Azrieli Group Ltd

Equities

AZRG

IL0011194789

Real Estate Development & Operations

Market Closed - TEL AVIV STOCK EXCHANGE Other stock markets 10:24:19 2024-05-09 am EDT			5-day change	1st Jan Change
24,450 ^ILa	+0.49%		-0.65%	+2.82%

Mar. 21	Transcript : Azrieli Group Ltd, 2023 Earnings Call, Mar 21, 2024
Mar. 21	Azrieli Group Ltd Reports Earnings Results for the Full Year Ended December 31, 2023	CI

Azrieli : Financial Statements 30.09.2020

March 24, 2021

AZRIELI GROUP LTD.

Periodic Report

As of December 31, 2020

Part A | Description of the Corporation's Business

Part B | Board Report

Part C | Consolidated Financial Statements Dated 31 December 2020

Part D | Further Details about the Corporation

Part E | Corporate Governance

Part F | Effectiveness of Internal Control over the Financial Reporting and Disclosure

PART A

Description of the Corporation's Business

CHAPTER A | DESCRIPTION OF THE COMPANY'S BUSINESS

Foreword and General Definitions ….. ...................................................................................................... A-1

Part One: Description of the General Development of the Company's Business ................... A-4

1. The Company's operations and description of the development of its business ................... A-4
2. Main operating segments of the Group ........................................................................................... A-11
3. Investments in the Company's capital and transactions in its shares ...................................... A-12
4. Dividends ……………………………………… . .................................................................................................. A-12

Part Two: Other Information .............................................................................................. A-13

5. Financial information regarding the Company's operating segments ..................................... A-13
6. General environment and the effect of external factors on the Company's business ....... A-16

Part Three: Description of the Group's Business in the Investment Real Estate Operations - Aggregate ...................................................................................................... A-20

7. Aggregate disclosure with respect to the investment real estate operations ...................... A-20

Part Four: Description of the Group's Business by Operating Segments and Material Properties .......................................................................................................................... A-44

8. The retail centers and malls in Israel segment ............................................................................... A-44
9. The leasable office and other space in Israel segment ................................................................ A-56

10.The income-producing properties in the U.S. segment ............................................................... A-68

11. The senior housing segment …………………………………………………............................................... ……A-73
12. Income-producing real estate - additional operations ……………… ................................. ………...A-79
13. The Granite segment - discontinued operations ………………… ................................ ……………… ..A-88

Part Five - Additional Operations ....................................................................................... A-89

14. Azrieli Group - additional operations .............................................................................................. A-89

Part Six - Matters Common to the Group's Activities in all Operating Segments thereof ............................................................................................................................. A-93

15.Fixed assets, land and facilities ......................................................................................................... A-93

16.Intangible assets ................................................................................................................................... A-93

17.Human capital ........................................................................................................................................ A-94

18. Working capital ..................................................................................................................................... A-98
19. Financing ................................................................................................................................................ A-98
20. Insurance ............................................................................................................................................. A-105
21. Taxation ............................................................................................................................................... A-105
22. Environmental risks and the management thereof ................................................................... A-105
23. Restrictions on and supervision of the corporation .................................................................. A-106
24. Material agreements and collaboration agreements ................................................................ A-113
25. Legal proceedings ........................................................................................................................ A-113
26. Goals and business strategy ............................................................................................................ A-113
27. Forecast for development ................................................................................................................ A-114
28. Discussion of risk factors .................................................................................................................. A-114

FOREWORD AND GENERAL DEFINITIONS

Azrieli Group Ltd. hereby respectfully files the Description of the Corporation's Business Report as of December 31, 2020 (the "Report Date"), reviewing the Group and describing the development of business thereof in 2020 (the "Report Period") until the Report Release Date. The Report is prepared pursuant to the provisions of Regulation 8a of the Securities Regulations (Periodic and Immediate Reports), 5730-1970. Figures appearing in the Report are true as of the Report Date. However, in certain cases details appear in the Report reviewing events which occurred subsequently to the Report Date until shortly before the date of release thereof, on March 25, 2021 (the "Report Release Date") and in such cases the Company notes that these are provided as of the relevant date.

Chapter A of the Report (this chapter) should be read together with its other parts, including the notes to the Financial Statements.

Materiality

The materiality of the information included in this Report, including a description of the material transactions and/or material projects, is evaluated from the point of view of the Company. It should be clarified that, in a part of the cases, the Company, in its exclusive discretion, decided to expand the description necessary, in order to give a more comprehensive picture of the subject being discussed.

Forward Looking Information

The description of the corporation's business in this Chapter A partly includes forward looking information as defined in the Securities Law. Such information which is presented below and indicated as forward looking information, includes forecasts, assessments, estimates or other information that is deemed as uncertain information which refers to a future event and which relies, inter alia, on publications of the Central Bureau of Statistics, Bank of Israel, other relevant professional entities and in addition, on internal estimates of the Company that are based on statistics, experience and information accumulated by the Company over the years. Actual results may materially differ from those forecasted in the context of the forward-looking information as aforesaid, as a result of a large number of factors, including as a result of the risk factors, in whole or in part, as described in Section 28 of this Chapter A, all as will be specified in the specific references to forward looking information later in the chapter.

Sentences which include expressions such as "expected", "intends", "estimates", "foresees", "expects" and similar expressions indicate that this is forward looking information. Such information reflects the Company's current point of view regarding future events that are based on estimates and therefore are subject to risk and uncertainty.

A-1

DEFINITIONS

In this Chapter, the following terms shall bear the meaning stated alongside them:

"TASE"	Tel Aviv Stock Exchange Ltd.
"Granite" or "Granite Hacarmel"	Granite Hacarmel Investments Ltd.
"Board of Directors' Report"	The Company's Board of Directors' Report on the State of the Company's
Affairs as of December 31, 2020, which is included as Chapter B of the
Periodic Report
"Periodic Report" or "Report"	The Company's periodic report for 2020
"Financial Statements"	The consolidated financial statements of the Company as of December 31,
2020, which are included in Chapter C of the Periodic Report
"Company"	Azrieli Group Ltd.
"Companies Law"	The Companies Law, 5759-1999
"Securities Law"	The Securities Law, 5728-1968
"Leumi Card"	Leumi Card Ltd.
"Midroog"	Midroog Ltd.
"Ma'alot"	Standard & Poor's Maalot Ltd.
"Nadav Investments"	Nadav Investments Inc., a private company incorporated under Canadian
Law, fully owned and controlled by Azrieli Holdings
"Supergas"	Supergas Israeli Gas Distribution Company Ltd., a wholly-owned subsidiary
of Granite
"Azrieli E-Commerce"	Azrieli E-Commerce Ltd., a wholly-owned subsidiary of the Company
"Azrieli Holdings"	Azrieli Holdings Inc., a private company incorporated under Canadian Law,
which is owned and controlled by Mmes. Sharon Azrieli, Naomi Azrieli and
Danna Azrieli
"Granite Group" or "Granite	Granite Hacarmel and/or subsidiaries thereof and/or affiliates thereof
Hacarmel Group"
"Azrieli Group" or "Group"	The Company and/or subsidiaries thereof and/or affiliates thereof including
consolidated corporations
"Compass"	Compass Holdco, LLC, a Delaware corporation with which Azrieli Data
Centers LLC, a wholly-owned subsidiary of the Company, engaged in an
investment agreement as well as in an operating agreement with the
holders of units in Compass.
"Canit Hashalom"	Canit Hashalom Investments Ltd., a wholly-owned subsidiary of the
Company
"Azrieli Foundation (Israel)"	The Azrieli Foundation (Israel), R.A. 580503118, a not-for-profit association
registered in Israel, acting, inter alia, to promote education and culture
through projects in the fields of culture, welfare and science
"Azrieli Foundation (Canada)"	The Azrieli Foundation, a registered Canadian charitable foundation,
incorporated and seated in Canada, whose assets are designated for
A-2

donations and for the funding of philanthropic activities in Israel and in Canada, which is a stakeholder in the Company

"2019 Periodic Report"

The Company's annual periodic report for the year 2019, released by the Company on March 25, 2020 (Ref. 2020-01-025963), which is included herein by way of reference

"2016 Shelf Prospectus"

A shelf prospectus released by the Company on May 10, 2016 bearing the date May 11, 2016. For details see the Company's immediate report of May 10, 2016 (Ref.: 2016-01-063049) which is included herein by way of reference

"2019 Shelf Prospectus"

A shelf prospectus released by the Company on May 7, 2019 bearing the date May 8, 2019. For details, see the Company's immediate report of May 7, 2019 (Ref. 2019-01-044203), which is included herein by way of reference

"GES"

G.E.S.- Global Environmental Solutions Ltd., a private company incorporated in Israel

A-3

CHAPTER A | DESCRIPTION OF THE COMPANY'S BUSINESS

PART ONE: DESCRIPTION OF THE GENERAL DEVELOPMENT OF THE COMPANY'S BUSINESS

The Company's operations and description of the development of its business

1.1

General

The Company was incorporated on January 6, 1983, as a private company according to the laws of the State of Israel. On June 3, 2010, the Company's shares were issued to the public for the first time and began to be traded on TASE on June 7, 2010, and the Company became a public company, within the meaning thereof in the Companies Law. Commencing on July 1, 2010, the shares of the Company are included in the Tel Aviv 35 Index (formerly: the Tel Aviv 25 Index). The Company's Series B and Series E bonds are included, inter alia, in the Tel Bond 40 Index, and the Company's Series D bonds are included, inter alia, in the Tel Bond 20 Index, and the Company's Series F Bonds are included, inter alia, in the Tel Bond Linked Index.

As of the Report Date, Mmes. Sharon Azrieli, Naomi Azrieli and Danna Azrieli are the controlling parties of the Company.1

As of the Report Date, the Group is engaged primarily in the various real estate segments, with most of the Group's business operations being in the retail centers and malls segment in Israel and in the leasable office and other space segment in Israel. In addition, the Group has an overseas income-producing real estate segment (mainly in the U.S.) and a senior housing segment. In July 2019 the Company (indirectly) invested in Compass, a company primarily engaged in the data centers business in North America and in EMEA. In December 2019 the Company announced its entry into the hospitality sector and in February 2020 it closed the acquisition of the Mount Zion Hotel in Jerusalem. The Company also has additional e-commerce operations and minority holdings in Bank Leumi LeIsrael Ltd. ("Bank Leumi").

Until November 2019, the Company had another operating segment under Granite Hacarmel, which engaged, via Supergas, in the marketing of alternative energy resources. In view of the closing of the transaction for the sale of the holdings in Granite, which held Supergas, Granite is presented in the Financial Statements as discontinued operations.

Furthermore, on May 7, 2020, a transaction was closed for the sale pf Canit Hashalom's holdings in GES2, which is engaged in industrial chemicals, waste, air, wastewater and water treatment, and which is presented in the Financial Statements as discontinued operations, for further details, see Section 1.3.4 of this Chapter A below. Until February 2019 the Company held 20% of Leumi Card.

The Company owns income-producing properties with a total GLA of approx. 1,331 thousand sqm in addition to approx. 665 thousand sqm of projects under development. The average occupancy rate in Israel is approx. 96%,3 with 93% of the value of income-producing investment properties and income-producing properties under construction (on a consolidated basis) attributed to real estate in Israel.

Azrieli Group, which was founded by Mr. David Azrieli OBM, is the leading real estate group in Israel. In July 2014, Ms. Danna Azrieli, was appointed as Active Chairman of the Company's Board of Directors, after many years in which she served in key positions in the Group. Since taking office and under the leadership of Ms. Danna Azrieli, the Company has grown, increased its status of properties, entered into new areas of operation and is constantly in a significant development momentum. The operations of the Group are carried out by means of a managerial headquarter that is comprised of professionals having a great deal of seniority and managerial experience, most of whom have been associated with the Company and the Group's companies for many years. The Company estimates that the Chairman of the Board, Ms. Danna Azrieli, the Company's CEO, Mr.

1 For further details, see immediate report on the status of holdings of interested parties and officers of July 7, 2019 (Ref.: 2019-01-069121), which is included herein by way of reference.

2 For further details, see the Company's immediate report of January 26, 2020 (Ref.: 2020-01-009789), which is included herein by reference.

3 Excluding areas in properties whose construction has been completed and are being leased-up for the first time.

A-4

Eyal Henkin, together with the experienced officers and managers in the Company who are considered professional and industry leaders, are principal and significant factors of the success of the Company's business results.

A-5

1.2

The Group's main holdings chart as of the Report Release Date

1.2.1 Following is a chart updated as of the Report Release Date:

(*) Main holdings only. The chart does not include companies that are inactive as of the Report Release Date nor property management companies.
(**) 0.05% of these companies is held by International Consultants (iConsult) Ltd.
(***) Indirectly, through companies and/or partnerships.

A-6

1.2.2 As of the Report Release Date, the Group's asset holdings chart, in the final holdings structure, by operating segment, is as follows:

100%

Senior Housing

100%

Palace Tel Aviv

100%

Palace Ra'anana

100%

Palace Lehavim	100%

Palace Rishon LeZion

(under construction)

100%

Palace Modi'in

ןו

100%

Holding rate determined after deduction of stores not owned by the Company .

The Holon Municipality holds the remaining 17% of theproperty

(***) The property does not include offices, the total area of which is approx. 450 sqm, nor a gas station and the convenience store adjacent thereto.

( **** ) On February 23, 2021 an agreement was signed for the sale of the property.

( ***** ) For details regarding the Company's engagement in an

Buildings ()

agreement for the acquisition of the property, see Section

1.3.9 of this Chapter A.

1.3

Summary of the main developments occurring in the Group's structure and business in 2020 and until the Report Release Date

1.3.1 Development pipeline

During the Report Period the Group continued to invest in the development and construction of new properties and in the expansion and renovation of existing properties. For details regarding the developments in the Group's development pipeline during the Report Period, see Section 7.7 of this Chapter A and Section 4.1 of the Board of Directors' Report.

