expressly provided otherwise in
this Purchase Agreement.
25.4
The place of jurisdiction for all disputes arising from or in connection with this Purchase Agreement is Munich.
Page 34 of 36
25.5
If any provision of this Purchase Agreement is or proves wholly or partly invalid or unenforceable, this shall not affect the validity and enforceability of all the other provisions of this Purchase
Agreement.
25.6 Obtained from this deed:
Copies:
− the Land Registry
Certified Copies:
− one to each Party
Uncertified copies:
− the respective authority responsible for real estate transfer tax
− the respective evaluation committee
− Seller's chargee
The officiating notary read out to the persons appearing this transcript and all appendices that could be read out; who subsequently approved them and they and the officiating notary personally
signed them as follows:
sgd. J. Falcinelli
sgd. A. Kroth
sgd. C. Hellmuth
sgd. Manthey, Notary
Page 35 of 36
List of appendices to the Reference Deed
SECTION II Appendix 1
Appendix
2.1
2.1a
2.5
7.4
7.5a
7.5b
9.15
9.16
13.3a
13.3b
Recent extracts from the Land Register, Register of Heritable Building Rights and Condominium Register.
Property Exchange Agreement Deed No. B 2396/2018 executed by Dr. Lorenz Bülow, notary in Kempten, for individual object of purchase 10 (Kempten-Lenzfried)
List of pending applications for land registry action based on inspection of the list of pending land registry applications/application lists on 10/01/2020
Heritable Building Right Contract Deed No. 475/97 executed by Notary Brigitte Nachbar in Kötzting dated 13/05/1997 together with addenda for individual object of purchase 3 (Chamerau)
Condominium Declaration and Bylaws Deed No. 3794/1986 of 30/12/1986 executed by Notary Dr. Claus Gastroph together with addenda for individual object of purchase 9 (Ingolstadt)
Minutes of the Homeowners’ Association meetings for the years 2016 to 2019 for individual object of purchase 9 (Ingolstadt)
Model joint notification of change of landlord
Listing of the content of the negotiations on the conclusion of addenda to the tenancy agreements of individual objects of purchase 10, 13, 21
Data room index
Q&A process
Page 36 of 36
List of Subsidiaries
Exhibit 8.1
Optibase Inc., a California corporation
Optibase Real Estate Miami LLC, a Delaware limited liability company
Optibase 2Penn LLC, a Delaware limited liability company
OPTX Equity LLC, a Delaware limited liability company
OPTX Lender LLC, a Delaware limited liability company
Optibase FMC LLC, a Florida limited liability company
Optibase 300 Chicago LLC, a Delaware limited liability company
Optibase Real Estate Europe Sarl, a Luxemburg company
Optibase RE1 Sarl, a Luxemburg company
Optibase RE2 SARL, a Luxemburg company
Optibase RES SARL, a Luxemburg company
Optibase Bavaria GmbH & Co. KG, a German partnership
Optibase Bavaria Holding GmbH, a German corporation
OPCTN SA, a Luxemburg company
Eldista GmbH, a Swiss company
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) 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;
(b) 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;
(c) 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
(d) 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: April 1, 2020
/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: April 1, 2020
/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, 2019, 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: April 1, 2020
/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, 2019, 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: April 1, 2020
/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. 333-91650; 333-122128; 333-137644; 333-139688; 333-148774; 333-198519) pertaining to Optibase Ltd. of our
report, dated April 1, 2020, with respect to the consolidated financial statements of Optibase Ltd., included in this Annual Report (Form 20-F) for the year ended December 31, 2019.
Tel-Aviv, Israel
April 1, 2020
/s/ Kost Forer Gabbay & Kasierer
KOST FORER GABBAY & KASIERER
A Member of Ernst & Young Global
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Exhibit 15.2
We consent to the incorporation by reference in the Registration Statements of Optibase Ltd. on Form S-8 (Nos. 333-91650; 333-122128; 333-137644; 333-139688; 333-148774; 333-198519) of our report,
dated April 1, 2020, on our audit of the consolidated balance sheets of 300 River Holdings LLC as of December 31, 2019 and 2018 and for the related consolidated statements of operations, members’
deficit and cash flows for each of the years in the three-year period ended December 31, 2019 which report was included in this Annual Report on Form 20-F.
/s/ EISNERAMPER LLP
EISNERAMPER LLP
New York, New York
April 1, 2020