1.3.2 Investment in Compass

In July 2019, Azrieli Data Centers LLC, an (indirectly) wholly-owned subsidiary of the Company (in this section: the "Buyer"), entered into an investment agreement (in this section: the "Agreement") with Compass, and in an operating agreement with the unit holders in Compass. The main business of Compass is data centers in North America. Compass owns active sites and additional sites under construction and development. Said transaction, in which the Buyer invested in the unit capital of Compass, was closed and the consideration therefor was paid by the Buyer to Compass. The Buyer invested in Compass's equity and held approx. 20% of the unit capital of Compass (the "Initial Investment"). The Buyer has an option to make additional investments and increase its holdings in Compass up to approx. 33% according to the price per unit in the Initial Investment. At the closing of the transaction, the Buyer paid Compass approx. USD$ 135 million in respect of the Initial Investment. For further details see the Company's immediate report of July 18, 2019 (Ref.: 2019-01-073885), and the presentation released by the Company regarding the data centers market and regarding Compass and its operations from the same date (Ref.: 2019-01-073897) which are included herein by way of reference. In February and September 2020 additional investment rounds were held in Compass (the Company invested a total of $66.78 million in these rounds) such that as of the Report Release Date, the Company (indirectly) holds approx. 24% of the unit capital of Compass.

1.3.3 Sale of Granite Hacarmel

Further to the Company's reports, in connection with the transaction for the sale of the entire holdings of Canit Hashalom in Granite Hacarmel, which held the entire share capital of Supergas, to Elco Ltd. (in this section: "the Buyer"), on September 29, 2020, the Buyer prepaid NIS 111.5 million against the full balance of the periodic payments.

For further details, see the Company's immediate reports of July 28, 2019, August 6, 2019, October 29, 2019, December 2, 2019 and September 30, 2020 (Ref.: 2019-01-077500, 2019-01-081517, 2019-01-091635, 2019-01-094782, 2019-01-105633 and 2020-01-096943, respectively), which are included herein by way of reference.

1.3.4 The sale of GES

Further to the Company's reports, whereby it intends to focus on the core areas of the real estate business, on September 12, 2019, a non-binding memorandum of understandings was signed with Generation Capital Ltd. (in this section: the "Buyer"), for the sale of the entire holdings (100%) in GES.

On January 23, 2020, Canit Hashalom, a wholly-owned subsidiary of the Company (in this section: the "Seller"), together with GES, entered into an agreement (in this section: the "Agreement") with the Buyer, for the sale of

A-8

the Seller's entire holdings (100%) in GES to the Buyer in consideration for a sum of NIS 110 million, subject to adjustments, inter alia, for changes in the working capital and net financial debt of GES, insofar as applicable, until the closing date (in this section: the "Transaction"). On January 30, 2020, the approval of the Competition Commissioner for the Transaction was received.

All of the closing conditions for the Transaction were fulfilled on April 28, 2020, and the Transaction was closed on May 7, 2020. According to an addendum to the Agreement, which was signed on the Transaction closing date, the consideration in the Transaction is NIS 105 million. On the Transaction closing date, the Buyer paid the Seller approx. NIS 52.5 million. The balance of the consideration, in the sum of approx. NIS 52.5 million, subject to adjustments, will be paid by the Buyer in two installments - one half 24 months after the Transaction closing date and one half 36 months after the Transaction closing date

For further details see the Company's immediate reports of September 12, 2019, January 26, 2020, April 30, 2020 and May 10, 2020 (Ref.: 2019-01-095770, 2020-01-009789, 2020-01-042639 and 2020-01-045465, respectively), which are included herein by way of reference.

1.3.5 Financing transactions

In April 2020, the Company issued bonds (Series E and Series F) of the Company, by way of expansion of these bond series, by an average duration of approx. 7 years and with a CPI-linked weighted interest of approx. 1.3%, such that Series E Bonds with a par value of approx. NIS 811 million were allotted in consideration for approx. NIS 847 million (approx. NIS 842 million net of issue expenses), and Series F Bonds with a par value of approx. NIS 762 million were allotted in consideration for approx. NIS 850 million (approx. NIS 841 million net of issue expenses). For further details regarding the Company's bonds, see Section 19.5 of this Chapter A.

1.3.6 Changes in the service of officers of the Company

On March 25, 2020, Ms. Irit Sekler-Pilosof was appointed Deputy CEO of the Company, in addition to her office as the Company's CFO4.

During the report period, the Company appointed Mr. Elad Alon as VP Business Development and Innovation, in lieu of Mr. Assaf Aviv, who has left the Company.

During the report period, the Company appointed Mr. Uri Kilstein as General Manager of Azrieli Malls and Deputy CEO of the Company in lieu of Mr. Arnon Toren. Mr. Kilstein took office on February 1, 2021.

1.3.7 Acquisition of the Mount Zion Hotel in Jerusalem

Further to the Company's immediate reports whereby it explores, from time to time, entry into operating segments related to its business in the income-producing property segment, on December 8, 2019, the Company entered into an agreement with a third party who is not related to the Company and/or its controlling shareholders, for the purchase of Mount Zion Hotel in Jerusalem (in this section: the "Transaction"), in consideration for a total of NIS 275 million plus V.A.T. The Transaction was closed on February 9, 2020.

For further details, see the Company's immediate reports of December 9, 2019 (Ref.: 2019-01-107367 and 2020-01-107397), December 18, 2019 (Ref.: 2019-01-111237) and February 9, 2020 (Ref.: 2020-01-014439), which are included herein by way of reference.

4 See the Company's immediate report of March 25, 2020 (Ref. 2020-01-029454), which is incorporated herein by reference.

A-9

1.3.8 Engagement in agreements for the sale of the mall and office building "Azrieli Kiryat Ata"

On February 23, 2021, a (indirectly) wholly-owned subsidiary of the Company (the "Seller") engaged in two sale agreements with an unrelated third party (the "Buyer"), for the sale of the Seller's full rights and undertakings in the mall and the office building, known as "Azrieli Kiryat Ata", to the Buyer, for a sum total of NIS 90 million plus lawful VAT, which will be paid by the Buyer to the Seller by June 30, 2021, with part of the consideration being paid through the provision of a loan secured by a first-ranking mortgage on the mall, from the Seller to the Buyer for 36 months.

For further details, see the Company's immediate report of February 23, 2021 (Ref.: 2021-01-021555), which is included herein by way of reference.

1.3.9 Engagement in agreements for the purchase of land in Tel Aviv

On February 25, 2021 the Company entered into agreements with Bezeq Israeli Telecommunications Corp. Ltd. (the "Seller") for the purchase of the full rights in land located at the junction of Mikveh Israel, Levontin and Harakevet streets in Tel Aviv (the "Agreements" and the "Transaction"), in consideration for the sum total of NIS 180 million plus VAT. The Company is also expected to pay purchase tax of some NIS 10.8 million. For further details see the Company's immediate report of February 28, 2021 (Ref. no. 2021-01-023911), which is incorporated herein by reference.

1.3.10 The COVID-19 pandemic

For further details in connection with the COVID-19 pandemic and its impact on the Company's business, see Section 2.2 of the Board Report.

Main operating segments of the Group

As of the Report Date, the Company reports to the public about four operating segments5:

1. Retail centers and malls in Israel segment: In this operating segment, the Group is primarily focused on the development, acquisition, lease-out, management and maintenance of malls and retail centers in Israel. As of the Report Release Date, the Group owns 18 malls and retail centers in Israel, in a total leasable area of approx. 352 thousand sqm, which are leased to some 1,840 tenants, with most of the malls and retail centers spread throughout the large cities in Israel. In the context of this operating segment, the Company provides management services to the retail centers and malls maintained thereby, with the management being performed by the Company and/or designated management companies for each mall or retail center that is owned by the Group, and enters into management agreements with the tenants. All of the malls and retail centers include (aboveground or underground) car parks that serve the visitors and the tenants. See Section 8 of this Chapter A for additional details regarding the retail centers and malls segment.

2. Leasable office and other space in Israel segment: In this operating segment, the Company primarily engages in the development, acquisition, lease-out, management and maintenance of office buildings and parks for offices and high-tech industry, logistic areas and storage and leasable residences in Israel. As of the Report Release Date, the Group owns 16 income-producing properties in the leasable office and other space in Israel segment, with a total leasable area of approx. 628 thousand sqm, which are leased to about 670 tenants. Most of the Group's income-producing areas in this operating segment are in projects that integrate retail areas. See Section 9 of this Chapter A for additional details regarding the leasable office and other space in Israel segment.
3. Income-producing properties in the U.S. segment: As of the Report Release Date, the Group owns 8 leasable office properties outside of Israel, with a total leasable area of approx. 246 thousand sqm (the Company's share is approx. 237 thousand sqm), which are leased to some 200 tenants. See Section 10 of this Chapter A for additional details with respect to the income-producing properties in the U.S. segment.
4. Senior housing segment: The Company has four active senior homes with an above-ground built-up area of approx. 105 thousand sqm (excluding areas attributed to the LTC unit and to retail space), which comprise approx. 1,034 senior housing units, and in advanced construction stages of Phase B at the Lehavim senior home and an additional project in Rishon LeZion for the construction of approx. 275 residential units with a total area of approx. 31 thousand sqm which is under construction (excluding areas attributed to the LTC unit and to retail space). See Section 11 of this Chapter A for additional details about the senior housing segment.
Other assets and operations:
For details with respect to the Company's (indirect) investment in Compass, a company engaged in the data centers business, see Section 12.1 of this Chapter A. For details with respect to other assets and operations which are not included in the operating segments described above, including e-commerce operations, operations in the hospitality sector, holding of Bank Leumi shares and investments in investment funds, see Sections 12 and 14 of this Chapter A.

5 In view of the closing of the transaction for the sale of Granite and in view of the closing of the transaction for the sale of the holdings in GES, Granite's operations have become discontinued operations, in accordance with GAAP, and it is presented in the Company's income statements separately from the continuing operations (see Note 7 to the Financial Statements).

Investments in the Company's capital and transactions in its shares

To the best of the Company's knowledge, no investments were made in the Company's capital in the past two years and no other material transaction in the Company's shares was executed off-TASE by an interested party during the two years preceding December 31, 2020, as well as until the date of release of this Report.

For details with respect to the status of interested-party holdings in the Company see the immediate report of July 7, 2019 (Ref.: 2019-01-069121) and the immediate report on persons having become interested parties of a corporation, of January 7, 2021 (Ref.: 2021-01-002907), which is included herein by way of reference.

Dividend Distribution

4.1

Following are details about dividend distributions in 2019, 2020 and 2021 (until the Report Release Date):

Resolution Date

Distribution Date

Amount of Dividend per

Share (NIS)

Amount of Dividend

(NIS in millions)

March 19, 2019	May 6, 2019	4.62	560
March 24, 2020	May 14, 2020	2.47	3006
March 24, 2021	May 12, 2021	3.71	450

(a) The aforesaid distributions did not require approval by the court.
(b) The balance of the Company's distributable profits as of December 31, 2020 is approx. NIS 15.5 billion (such balance also includes real estate revaluation profits).
(c) For further details about dividend distributions by the Company and the restriction on dividend distributions, see Notes 19B-19C to the Financial Statements.
(d) Considering previous distributions made by the Company, and the Company's financial results, on March 24, 2021 the Company's Board examined the distribution of a NIS 600 million dividend, and reached the conclusion that such distribution meets all of the distribution tests. However, for the sake of caution and, inter alia, in view of the uncertainty surrounding the continued impact of the COVID-19 pandemic, the Company's Board decided to approve a dividend distribution of NIS 450 million only, and to re-discuss another distribution of up to NIS 150 million more, during the course of 2021.

6 Considering previous distributions made by the Company and considering the Company's financial results, on March 24, 2020, the Company's board of directors examined a dividend distribution of NIS 600 million and concluded that such distribution meets all the distribution tests. However, for the sake of caution, inter alia in view of the uncertainty surrounding the impact of the spread of the Covid-19 pandemic, the Company's Board decided to approve a dividend distribution of NIS 300 million only.

PART TWO: OTHER INFORMATION

Financial information regarding the Company's operating segments

The following table presents financial data of the Company, as specified in the Company's financial statements (NIS in millions) for the years 2018 to 2020:

Y2020:

Revenues

Total revenues from outsiders

Total revenues from other operating segments of the Group

Total

Attributed costs

Costs not representing revenues from other operating segments of the Group

Costs representing revenues of other operating segments of the Group

Total

Income from operations attributed to operating segment (NOI in the income-producing real estate segments)

Variable costs attributed to the operating segment

Fixed costs attributed to the operating segment

Increase (decrease) in the fair value of investment property

Income from operations attributable to the shareholders of the parent company

Income from operations attributable to non-controlling interests

Total assets attributed to the operating segment

607

-607

182

-182

425

169

)789(

425

-12,431

708

-708

107

-107

601

100

601

-12,463

251

162

1,798

-251

162

1,798

122

129

121

661

-122

129

121

661

129

)51(

1,137

120

523

138

)176(

130

)764(

126

)51(

1,134

2,126

2,597

1,126

30,743

* Adjustments to the consolidated basis mainly derive from operations in the e-commerce segment. For details, see Section 14 of this Chapter A.

Y2019:

Revenues

Total revenues from outsiders

Total revenues from other operating segments of the Group

Total

Attributed costs

Costs not representing revenues from other operating segments of the Group

Costs representing revenues of other operating segments of the Group

Total

Income from operations attributed to operating segment (NOI in the income-producing real estate segments)

Variable costs attributed to the operating segment

Fixed costs attributed to the operating segment

Increase (decrease) in the fair value of investment property

Income from operations attributable to the shareholders of the parent company

Income from operations attributable to non-controlling interests

Total assets attributed to the operating segment

1,050

219

-219

831

204

123

831

-13,018

716

122

-122

594

113

690

594

-11,655

268

156

2,235

268

156

2,235

129

119

684

-129

119

684

139

)50(

1,551

)12(

65 64

111

100

57 38

-550 134 901

135

)50(

1,547

2,421

2,410

505

30,009

* Adjustments to the consolidated basis mainly derive from operations in the e-commerce segment. For details, see Section 14 of this Chapter A.

Y2018:

Revenues

Total revenues from outsiders

Total revenues from other operating segments of the Group

Total

Attributed costs

Costs not representing revenues from other operating segments of the Group

Costs representing revenues of other operating segments of the Group

Total

Income from operations attributed to operating segment (NOI in the income-producing real estate segments)

Variable costs attributed to the operating segment

Fixed costs attributed to the operating segment

Increase (decrease) in the fair value of investment property

Income from operations attributable to the shareholders of the parent company

Income from operations attributable to non-controlling interests

Total assets attributed to the operating segment

1,034

-1,034

214

-214

820

199

(4)

820

-633

116

-116

517

108

167

517

-267

130

2,101

267

130

-37

- 2,101

118

631

118

631

149

(53)

1,470

(48)

103

501 130 218

144

(53)

1,465

12,682

10,443

2,593

2,081

27,799

* Adjustments to the consolidated basis mainly derive from operations in the e-commerce segment. For details, see Section 14 of this Chapter A.

General environment and the effect of external factors on the Company's business

Following are the assessments of the Company as to the major trends, events and developments in the macroeconomic environment of the Company, which to the best of its knowledge and estimates, have or are anticipated to have material effect on the business results or the developments in the Group's operating segments. For details with respect to regulatory restrictions on the Company, see Section 23 of this Chapter A.

The estimates of the Company below in this section and in this Report are based, inter alia, on data published by third parties and not independently examined by the Company. Every reference appearing in this section should be considered data not under the control of the Company and uncertain, and the said estimates are based, inter alia, on data published by the Bank of Israel, as specified below.

6.1

Operations in Israel

As a company operating in the Israeli market, with its various industries, the Company is exposed to macro-economic changes in the condition of the economy in general and in the income-producing real estate sector in particular. The central economic factors affecting the business of the Company and the Group companies in Israel are specified below.

Israel

For the Year Ended onDec. 31, 2020

Dec. 31, 2019

Dec. 31, 2018

Macroeconomic parameters Gross Domestic Product (PPP)*

$361 billion

$354.2 billion

$336.1 billion

Product per Capita (PPP)*

$39,126

$39,121

$37,856

Domestic Product growth rate (PPP)*

(4.6%)

4.97%

Product per Capita growth rate (PPP)*

(6.4%)

2.97%

3.98%

Inflation Rate **

(0.7%)

0.6%

0. 8%

Return on long-term domestic governmental debt *** (NIS)

0.28%

0.96%

2.3%

Rating of long-term government debt (international rating) ****

AA-/STABLE

Domestic currency to dollar exchange rate as of the last day of the year**

3.215

3.456

3.748

Source: The International Monetary Fund website -www.imf.org - World Economic Outlook Database The figures are based on a publication of October 2020 and include a forecast in respect of the entire year of 2020 and are stated in current prices.

** Source: TheCentralBureau of Statistics:www.cbs.gov.il

*** Synthetic bond yield calculation, with an average duration of 10 based on data from the Kav Manche software. **** Source: S&P rating report atwww.standardandpoors.com.

6.1.1 General

1. In early 2020, the virus Covid-19 erupted in China and spread throughout the world. On March 11, 2020 the WHO declared a global pandemic, and measures were taken to slow the spread of the virus. The pandemic is affecting various business sectors in many countries. In January 2021, the State of Israel began to vaccinate its population against Covid-19. According to estimates released by the Bank of Israel, the forecast describes two possible scenarios which are affected by the pace of vaccination of the population. In a scenario of fast vaccination, the GDP is expected to grow at a rate of 6.3% in 2021 and 5.8% in 2022. In a slow vaccination scenario, growth of 3.5% is expected in 2021, and 6% in 2022. In view of the fast vaccination pace to date, the probability of materialization of the fast vaccination scenario appears greater than that of the slow vaccination scenario. It was further noted that the global economy is recovering, but uncertainty continues in view of the commencement of the vaccination campaigns on the one hand, and the continued spread of the disease on the other hand, and that high variance is expected in the pace of growth of the various markets in 2021, and some countries are not expected to fully recover from the crisis even in 2022, particularly if additional eruptions of the virus will occur, and the pace of vaccination will be slow.7 For further details in connection with the Covid-19 pandemic and its effect on the Company's business, see Section 2.2 of the Board Report.
2. Geopolitical-security situation - The Company's business is affected by the geopolitical-security situation in Israel. The Company's management estimates that significant and long-term deterioration in the geopolitical security situation may cause a decline in the business in malls and retail centers, decline in demands and a decrease in prices in the income-producing property segment.
3. Availability and cost of credit - Changes in financing cost and availability and the scope of available credit in the banking and non-banking system affect the real estate industry and the profitability thereof. As a result of the implementation of structural reforms implemented in recent years in the capital market (such as the Bachar Reform, the pension reform and the tax reform), the share of bank credit out of the total credit to the business sector is declining and a non-banking credit market has developed, constituting an alternative for financing assets and projects. The local capital market too, constitutes a source for the raising of funds to finance the Company's business activity, by way of issuing bonds, and presently serves as the Company's primary source of financing.
Thanks to the financial strength of the Company, its accessibility to sources of bank financing, and the relatively low scope of pledges on properties, taking into consideration the extent of business thereof, the Company estimates that no difficulties are anticipated in raising the financing required thereby.
4. Fluctuations in the inflation rate, the Consumer Price Index and interest rates - The real estate industry is exposed to risks deriving from changes in the interest rates, inflation rate and in the Consumer Price Index (CPI). The Company finances most of its business operations by means of loans linked to the CPI. In addition, most of the Company's revenues from rent are also linked to the CPI. The (known) CPI decreased by 0.6% in 2020, compared with an increase of 0.3% in 2019. At the end of 2020, expectations for 2021 were that the rate of inflation deriving from the capital market would be 0% and the rate of inflation deriving from the banks' internal interest rates would be 0.2%8. At the end of 2020 the Prime interest rate was 1.6%, compared with a rate of 1.75% at the end of 2019. At the end of 2020 the Bank of Israel interest rate was 0.1%, compared with a rate of 0.25% in 2019.9
5. Fluctuations in the U.S. dollar exchange rate - The Company has real properties in the U.S., the rate of which is approx. 7% of the Group's total real properties. These properties were financed by loans linked

7 Bank of Israel - press release of January 4, 2021, the Monetary Committee decided on Janaury 4, 2021, to leave the interest rate unchanged at 1%. The Bank of Israel website:https://www.boi.org.il/he/NewsAndPublications/PressReleases/Pages/04-1-2021.aspx.

8 Bank of Israel - press release of January 20, 2021, the expected inflation from the various sources. The Bank of Israel website:https://www.boi.org.il/he/NewsAndPublications/PressReleases/Pages/20-1-21.aspx.

9 Bank of Israel - press release of January 4, 2021, the Monetary Committee decided on January 4, 2021, to leave the interest rate unchanged at 1%. The Bank of Israel website:https://www.boi.org.il/he/NewsAndPublications/PressReleases/Pages/04-1-2021.aspx.

to the U.S. Dollar. The change in the exchange rate of the U.S. Dollar has an effect on the difference between the real properties' value and the loans in respect thereof. In 2020 the Dollar weakened against the Shekel, from an exchange rate of NIS 3.456 per Dollar at the end of 2019 to an exchange rate of NIS 3.215 per Dollar at the end of 2020.

6.1.2 Effects on the income-producing real estate segments in Israel

1. The income-producing real estate sector in Israel - For a description of the trends related to the income-producing real estate sector in Israel, in relation to each of the Company's operating segments, see Sections 8.1, 9.1 and 11.1 of this Chapter A. For details with respect to the effects of the COVID-19 pandemic on the Company's operating segments see Section 2.2 of the Board of Directors' Report.
2. Rate of growth and consumption per capita in Israel - In real terms, a retreat of the Israeli economy occurred in 2020, due to the impact of the measures taken by the government in order to stop the spread of COVID-19, being mainly the imposition of (full or partial) lockdowns and additional restrictions that led to a significant reduction in the business operation. The aforesaid impact was evident in the data of the economic retreat both in developed and developing countries as one. However, the forecast of the Bank of Israel and of the International Monetary Fund is that in the upcoming years, the Israeli market will once again grow. The gross domestic product (GDP) decreased by approx. 2.5% in 2020, compared with 3.5% growth in 2019. The unemployment rate in 2020 was volatile, and stood at approx. 4.3% in December 2020 (excluding furloughed employees). Due to the impact of COVID-19, the average percentage of unemployed and non-participants in the work force (due to the closure of work places, dismissal or furlough) in 2020 was approx. 15.8% and in March-December 2020, an average percentage of approx. 18.4%, compared with an unemployment rate of 3.4% only in 201910. In 2020, private consumption expenditure decreased by 9.5% (nominal), following an increase of 3.9% in 2019. Private consumption expenditure per capita in 2020 decreased by approx. 11.1%. For details on the Bank of Israel's assessments on growth in the next two years, see Section 6.1.1 above. Forecasts by the International Monetary Fund also predict that in the next two years Israel's product will demonstrate a real increase of approx. 4-5% per year (in domestic currency terms). The forecast of growth in Israel derives, inter alia, from domestic factors including strong domestic consumption, increase in investments and from global economy factors including the rapidly growing global trade, low interest rate environment and the bull market. However, given the effects of the COVID-19 pandemic on the Israeli economy, adverse effects may apply to such forecasts. For further details, see Section 2.2 of the Board of Directors' Report.

6.2

Operations in the U.S.

U.S.

Dec. 31, 2020

For the Year Ended on

Dec. 31, 2019

Dec. 31, 2018

Macroeconomic parameters

Gross Domestic Product (PPP) (1) (U.S. $ in billions)	20,807	21,439	20,513
Product per Capita (PPP) (1) (U.S. $)	63,051	65,111	62,518
Domestic Product growth rate (PPP) (1)	(2.92%)	4.17	5.27%
Product per Capita growth rate (PPP) (1)	(3.37%)	3.57	4.56%
Inflation Rate (2)	1.4%	2.3%	1.9%
Return on long-term domestic government debt (3)	0.93%	1.92%	2.69%
Rating of long-term government debt (4)	AA+/Stable	AA+/Stable	AA+/Stable
NIS to U.S.$ exchange rate (5)	3.215	3.456	3.748
10 CBS - Figures from manpower survey, January 31, 2021.
A-18

(1) Product data are based on a publication by the International Monetary Fund in October 2020(www.imf.org).
(2) According to publications by the U.S. Department of Labor.
(3) According to the U.S. Department of Treasury with respect to bonds for a 10-year period commencing on December 31, 2020.
(4) According to the rating by S&P(www.standardandpoors.com).
(5) According to Bank of Israel data.

The Company's business in the U.S. is primarily affected by the economic situation in the U.S. economy in general, and in the income-producing commercial real estate sector in particular, the demand and supply in the area in which the Company's properties are located and the amount of rent therefor. 2020 was characterized by instability both due to the global health crisis which led to economic slowdown, and due to 2020 being an election year. The economic slowdown and uncertainty led to an increase in unemployment. All of these, coupled with other Covid-19 effects, have led the authorities and banks to work to support a low interest-rate level, including by giving various incentives. In 2020 the U.S. economy shrunk by some 2.5%, compared with 2.1% growth in 2019. For details with respect to the Houston Texas area, where, as of the Report Date, most of the Company's operations in the income-producing properties in the U.S. segment is situated, see Section 10 of this Chapter A. For details with respect to the effects of the COVID-19 pandemic on the Company's operating segments, see Section 2.2 of the Board of Directors' Report.

The above information in Sections 6.1 and 6.2 concerning the general environment and the external factors that affect the Company's business includes information based on subjective assessments and estimates by the Company, which constitute forward-looking information, as defined in the Securities Law. The Company's assessments are in consideration of past experience, as well as publications and surveys written by professionals in connection with the state of the Israeli economy, the real estate sector and the senior housing segment, and the state of the economy in countries wherein the Company operates, as specified in the aforementioned sections. The above data are merely estimates and may be incomplete, yet, in the Company's estimation, they are capable of providing a general picture, even if not an accurate one, of the markets in which it operates in the various operating segments. In view of the foregoing, and due to the fact that the factors concerned are not within the Company's control, actual results may differ from the aforesaid assessments if a change occurs in any of the factors taken into account in such assessments, the geopolitical and/or economic and/or security situation is adversely changed or due to the materialization of any of the risk factors specified in Section 28 of this Chapter A, and mainly a global financial crisis, the condition of the economy in Israel and in the U.S. and the security situation in Israel, changes in relevant indices and interest rates, a decline in the demand for leasable space and in rent prices, a downturn in the soundness of key tenants and an increase in the costs of debt raising and the impact of the COVID-19 pandemic on economies in Israel and the world or the impact of the vaccine against the virus.

PART THREE: DESCRIPTION OF THE GROUP'S BUSINESS IN THE INVESTMENT REAL ESTATE OPERATIONS - AGGREGATE

Aggregate disclosure with respect to the investment real estate operations11

The disclosure with respect to the Company's investment property operations is made in accordance with the draft amendment to the Securities Regulations (Details of the Prospectus and the Draft Prospectus - Structure and Form) (Amendment), 5764-2013, as released by the ISA in December 2013 (the "Prospectus Details Regulations" and the "Disclosure Provision", as applicable), which has been adopted by the Company although the said amendment has yet to take effect.

7.1

General

The Group began its activity in the investment property segment in 1983. Since then and as of the Report Release Date, the Company is engaged in the development, acquisition, lease-out, management and maintenance of malls and retail centers in Israel as well as office and high-tech parks, office and industry, light industry and storage buildings and rental housing in Israel. Since 2001 the Group has also been operating overseas (in particular in the U.S.), mostly in the leasable office space segment, and since 2014 the Group has also been developing its senior housing segment.

As a development company, the Company examines, from time to time, growth and increase goals for the expansion of its scope of operations, and checks opportunities to purchase income-producing properties and lands for real estate development in Israel and overseas in the core segments thereof (retail and office spaces) and also in tangential segments such as senior housing, residential rental, data centers, hospitality and more. Underlying the Company's policy is the basic assumption whereby the property's location is the most important factor for its success. Accordingly, upon examination of the location of a potential property, the Company ascribes significant weight to the population growth potential in the examined area and the urban development anticipated therein, based, inter alia, on urban research, segmentation of the population, competition in the area and the unique or typical commercial needs of such area.

The Group's strategy and business in the investment real estate segments is implemented both by the development of new properties and by the acquisition, upgrade and potential maximization of existing income-producing properties. In the Report Period, the margins between the rates of capitalization on the properties and the financing costs remained high relative to previous periods, a trend which the Company estimates allows it to develop and purchase income-producing properties also at development yields or cap rates for purchase that are lower compared to rates in previous periods.

The Group, by itself (through companies wholly-controlled thereby), manages and operates the properties in Israel, their construction and betterment while using the know-how and experience accrued by the Group, in order to give added value to its properties, tenants and the public visiting the properties.

The Company's properties in the retail centers and malls segment are located in the center of residential neighborhoods and at entrances to urban areas, insofar as possible, on main traffic arteries. Due to the location of the properties, their accessibility, spacious car parks, tenant mix and variety of activities therein, they attract a large and diverse target audience. Some of the retail centers include office space for lease designated to provide a supplementary response for the target audience's needs, according to the nature of the retail center and its location.

The Company's properties in the office and other space for lease in Israel segment, including the properties under construction, are located primarily in the central region (where there is an active demand for office buildings of various types) in proximity to central transport arteries and are characterized by a high standard of finishing and management, relatively large floor and office areas, and include designated parking.

According to its policy for the maximization of its profits and in order to improve the experience of the users of the Group's properties, the Company acts, as necessary, to upgrade its existing properties, while using the existing and potential commercial, office and other areas, improving the tenant mix and adjusting the same to

11 Disclosure is made on a consolidated basis for the Group's retail centers and malls in Israel segment, the leasable office and other space in Israel segment and the income-producing properties in the U.S. segment and senior housing segment.

the target audience, renovating the properties, renewing the systems therein and implementing technological and/or digital improvements.

As previously reported by the Company, the Company examines, from time to time, the expansion of its operations, including entry into close real estate segments. Thus, in 2014, the Company began developing the senior housing business, upon the purchase of senior housing land in the city of Modi'in. As of the Report Release Date, the Company has four active senior homes: Palace Tel Aviv, which was acquired in 2015, Palace Ra'anana (formerly Ahuzat Bayit Ra'anana), the acquisition of which was closed in Q2/2016, a senior home in Modi'in, the construction of which was completed in 2018 and occupation of which began in October the same year, and Palace Lehavim, the construction of Phase A of which ended in May 2020 and occupation of which began. Another project of the Company, in the city of Rishon LeZion, is under construction. Furthermore, in July 2019, the Company (indirectly) invested for the first time in Compass, a company primarily engaged in the data centers business in North America, and in February 2020, the Company acquired the Mount Zion Hotel in Jerusalem12.

Set forth below are aggregate figures regarding investment property owned by the Group. The figures will be presented jointly with regard to properties from the four operating segments of investment property owned by the Company, namely: the retail centers and malls in Israel segment, the office and other space for lease segment in Israel, the overseas income-producing property segment and the senior housing segment in Israel. For further details regarding the operating segments and regarding material properties, see Sections 8, 9, 10 and 11 of this Chapter A.

For details with respect to land reserves, see Section 7.8 of this Chapter A.

7.2

Summary of results in the investment real estate segments*

7.2.1 Summary of the aggregate results of the Group's four investment real estate segments

For the year ended on
Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018
NIS in millions

Total business revenues (consolidated)***	1,762	2,203	2,064
Profit (loss) from revaluations (consolidated)***	)633(	921	218
Business profits (consolidated) *	581	2,532	1,741
Same property NOI (consolidated)	1,192	1,601	-
Same property NOI (corporation's share)	1,189	1,597	-
Total NOI (consolidated) *	1,214	1,611	1,523
Total NOI (corporation's share) *	1,211	1,607	1,518

* For details with respect to additional financial indicators which were examined by the Company, see Sections 2.7 to 2.8 of the Board of Directors' Report.

**The figures include the NOI of Palace Modi'in and Palace Tel Aviv Medical and Palace Ra'anana LTC Units according to the management's position, which deems them part of the NOI of the senior homes although they are not investment properties (and therefore, the tables of the investment property chapter below shall not include information in respect thereof) and due to non-materiality in their separate presentation.

***

In addition, the figures include the revenues, profit and NOI from an investment in an associate engaged in the data centers business (and consequently figures with respect thereto will not be included in the tables of the investment property chapter below).

12 In accordance with GAAP, the Mount Zion Hotel will be classified in the Company's Financial Statements as a fixed asset, rather than as an investment property.

7.2.2 Summary of the results of the retail centers and malls in Israel segment

For the year ended on
Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018
NIS in millions

Total business revenues (consolidated)	607	1,050	1,034
Profit (loss) from revaluations (consolidated)	)789(	123	(4)
Business profits (losses) (consolidated)	)364(	954	816
Same property NOI (consolidated)	425	831	-
Same property NOI (corporation's share)	425	831	-
Total NOI (consolidated)	425	831	820
Total NOI (corporation's share)	425	831	820

7.2.3 Summary of the results of the leasable office and other space in Israel segment

For the year ended on
Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018
NIS in millions

Total business revenues (consolidated)	708	716	633
Profit from revaluations (consolidated)	71	690	167
Business profits (consolidated)	672	1,284	684
Same property NOI (consolidated)	598	594	-
Same property NOI (corporation's share)	598	594	-
Total NOI (consolidated)	601	594	517
Total NOI (corporation's share)	601	594	517

7.2.4 Summary of the results of the income-producing properties in the U.S. segment

For the year ended on
Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018
NIS in millions

Total business revenues (consolidated)	251	268	267
Losses from revaluations (consolidated)	)176(	(12)	(48)
Business profits (consolidated)	)47(	127	101
Same property NOI (consolidated)	129	139	-
Same property NOI (corporation's share)	126	135	-
Total NOI (consolidated)	129	139	149
Total NOI (corporation's share)	126	135	144

7.2.5 Summary of the results of the senior housing segment

For the year ended on
Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018
NIS in millions

Total business revenues (consolidated)	162	156	130
Profit from revaluations (consolidated)	130	100	103
Business profits (consolidated)	163	137	140
Same property NOI (consolidated)	40	37	-
Same property NOI (corporation's share)	40	37	-
Total NOI (consolidated)	33	37	37
Total NOI (corporation's share)	33	37	37

7.3

The geographic territories in which the Company operates in the investment property segments

As of the Report Date, the Company operates in two main geographic territories, Israel and the U.S Most of the Company's business is in Israel, where the Company operates throughout the country, including North, Center, South and other urban areas, without preference to specific areas and without investing special managerial inputs in specific areas. The Company estimates that the State of Israel constitutes one geographical territory in terms of the risks and yields of the income-producing property business. In the U.S. the Company operates, as of the Report Date, mainly in the cities of Houston and Austin in Texas.

For details regarding the macroeconomic parameters affecting the business in Israel and the U.S., see Section 6 of this Chapter A.

7.4

Breakdown of the investment property business

Set forth below are details of the Company's investment property business, in four segments: Retail centers and malls in Israel, leasable office and other space in Israel, senior homes and the land designated for these segments, and income-producing properties in the U.S., on a consolidated basis, broken-down by the various uses of the space of each segment13. Commercial use in Israel in the tables below is attributed to the retail centers and malls in Israel operating segment, whereas the office, industrial and residential uses are attributed in Israel to the office and other space for lease operating segment (and do not constitute operating segments in and of themselves). Furthermore, as of Q3/2016, the Company's operations in the senior housing segment is being described in the Company's Financial Statements as a separate operating segment, in view of the establishment and expansion of the operations and investment in projects under development in the segment, and therefore the segment is included as a separate column in the following tables. It is noted in this context that the senior homes in Modi'in, Ra'anana and Lehavim have retail centers that are attributed to the retail centers and malls in Israel segment. The figures of the income-producing property segment in the U.S. all appear under the U.S. territory, while the amounts with respect to this territory are translated into NIS according to the conversion rate of U.S. $1= NIS 3.215.

The following breakdown of uses is in the format in which the information is presented to the Group's management. As a rule, in properties whose main use is commerce, the car park was attached to such use, whereas in properties whose main use is offices, the car park was attached to such use. As for the Tel Aviv Azrieli Center, for the purpose of the Report, the car park space is divided equally between the commercial and office

13 The details for the investment property business include the "Azrieli Kiryat Ata" mall and office building, agreements for the sale of which were signed after the report date. For further details see Section 1.3.8 of this Chapter A above.

uses, due to its similar contribution to both uses. As for the Herzliya Business Park, as of 2016 for the purpose of the Report, the areas of the car park are divided into 25% for retail and 75% for offices, in view of the increased use of the car park by the visitors of the retail areas. With respect to Rishonim, the areas of the parking lot are divided into 33% for retail and 67% for offices according to the Company's estimation, in connection with the use made thereof.

The following terms shall hereinafter have the meaning set forth beside them:

"Space"/ "Area" - the space/area for which rent is paid, with the addition of unleased areas (excluding areas sold or acquired after the Report Date, if any). With respect to senior housing, the area refers to all of the built area of the home, in view of the fact that in senior homes operated by the Company public areas take up a relatively large percentage of the total area of the home and public areas are also intended to serve the residents.

"Revenues" - all payments made by the tenant, including rent, management fees, profit from electricity, parking fees and other payments, if any.

1. Breakdown of income-producing real estate (aggregate) by territories and uses, as of December 31, 2020 (in sqm)

TerritoriesUsesOfficesIndustryRetailResidenceSenior Housing*Car ParksTotal

% of total area of properties

Consolidated

596,993

22,521

351,716

8,698

104,705

750,304

1,834,937

81%

Israel

Corporation's share

Consolidated

596,993 246,425

22,521

351,716

8,698

104,705

-750,304 195,010

1,834,937 441,435

81% 19%

U.S.

Corporation's share

Consolidated

236,506 843,418

- 22,521

- 351,716

- 8,698

- 104,705

192,232 945,314

428,738 2,276,372

19% 100%

Total

Corporation's share

% of total area of properties

Consolidated

833,500 37%

22,521 1%

351,716 15%

8,698

104,705

942,536 41%

2,263,676

100%

Corporation's share

37%

16%

-5%

42%

100%

* 1,034 residential units - adjoining residential units are treated as one unit.

2. Breakdown of income-producing real estate (aggregate) by territories and uses, as of December 31, 2019 (in sqm)

TerritoriesUsesOfficesIndustryRetailResidenceSenior Housing*Car ParksTotal

% of total area of properties

Consolidated

516,318

22,521

349,090

8,698

75,879

668,454

,1,640960

79%

Israel

Corporation's share

Consolidated

516,318 246,425

22,521

349,090

8,698

75,879

-668,454 195,010

,1,640960 441,435

79% 21%

U.S.

Corporation's share

Consolidated

236,506 762,743

- 22,521

- 349,090

- 8,698

- 75,879

192,232 863,464

,428738 2,082,395

21% 100%

Total

Corporation's share

% of total area of properties

Consolidated

752,824 37%

22,521 1%

349,090 17%

8,698

-75,879 4%

860,686 41%

,2,069698

100%

Corporation's share

36%

17%

-4%

42%

100%

* 794 residential units - adjoining residential units are treated as one unit.

3. Breakdown of fair value of income-producing real estate (aggregate) by territories and uses, as of

Territories

Uses

Offices

Industry

Retail

Residence

Senior Housing*

Total

% of total area of properties

10,524

Consolidated

104

11,813

176

2,190

24,807

92%

Israel

(NIS in millions) Corporation's share

10,524

104

11,813

176

2,190

24,807

92%

U.S.

Consolidated

656

(USD in millions)

Corporation's share

Consolidated

636 12,636

- 104

- 11,813

- 176

- 2,190

636 26,919

8% 100%

Total

(NIS in millions) Corporation's share

12,569

104

11,813

176

2,190

26,852

100%

% of total value of propertiesConsolidated

47%

44%

100%

Corporation's share

47%

44%

100%

* Gross value, without set-off of the balance of deposits from residents. The value after set-off of the balance of resident deposits is approx. NIS 1,116 million.

4. Breakdown of fair value of income-producing real estate (aggregate) by territories and uses, as of December 31, 201915

Territories

Uses

Offices

Industry

Retail

Residence

Senior Housing*

Total

% of total area of properties

9,171

Consolidated

104

12,453

172

1,804

23,704

91%

Israel

(NIS in millions) Corporation's share

9,171

104

12,453

172

1,804

23,704

91%

U.S.

Consolidated

696

(USD in millions)

Corporation's share

Consolidated

674 11,575

- 104

,12453

- 172

- 1,804

674

26,108

9% 100%

Total

(NIS in millions) Corporation's share

11,500

104

,12453

172

1,804

26,033

100%

% of total value of propertiesConsolidated

44%

48%

100%

Corporation's share

44%

48%

100%

* Gross value, without set-off of the balance of deposits from residents. The value after set-off of the balance of resident deposits is approx. NIS 848 million.

14 The fair value of the Group's income-producing properties in Israel is according to valuations received by the Group, which were prepared by a certified land appraiser independent of the Company or of the Group companies as of December 31, 2020. As pertains to the overseas properties, the valuations were prepared by certified land appraisers, who, in accordance with the ISA's directive, are defined as dependent in view of the indemnification given to them (excluding a non-material property in the amount of approx. NIS 35 million whose value was updated by the Company).

15 The fair value of the Group's income-producing properties in Israel is according to valuations received by the Group, which were prepared by a certified land appraiser independent of the Company or of the Group companies as of December 31, 2019. As pertains to the overseas properties, the valuations were prepared by certified land appraisers, who, in accordance with the ISA's directive, are defined as dependent in view of the indemnification given to them (excluding a non-material property in the amount of approx. NIS 38 million whose value was updated by the Company).

5. Breakdown of NOI of income-producing real estate (aggregate) by territories and uses, for the year ended

Territories

UsesOfficesIndustryRetailResidenceSenior Housing*Total

% of total property

NOI

Consolidated

590

425

1,059

89%

Israel

(NIS in millions) Corporation's share

590

425

1,059

89%

U.S.

Consolidated

11%

(USD in millions)

Corporation's share

Consolidated

37 719

- 7

- 425

- 4

- 33

37 1,188

11% 100%

Total

(NIS in millions) Corporation's share

716

425

1,185

100%

Consolidated

60%

36%

100%

% of total NOI of properties

Corporation's

60%

36%

100%

* The figure includes the NOI of the Medical Wing of Palace Tel Aviv and Palace Modi'in and the LTC Units of Palace Ra'anana as noted above.

6. Breakdown of NOI of income-producing real estate (aggregate) by territories and uses, for the year ended December 31, 2019

Territories

UsesOfficesIndustryRetailResidenceSenior Housing*Total

% of total property

NOI

Consolidated

583

831

1,462

91%

Israel

(NIS in millions) Corporation's share

583

831

1,462

92%

U.S.

Consolidated

(USD in millions)

Corporation's share

Consolidated

39 722

- 7

- 831

- 4

- 37

39 1,601

8% 100%

Total

(NIS in millions) Corporation's share

718

831

1,597

100%

Consolidated

45%

52%

100%

% of total NOI of properties

Corporation's

45%

52%

100%

* The figure includes the NOI of the Medical Wing of Palace Tel Aviv and Palace Modi'in and the LTC Units of Palace Ra'anana as noted above.

7. Breakdown of NOI of income-producing real estate (aggregate) by territories and uses, for the year ended

Territories

Uses

Consolidated

Israel

(NIS in millions) Corporation's share

U.S.

(USD in millions)Consolidated

Corporation's share

ConsolidatedTotal

(NIS in millions) Corporation's share

% of total NOI of properties

Corporation's

ShareConsolidated

OfficesIndustryRetailResidenceSenior Housing*Total

% of total property

NOI

506

820

1,374

506

820

1,374

38 655

- 7

- 820

- 4

- 37

38 1,523

650

820

1,518

43%

54%

100%

43%

54%

100%

* The figure includes the NOI of the Medical Wing of Palace Tel Aviv and the LTC Units of Palace Ra'anana as noted above.

90%

91%

10%

9% 100%

100%

8. Breakdown of real estate revaluation profits (losses) (aggregate) by territories and uses, for the year ended December 31, 2020

Territories

Uses

Consolidated

Israel

(NIS in millions) Corporation's share

U.S.

(USD in millions)Consolidated

Corporation's share

ConsolidatedTotal

(NIS in millions) Corporation's share

% of total revaluation profits

Corporation's

ShareConsolidated

OfficesIndustryRetailResidenceSenior

HousingTotal

% of Total Revaluation

Profit

)1(ׁ

)789(

130

)588(

77%

)1(

)789(

130

)588(

78%

)55(

23%

)53( )108(

- )1(

- )789(

- 4

- 130

)53( )764(

22% 100%

)101(

)1(

)789(

130

)757(

100%

14%

-103%

-)17%(

100%

14%

-104%

)1%(

)17%(

100%

9. Breakdown of real estate revaluation profits (losses) (aggregate) by territories and uses, for the year ended December 31, 2019

Territories

Uses

Consolidated

Israel

(NIS in millions) Corporation's share

U.S.

(USD in millions)Consolidated

Corporation's share

ConsolidatedTotal

(NIS in millions) Corporation's share

% of total revaluation profits

Corporation's

ShareConsolidated

OfficesIndustryRetailResidenceSenior

HousingTotal

% of Total Revaluation

Profit

686

123

100

913

101%

686

123

100

913

101%

)4(

(1%)

)3( 674

- 4

- --

)3(

(1%)

123

100

901

100%

677

123

100

904

100%

75%

13%

-11%

100%

75%

13%

-11%

100%

10. Breakdown of real estate revaluation profits (losses) (aggregate) by territories and uses, for the year ended December 31, 2018

Territories

Uses

Consolidated

Israel

(NIS in millions) Corporation's share

U.S.

(USD in millions)Consolidated

Corporation's share

ConsolidatedTotal

(NIS in millions) Corporation's share

% of total revaluation profits

Corporation's

ShareConsolidated

OfficesIndustryRetailResidenceSenior

HousingTotal

% of Total Revaluation

Profit

155

)4(

103

266

122%

155

)4(

103

266

121%

)13(

)22%(

)12( 107

- 5

- )4(

- 7

- 103

)12( 218

)21%( 100%

109

)4(

103

220

100%

50%

)2%(

47%

100%

50%

)2%(

47%

100%

11. Specification of actual average monthly rent per sqm by territories and uses

Uses
December 31,	December 31,	December 31,	December 31,	December 31,	December 31,	December 31,	December 31,
2020	2019	2020	2019	2020	2019	2020	2019
Israel (in NIS)	88(1)	86	28	28	194(1)	196	44	43
Maximum (*)	122(1)	111	-	-	310(1)	319	-	-
Minimum (*)	42(1)	45	-	-	47(1)	46	-	-
U.S. (in USD)	19	18	-	-	-	-	-	-

Offices

Industry

Retail

ResidenceFor the year ended on

The maximum represents the average rent per sqm in the property for which the rent average is highest, whereas the minimum represents the average rent per sqm in the property for which the rent average is lowest. The average was calculated according to the areas suitable for use only. The table does not include figures with respect to senior housing, in respect of which the average payment by tenants for a residential unit was NIS 10,858 per month in 2020 (NIS 11,516 per month in 2019) (including revenues from the forfeiture of deposits and the payment of monthly maintenance fees).

* The broad range of rent in all uses derives, inter alia, from the diversity in the nature of the leased property, in the type of the leased unit in the property even in the same building, and in other

parameters that are not expressed in this table.

(1) In view of the relief given to tenants in 2020 due to the spread of Covid-19, rent per sqm was presented according to contracts as of December 31, 2020 with no relief.

12. Specification of average occupancy rates by territories and uses*

Uses	Offices	Industry
As of Dec.	For	For	As of Dec.	For	For	As of Dec.	For	For	As of Dec.	For	For	As of Dec.
31, 2020	Y2020	Y2019	31, 2020	Y2020	Y2019	31, 2020	Y2020	Y2019	31, 2020	Y2020	Y2019	31, 2020
Israel	96%(1)	98%(2)	99%	100%	100%	100%	98%(3)	98%(3)	98%(4)	97%(5)	93%(5)	98% (6)	100%
U.S.	77%	77%	81%	-	-	-	-	-	-	-	-	-	-

Retail	Residence
Percentage (%)
For	For
Y2020	Y2019
100%	100%
-	-

Senior Housing

* The average occupancy rate was calculated based on the lease agreements' data for the beginning of the period and for the end of each period.

(1) For 2020 - excluding the offices at Hamanor St. in Holon, which are in the stage of tenant move-in. The occupancy rent in the segment of leasable office space including the aforesaid is approx.
95% as of December 31, 2020.
(2) For 2020 - excluding the offices at Hamanor St. in Holon, which are in the stage of tenant move-in, and Town which was occupied at the end of the year. The occupancy rent in the segment of leasable office space including the aforesaid is approx. 97% for 2020.
(3) For 2020 - excluding the retail at Sarona and Palace Lehavim which are in the stage of tenant move-in. The occupancy rent in the segment of leasable retail space including the aforesaid is approx.
96% as of December 31, 2020 and approx. 96% for 2020.
(4) For 2019 - excluding the retail space at Sarona, which was in the stage of tenant move-ins. The occupancy rate in the segment of leasable retail space including the aforesaid is approx. 96% as of December 31, 2019 and approx. 97% for the year 2019.
(5) For 2020 - excluding Palace Lehavim which was opened in 2020 and is in the stage of resident move-ins. The occupancy rate for the senior housing segment including Palace Lehavim is approx.
88% as of December 31, 2020 and approx. 78% for the year 2020.
(6) For 2019 - excluding Palace Modi'in which was opened at the end of 2018 and which was in the stage of resident move-ins. The occupancy rate for the senior housing segment including Palace Modi'in is approx. 94% as of December 31, 2019 and approx. 89% for the year 2019.

13. Number of income-producing buildings, by territories and uses*

Uses

Offices

Industry

Retail

Senior Housing

Residence

For the year ended

Dec.31, 2020	Dec. 31, 2019	Dec.31, 2020	Dec. 31, 2019	Dec.31, 2020	Dec. 31, 2019	Dec.31, 2020	Dec. 31, 2019	Dec.31, 2020	Dec. 31, 2019
Israel	14	12	1	1	18	18	4	3	1	1
U.S.	8	8	-	-	-	-	-	-	-	-
Total income-
producing	22	20	1	1	18	18	4	3	1	1
properties

* A number of properties have several different uses, and in such cases the properties were classified in the table under each of such uses.

14. Breakdown of actual average yield rates (according to year-end value), by territories and uses*

Uses
Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2020	Dec. 31, 2019
Israel	6.19%16	6.35%	6.90%	6.92%	3.60%17	6.67%	3.18%18	4.17%	2.39%	2.32%
U.S.	6.12%	5.79%	-	-	-	-	-	-	-	-

Offices

Industry

Retail

Senior Housing**

Residence

For the year ended on (percentages)

The yield rate is a division of the actual NOI by the value of the property as of the end of the year. In the event of the acquisition of properties or completion of construction thereof in the course of the year, the index does not reflect the rate of the annual yield from these properties. The rate of the actual yield does not constitute the CAP rate that the Group used for revaluation of its properties.

* The figures do not represent representative yield but rather the division of actual NOI by the value of the properties, and do not take into account other influences, such as properties populated, properties purchased during the period, revenues expected from vacant spaces, expected investments in the property etc.

** For the senior housing segment - calculated according to net value (after deduction of the balance of resident deposits) as of the end of the period.

16 The decrease derives from properties, the construction of which ended during the year.
17 The rate of the yield which derives from the actual NOI is tilted down due to relief given to the tenants following the outbreak of COVID-19.
18 The decrease derives from properties, the construction of which ended during the year.

7.5

Projected revenues from signed lease contracts (NIS in millions)

Period of Revenue Recognition

Revenues from Fixed Components*

Number of Ending Contracts

Area to which the Ending Agreements pertain (sqm in thousands)

Q/1

Q/2

Y2021

Q/3

Q/4

Y2022

Y2023

Y2024

527	243	33
455	253	31
482	210	22
474	263	56
1650	879	225
1255	774	148
983	531	141
Y2025 forth	2322	1231	554
Total	8148	4,384	1,210

The revenues figures in the above table, which include revenues from rent, management fees and parking, were calculated based on the basic amounts determined in the lease agreements, linked to the CPI known on December 31, 2020, and based on the following assumptions: (1) The exercise of the tenants' options to extend the lease periods included in the lease contracts, was not taken into account, since the CODM does not review, on a regular basis, the expected revenue figures under the assumption of the exercise of options granted to the tenants to extend the lease period; (2) Lease contracts, the lease period under which has ended, and new lease contracts have not yet been signed with the tenants, were not taken into account; (3) The possibility of sale of the properties or the purchase of new income-producing property, was not taken into account; (4) Fines due to early termination, if any, were not taken into account; (5) The increments to the rent due to percentages of the sales were not taken into account for calculation of the rent, and (6) No change has occurred in the management fees advance payments per tenant in respect of 2020.

The Company's revenues include variable components due to additional revenue from sales alone. The Company does not prepare estimates for revenues from variable components which are immaterial in relation to the Company's revenues from its income-producing properties, and therefore it does not have the information.

The revenue figures specified in the above table are under the assumption that the options for extension of the lease periods included in the lease contracts will not be exercised, although many of the Company's tenants usually extend the lease agreements upon the expiration thereof, according to the extension options specified in the agreements.

The above figures are based on the Company's assessment considering signed agreements as of the Report Date, and constitute forward-looking information, within the definition of such term in the Securities Law. Actual results may significantly differ from the above specified estimates and the implications thereof, for various reasons, including early termination of lease contracts or a business crisis undergone by any of the tenants, inter alia, due to the effects of the COVID-19 pandemic.

* The figures are in accordance with signed contracts as of December 31, 2020, excluding the effect of Covid-19 relief. In view of the aforesaid, actual revenues may differ from the said figures.

7.6 Key tenants

In 2020, the Company had no tenant the revenue from whom accounted for 10% or more of its total revenues.

In 2020, the revenues from the fashion industry accounted for approx. 13% of the Group's revenues and approx. 38% of the revenues of the Company's retail centers and malls segment. If and when material changes in costs occur in this segment and insofar as the effect of the changes endures over time, the Company's profitability may also be affected thereby.

However, most of the lease agreements include a fixed rent, such that the Company's exposure in this respect is limited in the short term.

For details with respect to the effects of the COVID-19 pandemic on the Company's operating segments, including the tenants of its properties, see Section 2.2 of the Board of Directors' Report.

7.7

Properties under construction In Israel(*) (aggregate level), by use

Uses	Parameters	For the Year Ended
December 31, 2020	December 31, 2019	December 31, 2018
Number of properties under construction at the end of the period	4	4	4
Total space under construction (planned) at the end of the period (sqm in thousands) (1)	93	93	88
Total costs invested in the current period (consolidated) (NIS in millions)	41	39	77
The amount at which the properties are presented in the statements at the end of the period (consolidated) (NIS in millions)	553	516	795
Retail(4)	Construction budget in the consecutive period (estimate)	44-54	111-121	45-55
consolidated) (NIS in millions)
Total estimated balance of construction budget for completion of the construction work (consolidated) (estimate as of the end of the period) (NIS in millions) (2)	438-485(6)	422-475(6)	390-432(6)
Rate of built-up area in respect of which lease contracts have been signed (%)	-	-	1%
Projected annual income from projects to be completed in the consecutive period and in which contracts have been signed for 50% of the area or more (consolidated) (estimate) (NIS in millions)	-	-	-
Number of properties under construction at the end of the period	4	6	4
Total space under construction (planned) at the end of the period (sqm in thousands) (1)	299	377	341
Total costs invested in the current period (consolidated) (NIS in millions)	119	287	214
The amount at which the properties are presented in the statements at the end of the period (consolidated) (NIS in millions)	746	1,393	901
Offices and	Construction budget in the consecutive period (estimate)	113-123	543-553	352-362
Others(4)	consolidated) (NIS in millions)
Total estimated balance of construction budget for completion of the construction work (consolidated) (estimate as of the end of the period) (NIS in millions) (2)	1,021-1,130(6)	1,025-1,176(6)	1,462-1641(6)
Rate of built-up area in respect of which lease contracts have been signed (%)	1%	21%	18%
Projected annual income from projects to be completed in the ollowing period and in which contracts have been signed for 50% of the area or more (consolidated) (estimate) (NIS in millions) (4)	-	-	-
Residence (4)	Number of properties under construction at the end of the period	3	3	2
Total space under construction (planned) at the end of the period (sqm in thousands) (1)	61	61	55
Total costs invested in the current period (consolidated) (NIS in millions)	97	98	70
The amount at which the properties are presented in the statements at the end of the period (consolidated) (NIS in millions)	749	639	613
Construction budget in the consecutive period (estimate) consolidated) (NIS in millions)	201-211	200-210	100-110
Total estimated balance of construction budget for completion of the construction work (consolidated) (estimate as of the end of the period) (NIS in millions) (2)	362-434	441-505	485-543
Rate of built-up area in respect of which lease contracts have been signed (%)	-	-	-
Projected annual income from projects to be completed in the ollowing period and in which contracts have been signed for 50% of the area or more (consolidated) (estimate) (NIS in millions)	-	-	-
Senior Housing	Number of properties under construction at the end of the period	1	1	1
Total space under construction (planned) at the end of the period (sqm in thousands) (5)	10	44	44
Total costs invested in the current period (consolidated) (NIS in millions)	13	204	78
The amount at which the properties are presented in the statements at the end of the period (consolidated) (NIS in millions)	107	315	139
Construction budget in the consecutive period (estimate) consolidated) (NIS in millions)	1-6	82-92	232-237
Total estimated balance of construction budget for completion of the construction work (consolidated) (estimate as of the end of the period) (NIS in millions) (2)	7-8	-	37-42
Rate of built-up area in respect of which contracts have been signed (%)	-	29%	19%
Projected annual income from projects to be completed in the ollowing period and in which contracts have been signed for 50% of the area or more (consolidated) (estimate) (NIS in millions) (3)	-	-	-

* The Company has no properties under construction outside of Israel.

(1) Marketable space.
(2) Balance of construction budget after the expiration of the consecutive period.
(3) There are no projects expected to be completed in the consecutive period for which contracts in respect of 50% or more of the space have been signed.
(4) Projects which combine several uses were split among the various uses.
(5) Scope of building rights.
(6) In one of the projects under construction, refers to the budget for excavation, shoring and car park of Phase A only.

PROPERTIES UNDER DEVELOPMENT - FURTHER DETAILS:

Following are details regarding the properties under development as of the Report Date in the investment real estate operating segments. For further details see Section 4.1 of the Board of Directors' Report:

Azrieli Town

On October 22, 2012, the Company won a tender for the purchase of the rights of Clalit Health Fund in a lot in the area of approx. 10thousand sqm on 146 Menachem Begin Road in the Northern Tel Aviv Central Business District, adjacently to the Azrieli Towers. Construction commenced in September 2016. In December 2020, a Form 4 (occupancy permit) was received for the car park, 50,000 sqm in the office tower and approx. 4,000 sqm of retail space which are expected to be occupied upon completion of the residential tower, which will have some 210 rental apartments which is under construction. As of the Report Release Date, the Company has signed agreements for the lease of nearly 100% of the leasable office space in the project and the occupancy of the offices of the project is ongoing.

In November 2018 a zoning plan for additional office and hotel areas spanning approx. 24 thousand sqm (gross) in total was published for deposit. In May 2019 a hearing was held by the Local Committee on objections to the zoning plan. The Committee discussed the objections and decided to approve publication of the plan for validation. In July 2019 an administrative appeal was submitted against the plan which was heard in January 2020 and in August 2020, a decision was made, denying the appeal that was submitted against the plan.

For further details see the Company's immediate report of September 1, 2016 (Ref.: 2016-01-115657), which is included herein by way of reference and Section 4.1.1 of the Board of Directors' Report.

Palace Lehavim Senior Housing

In December 2014, the Company won a tender issued by the Israel Land Authority, for the long-term leasehold of land in the southern town of Lehavim, in the area of approx. 28 thousand sqm with built area (main and service) of approx. 44,000 sqm. The project includes a senior home on the land, which will comprise 350 residential units, an LTC unit with full medical observation, related services such as a swimming pool, sport center and retail space of up to approx. 1,500 sqm. In May 2020, a Form 4 was received in connection with the construction of Phase A of the project which includes 240 senior housing units and for the retail area and occupation of the project has commenced. In July 2020, a Form 4 was received for the LTC wing (approx. 5 thousand sqm) and the Company is in advanced stages of construction of Phase B of the project. For further details see Section 4.1.1 of the Board of Directors' Report.

Expansion of the Azrieli Tel Aviv Center (the Spiral Tower)

In May 2013, the Company engaged in an agreement for the purchase of full title to the land of approx. 8,400 sqm in the intersection of the streets Menachem Begin Road and Noah Moses in Tel Aviv, adjacently to the Azrieli Tel Aviv Center, which held the building known as the "Yediot Aharonot House". On March 31, 2016, the transaction has been closed and possession of the lot has been handed over to the Company. In February 2018 the Company completed the demolition of the said building and began excavation and shoring work. In April 2018 the zoning plan with an urban-mixed designation was validated, which allows uses of retail, offices, hotels, residence and senior housing with above-ground building rights of 147,260 sqm (gross), and, in addition, approx. 3,000 sqm of underground main retail space. The Company intends to construct retail space that will serve to expand the existing mall and a multi-story tower (the Spiral Tower), subject to receipt of the required statutory approvals. In the context of the zoning plan, the Company was required to approve an architectural design and development plan for the project, as a condition for the aboveground construction permit. In addition, the Company undertook to allocate, out of said rights in the project, a public floor for the Tel Aviv Municipality, and in addition, undertook to pay for and perform various tasks in the vicinity of the project, including at Azrieli Center. In January 2020, a basement construction permit was received for the project. In January 2021, the design plan was signed by the approving factors in the Tel Aviv Municipality. As of the Report Release Date, the Company continues the excavation and shoring works at the site.

For further details see the Company's immediate report of April 3, 2016 (Ref.: 2016-01-023433), which is included herein by way of reference, and Section 4.1.1 of the Board of Directors' Report.

Property in the Holon Industrial Zone - Holon 3 (formerly Lodzia)

A property consisting of land with a registered area of approx. 57.5 thousand sqm, located in the Holon Industrial Zone, acquisition of which was closed in April 2016 and two additional lots originally purchased in the framework of an ILA tender and constituting part of the Holon Hamanor land. Over the course of 2018, the Company evicted the tenants from the buildings on the land and completed the demolition of these buildings. In June 2018, excavation and shoring works began and in October 2018 a permit was received for the construction of basements and the Company commenced the work for the construction thereof. In the framework of consolidation of parcels, approx. 30 thousand sqm of building rights have been added to the lot (such that the total building rights in the consolidated lot amount to approx. 250 thousand sqm). In July 2019 a permit was received for the addition of parking basements and May 2019 saw the beginning of the construction works of the parking basements in the eastern part of the project and a Form 4 in respect of which was received in November 2020. For further details, see the Company's immediate reports of March 2, 2016, March 23, 2016 and April 14, 2016 (Ref.: 2016-01-039331, 2016-01-012798 and 2016-01-048550, respectively) which are included herein by way of reference, and Section 4.1.1 of the Board of Directors' Report.

Land in Modi'in (Lot 21)

On January 11, 2018, the Group won a tender held by the Israel Land Authority for the acquisition of long-term lease rights in a lot located in the Modi'in-Maccabim-Re'ut CBD (close to the Azrieli Modi'in Mall), with an area of approx. 5,300 sqm, which is designated for the construction of 80 residential units, 50 hotel rooms, office space and retail space, in consideration for approx. NIS 101.5 million. For further details, see the Company's immediate report of January 11, 2018 (Ref.: 2018-01-004960), which is included herein by way of reference.

In July 2019, an excavation and shoring permit was received, and the Company commenced work at the site. In August 2019, a basement permit application was filed which was approved by the local committee on conditions and in June 2020, the basement permit was received.

In September 2019, the Company submitted to the District Committee for deposit the documents of the plan for increasing the building rights in respect of the lot to 28,000 sqm and for connection thereof to the preexisting project. In November 2019 the district committee discussed the plan and decided to deposit the plan on conditions. In June 2020, the Company published the plan for objections and during November 2020, a discussion was held on the objections at the District Committee. In March 2021, the plan was approved such that the building rights are approx. 31,000 sqm.

In June 2020, an application was submitted for the receipt of an above ground building permit for two retail floors, two hotel floors (84 rooms) and service and operation spaces.

BETTERMENT OF EXISTING PROPERTIES:

During the Report Period, the Company continued to promote the betterment of existing properties, inter alia, as follows:

Azrieli Akko Mall - in June 2019 a permit was received for the addition of two office floors above the mall and for the addition of parking spaces, and work is nearing its end.

Azrieli Jerusalem Mall - the zoning plan for the expansion of the mall, senior housing and office spaces was discussed by the Local Planning & Building Committee, which recommended the deposit of the plan with the District Committee. In July 2018, the District Planning & Building Committee in Jerusalem approved the Company's application to deposit a plan for expansion of the areas of the Azrieli Jerusalem Mall by approx. 100 thousand sqm above ground, which include retail, office and senior housing areas, as well as a structure to be built for the Municipality of Jerusalem. On January 22, 2020, a hearing was held at the local committee on the objections. The local committee recommended to the district committee to approve the plan as submitted subject to minor amendments while dismissing all third-party objections. In September 2020, the District Committee held a discussion of the objections to the zoning plan published by the Company. In December 2020 an interim decision was issued by the District Committee, and the Company was required to present construction alternatives. As of the report release date, the District Committee has not yet issued a final decision.

Azrieli Tel Aviv - during the Report Period, the Company has completed the work for renovation of the lobbies in the Round and Square Towers and proceeded with the renovation of the public areas of the project. The Company is currently working to fulfill conditions in connection with an application for a permit for the addition of some 2,500 sqm, for construction of movie theaters on the mall roof, as well as an addition of some 800 sqm of commercial space on the ground floor.

Herzliya Business Park - in June 2018 the Local Committee recommended the deposit of a plan for the addition of two office floors and additional retail areas in the project. The deposit is subject to approval by the District Committee.

Azrieli Holon Mall - in October 2020 the renovation of the mall's public areas were completed. In March 2021, a building permit was received for the addition of a floor on an area of approx. 1,300 sqm on the roof of the mall, where a gym will be built.

Azrieli Rishonim - In May 2019, a discussion was held by the District Committee in connection with the addition of some 21,000 sqm of office space to the office tower. In January 2020, the plan was deposited for objections at the District Committee. In July 2020, the District Committee discussed and denied the objections to the plan for the addition of office space to the office tower in the project, and the plan was approved for validation.

The Company reviews, from time to time, options to promote zoning plans for additional building rights and usages in its projects.

The Company's estimations in Section 7.7 of this Chapter A are forward-looking information, as defined in the Securities Law, which is based on subjective estimates of the Company as of the Report Date, and the materialization thereof, in whole or in part, is uncertain, or they may materialize in a significantly different manner, inter alia, due to factors which are beyond its control, including changes in market conditions, the period of time that shall be required for approval of the building plans for performance and the construction input prices and the effects of the COVID-19 pandemic.

7.8

Land (aggregate)

The table below presents a summary of figures on the Company's land reserves:

Territory

For the year ended on:

December 31, 2020

December 31, 2019

The amount at which the lands are presented in the financial statements at the end of the period (NIS in millions)

300

285

Israel

Total area of the lands at the end of the period (sqm in thousands)

66.4

The amount at which the lands are presented in the financial statements at the end of the period (USD in millions)

U.S.

Total area of the lands at the end of the period (sqm in thousands)

13.7

As of the Report Date, construction in some of the Company's land reserves is impossible due to planning and other restrictions.

LAND RESERVES - FURTHER DETAILS:

Following are details regarding the lands intended for construction as of the Report Date in the investment real estate operating segments. For further details see Section 4.1.1 of the Board of Directors' Report:

Land in Petach Tikva

On September 17, 2017, the Group has engaged in an agreement for the purchase of land in Petach Tikva of an area of around 19,000 sqm for NIS 91 million plus VAT as required by law (the "Vacant Land"). On November 9, 2017, the transaction was closed, and possession of the Vacant Land was handed-over to the Group. The Vacant Land is situated in the eastern part of the Kiryat Aryeh Industrial Zone in Petach Tikva, near an office project that is owned by the Group. The Vacant Land includes building rights for around 53,000 sqm as well as parking basements.

In July 2019 an application for a shoring, excavation and basement permit was submitted. In January 2020, the Local Committee decided to approve the application for a shoring, excavation and basement permit on conditions.

Furthermore, in January 2020 a zoning plan which is subject to the Local Committee's authority was submitted to the Local Committee for approval thereby, within which additional height and additional rights of 500 sqm were requested. In August 2020, a hearing was held by the Local Committee and it was decided to deposit the plan on conditions.

Concurrently therewith, in January 2020 a zoning plan was submitted to the District Committee for the approval of building rights such that it includes 280 thousand sqm, the main use of which will be offices and which are planned to be built both on the Vacant Land and on the land where the office project is situated.

For further details, see the Company's immediate reports of the dates September 18, 2017 and November 9, 2017 (Ref.: 2017-01-093630 and 2017-01-098386, respectively), which are included herein by way of reference.

Azrieli Town Building E

On May 14, 2018 the Company closed a transaction for the acquisition of rights in land situated on Menachem Begin Road in Tel Aviv, which hold a building with 4 floors on top of a retail ground floor, with a total area of approx. 5,500 sqm and basement floors, which is mostly leased for the purpose of offices. The property includes unused building rights in accordance with the zoning plan applicable to the land which total approx. 21,000 sqmof above-ground space and additional rights.

Land in Modi'in (Lot 10)

On October 6, 2019, the Company was informed that it won a tender held by the Israel Land Authority, for the purchase of a leasehold in a lot located in the CBD of Modi'in-Maccabim-Re'ut, the area of which is approx. 17,000 sqm, designated for the construction of a retail and office project, with rights for approx. 37,000 sqm above-ground, in consideration for approx. NIS 51 million that were paid by the Company. Further, according to the terms of the tender, the Company paid, in addition to the cost of the land, approx. NIS 37 million for development costs. The Company is working to promote the plan for the project to be built on the land and in October 2020 it submitted to the Local Committee a zoning plan for additional usages in the lot.

For further details, see the Company's immediate report of October 7, 2019 (Ref.: 2019-01-086697), which is included herein by way of reference.

Palace Rishon Lezion Senior Housing

On March 13, 2016, an (indirect) subsidiary of the Company won a tender issued by the Israel Land Authority for the acquisition of long-term lease rights in a lot of 3.4 thousand sqm designated for senior housing in HaRakafot Neighborhood in East Rishon LeZion, designated for the construction of up to 275 senior housing units and approx. 3,000 sqm of retail space, in consideration for approx. NIS 26 million. According to the terms of the tender, the consolidated company paid development costs in the amount of approx. NIS 22 million. In April 2018, the recommendation of the Local Committee for the deposit of a zoning plan for the addition of above-ground construction rights and increase of the number of senior housing apartments to up to 275 was accepted, and transferred for discussion by the District Committee. In November 2018, the District Committee decided to deposit the zoning plan conditionally.

In April 2019 the zoning plan was published for objections, and in September 2019 the District Committee discussed the objections filed.

In February 2020, the plan was published for validation and was approved in the Official Gazette.

In March 2020, the Company filed an application for an excavation and shoring permit in the project. In June 2020, the permit was received and work commenced at the beginning of 2021.

7.9

Acquisition and Sale of Properties (aggregate)

Territory

Parameters (figures of area in thousands and amounts in millions)

Period (Year ended on)

December 31, 2020

December 31, 2019

December 31, 2018

Properties Sold

Properties

Purchased

Properties

Sold

Properties

Purchased

(1) The sold property is land.
(2) In 2019 the Group acquired the following properties: Land in Modi'in (Lot 10) - for details see Section 7.8 of this Chapter A.
(3) In 2018 the Group acquired the following properties: (a) Land in Modi'in (Lot 21) - for details see Section 7.7 of this Chapter A; (b) Land rights at Menachem Begin Road in Tel Aviv - for details see Section 7.8 of this Chapter A ; (c) An office building in
Austin, Texas, U.S. - for details see Section 10 of this Chapter A.
(4) The costs include the entire purchase amount even if not yet paid and exclude purchase taxes and transaction closing costs.
(5) The NOI only includes the land rights at Menachem Begin Road in Tel Aviv. The additional property is land.
(6) The acquired property is land.
(7) Excluding unused rights of approx. 21,000 sqm in the land at Menachem Begin Road in Tel Aviv.

7.10 Fair value adjustments of values in the Statement of Financial Position required at the corporation level

Presentation in the Description of the

Corporation's

Business Report

Total Income-Producing Property (as presented in the total column in the income-producing properties fair value by territory and use tables as of December 31,2020 and December 31, 2019 Number 3+4)

Total Income-Producing Property under Construction (as presented in the "Total" column in Table 7.7) in Israel

Total Land for Investment in Israel (as presented in the "Total" column in Table 7.8)

Total Land for Investment in the U.S. (as presented in the "Total" column in Table 7.8)

Consolidated Total

Adjustments

Adjustments to value deriving from receivables items Land presented within a property held for sale

Other adjustments(1)

Total adjustments

Total, After Adjustments

Presentation in the Statement of Financial Position

Investment Property Item in the Statement of Financial Position (Consolidated)

Investment Property under Construction Item in the Statement of Financial Position (Consolidated)

Total

As of

(Consolidated) (NIS in millions)

December 31, 2020

26,919

2,155 300 16 29,390 )130( -

6 )124( 29,266 27,111

December 31, 2019

26,109

2,863

285 17 29,274

(134)

(129)

29,145 26,282

2,155 29,266

2,863 29,145

For an explanation with respect to the changes in the investment real estate items between 2019 and 2020, see Sections 2.9.2, 2.10.2, 2.11.2, 2.12.2 of the Board of Directors' Report.

(1) In 2020 and 2019 the adjustments are in respect of non-material costs on projects in initial planning stages.

7.11 Adjustments to FFO profits

FFO for the Year Ended

Net profit for the year attributed to the shareholders Adjustments according to the provisions of the Fourth Schedule to the Prospectus Details Regulations

Changes in the value of investment properties and investment properties under construction

Net loss (profit) from Granite Hacarmel (including profit from the sale of the business of Supergas and GES) and from Azrieli E- Commerce attributed to the shareholders

Depreciation and amortization

Deferred taxes

Net of dividend received from financial assets available for sale Cash flow from deposits received from residents net of deposits returned to residents**

Net of revenues from the forfeiture of resident deposits Profits of an associate

Changes in the fair value of financial assets measured at fair value through profit and loss

One-time expenses in respect of the prepayment of bonds Other expenses

December 31, 2020

NIS in millions

Unaudited 189

764 65

21 )23( )9(

144 )31( )99(

- - -

December 31, 2019

NIS in millions

Unaudited 2,099

)901( )339(

20 348 )123(

169 )29( )19(

1 59 17

Non-cash financing expenses (revenues)

Financing revenues in connection with the sale of companies Attribution of interest paid in respect of real investments*** Adjustments deriving from the share of non-controlling interests

21 - 3 )6(

)9( )14( 5 )3(

Nominal FFO according to the provisions of the Fourth Schedule to the Prospectus Details Regulations*

1,039

1,281

Additional adjustments

FFO of an associate

Linkage differentials and exchange rate differentials on financial assets and liabilities (net of the effect of tax)

FFO according to Management's position

)41( 999

31 1,313

FFO is not a GAAP-based financial indicator. This indicator is calculated according to the Disclosure Provision. The indicator is the accounting net profit for the period, discounting one-time expenses and revenues (including profit or loss from the revaluation of properties), sale of properties, depreciation and amortization. This indicator is commonly used to examine the performance of income-producing real estate companies. The required adjustments to the accounting profit are specified in this table.

The deposits of senior housing residents are deemed as received or as returned on the date on which the agreement is signed or terminated, as applicable.

*** See the explanation in Section 2.7 of Chapter B of this report.

PART FOUR: DESCRIPTION OF THE GROUP'S BUSINESS BY OPERATING SEGMENTS AND MATERIAL PROPERTIES

8.	The retail centers and malls in Israel segment
8.1	General information on the operating segment
8.1.1	General

Most of the Group's malls and retail centers are spread out throughout the central cities of Israel and are located close to the main traffic thoroughfares which enable easy access and outdoor or indoor parking. The retail centers and malls are optimally planned according to the needs of the population in the area in which the mall is located, and they offer a wide and varied mix of shops in the fields of fashion, footwear, jewelry, gifts, house-wares, communications, electronics and computers, optical devices, entertainment and food complexes for the wellbeing of the visitors, easy access and a large number of parking spaces. The Company puts an emphasis on tenants' mix in each one of the malls and retail centers owned thereby, which it believes shall constitute a center of public attraction to each one of them, in accordance with the characteristics of the local public, and performs suitable marketing work, upgrades and renovates the systems and appearance of the malls and performs technological adjustments. The Company expands the marketing methods of the malls through use of the digital space where most of the end consumers of the retail centers and malls spend time for other purposes, through personal marketing and attractive promotion campaigns, in a manner capable of providing the end-consumer, inter alia, a unique shopping experience, which will commence in the digital domain and end in shopping at the Group's malls. Thus, for example, during 2016, the Company launched the Azrieli Malls app, which compiles unique shopping offers and sales at the Group's malls, the ability to pay for parking at the mall and useful information for visitors. The Group also has the Azrieli Gift Card, which is issued either digitally or as a physical card and is redeemable in a broad range of chain stores at the Group's malls.

The Company routinely focuses on the betterment of the Group's existing properties and acts for optimization in the use of its commercial spaces and creates a suitable and modern mix of tenants while differentiating between the projects in order to maintain the relative advantage versus the Group's existing and future competitors.

Most of the Group's lease contracts in Israel are for periods of three to five years and in most cases include an option for additional lease periods (usually three to five additional years), other than agreements in respect of relatively large leasable space, which are mostly signed for longer lease periods ranging between 8 to 25 years (including extensions and exercised options). Most lease agreements include rent that is composed of fixed rent or of rent derived as a percentage of the tenant's turnover in the leased premises, whichever is higher; however, in most cases, the rent actually paid to the Company is the fixed rent, and the Company's revenues from turnover-dependent rent are in an immaterial amount. The occupancy rate of the Group's properties in this operating segment, as of the Report Date, is approx. 98%19.

The Group's retail centers and malls in Israel are managed, with relation to each mall or retail center, by designated management companies established by the Group, which enter with the tenants into management agreements for the purpose of management and maintenance of the public areas, in consideration for management fees.

Most of the management agreements determine that the management fees will be paid based on the cost of the management services, plus overhead expenses. The management services include, inter alia, marketing services of the mall and/or the retail center, both to visitors and to potential tenants, security services, cleaning of public areas, gardening, maintenance of elevators and public systems. The management companies collect from the

19 Discounting properties that are being leased-up for the first time.

tenants the management fees or the maintenance fees, which are used, inter alia, for financing the maintenance of public areas. The management company leases from the Group companies, as the case may be, in each of the malls and retail centers, an area in a small scope located in a non-central area of the mall or retail center, to serve as the offices and storage rooms of the management company, in consideration for fixed rent. In most of the management agreements between the management companies and the tenants, the management companies undertake to maintain and operate the public areas in the malls and retail centers, including cleaning, security, renewal, advertising, insurance, on the conditions and in the scopes as determined by the management companies from time to time. For details on the effect of Covid-19 on the commercial center and mall market in Israel, including rent and management fee relief granted by the Company to mall tenants and the establishment of a special fund for financial aid to such tenants, see Section 2.2 of the Board Report.

All of the Group's retail centers and malls include car parks (above-ground and/or underground) which serve the visitors and the potential tenants, with some of the car parks being open to the general public and some requiring payment.

In some of the malls and retail centers there are areas above or in proximity to the retail areas which are designated for lease as offices and other uses, such as clinics and gyms. See Section 9 of this Chapter A for additional details on the office and other space for lease segment.

8.1.2 The structure of the operating segment and changes occurring therein

The retail centers and malls in Israel segment is affected by the business activities in the economy, the geopolitical and security situation in Israel. For details on the effect of Covid-19 on the segment in the report period, see Section 2.2 of the Board Report. Various entities operate in the retail centers and malls segment which locate, plan, construct, lease and maintain properties designated for lease for various uses.

Based, inter alia, on publicly-available information, at the outset, most of the malls relied on large anchor tenants, which were considered to be crowd attracting. However, in recent years, the concept has changed for the malls in Israel and an opposite trend has begun, of reduction of the space of the anchors (such as supermarkets and department stores), due to the low rent per sqm paid by such tenants and the large space occupied thereby. However, there are presently "new" anchors in the form of large and leading fashion and sports stores.

At the same time, the Company is acting to integrate innovative entertainment centers in its malls and retail centers, such as the "Zappa" Club, restaurants and cafés and is acting to bring cinemas back to the malls (thus, agreements have been signed with respect to the construction of movie theatres at Azrieli HaNegev Mall and at Azrieli Tel Aviv Mall, and the construction of movie theatres at Azrieli Haifa Mall was completed during 2019), in a way that creates an innovative shopping experience for recreation, leisure and shopping. The Company is also acting to improve its properties by renovating and refreshing the fast- food courts and the public areas.

It is noted that in recent years, there has been an increase in the retail space intended for the fashion industry in the malls in Israel segment and in the Company's properties in this operating segment. For further details, see Section 7.6 of this Chapter A.

In recent years, there has been a noticeable trend of brand fashion retail chains growing strong at the expense of single local stores, including international fashion retail chains, and the construction of low-priced power centers outside of cities, which compete with the malls. In addition, an increasingly strengthening trend can be observed in the context of which, several retail groups hold a growing number of leading brands and consequently expand the spaces leased thereby in each mall and improve their bargaining power vis-à-vis the malls. Furthermore, we are witnessing the development of new formats of large branded family-oriented stores. At the same time, it is noted that from time to time, various chains, including fashion chains, encounter financial difficulties, however, the wide range of businesses and the mix in the Group's malls and retail centers contribute to the reduction of the scope of exposure to events of this kind.

In addition, in recent years, changes have occurred in the Israeli consumer's shopping habits, inter alia, in view of the "open skies" reform, which led to a reduction in the prices of flights to various destinations overseas,thereby enabling the execution of more purchases outside Israel as well as online retailing, which brings to the consumer's doorstep a larger variety of products, a quicker and more convenient service and mainly personal tailoring of products according to the consumer's preferences and habits. The Group is acting to develop ways to combine the new digital retailing and the popular mall experience in a manner which creates a novel consumption experience, inter alia, through Azrieli.com and a designated application.

The Covid-19 crisis accelerated changes in consumption habits of Israeli consumers, which were expressed in increased online shopping and expansion of online shopper populations. Accordingly, from March 2020 and throughout all of 2020, a significant increase in sales volumes on the Azrieli.com website was evident.

8.1.3 Restrictions, legislation, standards and special constraints applying to the operating segment

This operating segment is subject mainly to the land laws and the land use and zoning laws. In addition, the business in this segment is affected by legislative updates in the field of business licensing, land taxation and municipal taxation. See Section 23 of this Chapter A for details on the matter of the restrictions, legislation, standards and additional constraints applying to the Group. In addition, business in this segment was significantly affected during the report period by restrictions imposed by the Government of Israel on retail and leisure activities due to the Covid-19 pandemic. For further details in this regard, see section 2.2 of the Board Report.

8.1.4

Changes in the volume of business and profitability of the segment

In the course of recent years, the volume of operations of the Group in the retail centers and malls segment grew, mainly due to the development of new income-producing properties like Azrieli Rishonim Mall that was opened to the public in March 2017 (for a specification of the properties under construction see Section 7.7 of this Chapter A) or expansion and renovation of existing properties (construction of the second floor at Azrieli Ayalon Mall, renovation of Azrieli HaNegev Mall, renovation of Azrieli Jerusalem Mall and renovation of the Holon Mall).

Activity indicators in 2020 demonstrate that in real terms, the Israeli economy experienced a setback, due to the impact of the measures taken by the government in order to stop the spread of COVID-19. However, the forecast of the Bank of Israel and of the International Monetary Fund is that in the upcoming years, the Israeli market will once again grow. For further details, see Section 6.1 above.

The Covid-19 pandemic and the restrictions imposed due to the spread of the pandemic had a direct impact on the business in the segment. For further details on the effects of the Covid-19 pandemic on the Company's operating segments, including the rent and management fee relief given by the Company to mall tenants and the special fund established for financial aid to such tenants, see Section 2.2 of the Board Report.

In the Company's estimation, coming years may see changes in the competitive balance between the players in the income-producing real estate sector, among other things, in view of the forecast for a decrease in the number of significant new projects which offer retail space, which might strengthen the existing leading malls.

For the board of directors' explanations on changes to the fair value of the Group's investment properties in this segment as of the Report Date, see Section 2.9.2 of the Board of Directors' Report.

The Company's management estimates that the wide dispersion of the portfolio of properties owned thereby, the maintenance and active management of the properties, their location mainly in areas of demand, the high business positioning of the properties and the Company's investment in the betterment of its properties for maintaining such advantage, the high occupancy rates, the broad variety of businesses in the malls and retail centers of the Group and the suitable mix of businesses, and the Company's stable capital structure, contribute to a reduction of the exposure of the Company'sbusinesses to a crisis and/or to significant instability due to the materialization of any of the Company's risk factors, other than to the extent that the impact of the COVID-19 pandemic will also have a material effect in the future and for a long time on the Company and/or its tenants.

The Company's aforesaid estimations regarding the changes in the income-producing real estate sector in Israel and the effects of such changes on the Company's results are merely subjective assessments and constitute forward-looking information, within the definition of such term in the Securities Law. Actual results and effects may materially differ from the aforesaid estimations and what they imply for various reasons, including an additional intensification of competition, a decrease in demands and a deterioration in the economic situation in Israel, inter alia, in view of the impact of the COVID-19 pandemic.

8.1.5 Critical success factors in the operating segment and changes occurring therein

The Company estimates that the main success factors in the segment are, inter alia: locating retail centers and malls in areas where there is a relatively high level of demand; the right geographic location of retail centers and malls as a response to the needs of the residents in each area; expertise in development, unique architectural planning, management of the construction of retail centers and malls by the professional management team; the creation of a mix of diverse, quality tenants with financial strength, know-how and experience in marketing, property management and operation; positive goodwill as well as business positioning and financial strength which allows development at relatively low financing costs and provision of immediate response to attractive business opportunities.

8.1.6 Main entry and exit barriers of the operating segment and changes therein

Barriers to entry - In the Company's estimation, entities operating in the retail centers and malls sector require, equity and financial strength. The primary barrier for entry into the development and construction of a retail center, after finding suitable land in an area of demand, is the need for financial strength that enables the obtainment of financing for construction, inter alia, due to a growing trend, whereby developers are increasing investment budgets for lessees of income-producing properties upon the initial lease-up of areas under development. In addition, particularly required are professional knowledge, experience in the development sector, a positive reputation in the sector, availability of sources of financing on good conditions and available and planned land reserves in areas with high demand for leasable retail space. In addition, entities operating in the retail centers and malls sector in Israel are required to meet high regulatory requirements, inter alia, regulation concerning zoning, business licensing, safety, accessibility, antitrust and environmental protection. It is noted, that despite the high barriers to entry, recent years have shown a significant increase in the development and construction of many retail centers all over Israel. However, the future may bring a decrease in the development and construction of significant projects of malls and large retail centers and a shift towards the development of small, neighborhood centers.

In the Company's estimation, barriers to entry in respect of malls are significantly higher than those related to power centers outside the cities, due to the high construction costs that characterize the malls (including the cost of the land, which is more expensive since the locations of the malls are closer to the city centers).

Barriers to exit - Exiting this operating segment is mainly contingent on the ability to dispose of properties, which is a direct result of the location of the properties, their physical condition and the condition of the market, as well as various costs, including in connection with land taxation.

8.1.7 Structure of competition in the operating segment and changes occurring therein

For a description of the structure of the competition in this operating segment, see Section 8.4 of this Chapter A.

8.1.8 Manner of execution of purchases or construction of properties

The Company's management does not have a fixed policy on the acquisition of properties, and each case is examined on its merits, in view of the business opportunity it presents. The Company examines from time to time business opportunities in Israel and abroad, related to the expansion of its activity, mostly in the real-estate segment, including by way of purchasing land reserves, purchase of additional properties and the improvement of existing properties, as well as the acquisition of activities.

In general, the Company may at times purchase its rights in properties by way of direct purchase of the rights in the property, by way of purchase of shares in the companies that own the rights in the properties and by way of allotment of shares in such companies. As of the Report Date, the Company purchased most of its rights in properties by way of purchasing rights in the properties. The considerations for the purchase or development of new income-producing properties are based, inter alia, on the following parameters: yield from the property; properties which generate steady cash-flows and revenues while prioritizing financially sound tenants; the betterment potential of the purchased property.

The Group's malls and retail centers are either under ownership or under long-term lease from the ILA or long-term lease from the local municipalities in whose territory the property is located.

In transactions in which the registration of rights to the purchased property and its transfer to the name of the Company and or the Group's companies is not finalized by the closing date of the transaction, the Company includes mechanisms in its contracts to secure the fulfilment of the seller' undertakings, including those related to the registration of rights to the property and their transfer to the name of the Company, through the deposit of a part of the consideration in trust and through the lodging of a caveat and/or pledges in favor of the Company, as possible under the circumstances.

Upon the purchase of new properties, in respect of which there is an undertaking towards third parties regarding the management and operation thereof, the Company's policy is to release the properties purchased thereby from the management and operation rights, and provide management services itself or through the Group's companies. As of the Report Date, there are no obligations towards third parties in respect of the management and operation of the Group's properties.

The professional managerial team employed by the Group is involved in the construction of all the Group's projects, from the identification of the property, through the preparation of a cost estimate and a timetable for each project, the architectural planning of the project, the carrying-out of contractor bids and up to the ongoing support of the project's construction, with an emphasis on the finishing and completion stages thereof and the occupation of each project by the various tenants.

The Company does not consider the disposition of its properties to be a part of its business strategy, however it may act towards the disposition of existing income-producing properties if they are not strategic for the Company and are not in its core business. In this context, after the Report Date, the Group engaged in agreements for the sale of the mall and office building "Azrieli Kiryat Ata", for further details see Section 1.3.8 of this Chapter A above. The Company's management did not set a fixed criterion of required yields in the case of dispositions or purchases and each case is examined on its merits, in view of its circumstances, designation, location and features.

8.2

Material properties

The following table presents a summary of figures pertaining to material properties of the Group in the retail centers and malls segment as of December 31, 2020, which were appraised by the valuator Mr. Ronen Katz, a partner at Greenberg Olpiner & co (*) by applying the income capitalization method:

Israel

According to Regulation 8b(i) (as applicable)

Territory

2020

2,064

3.62%

7.16%

15%

(249)

98%

31020

15%21

Main rent cap rate-6.7522. Weighted cap rate-6.80%.

Azrieli Tel Aviv Mall )1(

Construction cost (NIS in millions)

2019

2,296

119

149

6.50%

6.84%

29%

100%

319

15%23

512

Main rent cap rate- 6.75%24. Weighted cap rate-6.79%.

Area (sqm)

2018

115

6.56%

99.5%

321

Main rent cap rate- 7.00%26. Weighted cap rate-7.06%.

37,412

20 In view of relief given to the tenants in 2020 due to the impact of the spread of Covid-19, rent per sqm was presented according to contracts as of December 31, 2020 with no relief.
21 Ratio of average revenue per sqm to average rent and management fees per sqm - 18%.
22 Approx. 26% of the rent (for large areas) were capitalized according to a cap rate of 6.5%.
23 Ratio of average revenue per sqm to average rent and management fees per sqm - 18%.
24 Approx. 26% of the rent (for large areas) were capitalized according to a cap rate of 6.5%.
25 Ratio of average revenue per sqm to average rent and management fees per sqm - 18%.

26Approx. 30% of the rent (for large areas) were capitalized according to a cap rate of 6.75%.

Territory

Israel

2020

3.62%

100%

Rent cap rate-6.75%.29 Weighted cap rate-6.79%.

Azrieli Ayalon Mall (2)

Construction cost (NIS in millions)

2019

1,699

105

116

6.84%

6.98%

25%

100%

260

12%30

Rent cap rate-6.75%.31 Weighted cap rate-6.78%.

461

33,545

2018

104

7.05%

100%

259

Rent cap rate-7.00%33 Weighted cap rate-6.78%.

27 In view of relief given to the tenants in 2020 due to the impact of the spread of Covid-19, rent per sqm was presented according to contracts as of December 31, 2020 with no relief.
28 Ratio of average revenue per sqm to average rent and management fees per sqm - 13%.
29 Approx. 42% of the rent (for large areas) were capitalized according to a cap rate of 6.5%.
30 Ratio of average revenue per sqm to average rent and management fees per sqm - 15%.
31 Approx. 42% of the rent (for large areas) were capitalized according to a cap rate of 6.5%.
32 Ratio of average revenue per sqm to average rent and management fees per sqm - 15%.
33 Approx. 41% of the rent (for large areas) were capitalized according to a cap rate of 6.75%.

According to Regulation 8b(i) (as applicable)

Information Item

TerritoryIsraelFunctional Currency

2020

2,083

3.69%

6.95%

17.19%

(103)

98%

11%35

NIS

Rent cap rate-6.5%. Weighted cap rate-6.6% .

Main Use

Retail

Azrieli

Jerusalem Construction

Mall

Cost (NIS in millions)

447

(excluding the office component)

2,174

145

6.66%

6.71%

285

Rent cap rate-6.5%. Weighted cap rate-6.6% .

Corporation's share (%)

100%

2018

2,094

131

144

6.87%

6.99%

32%

100%

284

12%37

Main rent cap rate-6.75% Weighted cap rate-6.86%.

40,693

The other properties (excepting material and highly material properties)***

2020

15,164

652

596

(326)

The other properties (excepting material properties)***

2019 2018

13,963 13,441

832 819

807 794

212 64

Mr. Ronen Katz is a certified real estate appraiser, with B.A. in Agricultural Economy and Administration from the Agriculture Faculty of the Hebrew University in Jerusalem and has gained experience as a real estate appraiser since 1997.

** The figure is to the best of the Company's knowledge. It does not include lease agreements which do not include rent from sales and is given based on information received from the tenants or from other third parties (as the case may be), and therefore the Company cannot verify that this information is indeed true.

***In all real estate segments.

(1) The figures include 50% of the profits of the Azrieli Center car park (another 50% were included in the details of the Azrieli Center offices, as specified in Section 9.2 of this Chapter A).
(2) The Company is registered with the Land Registry as a long-term lessee of Azrieli Ayalon Mall for a 49-year period ending on August 1, 2031, with an option for an additional 49-year period. The
Municipality of Ramat Gan has leased the adjacent car park, which includes approx. 2,300 parking spaces, from the Israel Land Authority for 999 years. The Municipality of Ramat Gan has undertaken (and an easement therefor has been registered) to enable a right of passage for vehicles and pedestrians, as well as an open parking right for the public, including the Mall's visitors, in the parking spaces that were
arranged (excluding 250 parking spaces, use of which will discontinue insofar as the Municipality realizes building rights thereon) and so long as the Company continues leasing and operating the Azrieli Ayalon Mall. Due to shortage of parking space and use by the neighboring office buildings of the parking areas around the mall, during 2015 an agreement was executed with the Municipality of Ramat Gan for the regulation of parking by marking it in blue and white while reserving the Company's rights in the car park and granting free parking to the mall's visitors at certain times.

34 In view of relief given to the tenants in 2020 due to the impact of the spread of Covid-19, rent per sqm was presented according to contracts as of December 31, 2020 with no relief.
35 Ratio of average revenue per sqm to average rent and management fees per sqm - 14%.
36 Ratio of average revenue per sqm to average rent and management fees per sqm - 15%.
37 Ratio of average revenue per sqm to average rent and management fees per sqm - 14%.

8.3

The following table presents a summary of figures about a material income-producing building under construction of the Group, as of December 31, 2020. It is emphasized that uses of this property will be allocated between the retail centers and malls in Israel operating segment and the leasable office and other space in Israel operating segment, according to the various uses of the designation of the building rights in the property:

Expansion of Azrieli

Method ofPresentation in Consolidated

Report

Center Tel AvivTel Aviv

May 2013

100%

Fair value

150,000 sqm for offices, retail and residential

Total ProjectedInvestment, including Land, Construction and Development (NIS in millions)

2025

2,300-2,500

Expansion of Azrieli Tel Aviv Center

Y2020

Y2019

Other properties under construction 2020

Financial DataAggregate Cost at

Year-End, including Land, Construction Development and

Financing (consolidated) (NIS in millions)

645

561

Other properties under construction 2019

1,251 2,095

884

837

1,271 1,893

(40)

Completion at which Binding

-(105)

Data on Valuation and the Assumptions on which it is Based

Mr. Ronen Katz is a certified real estate appraiser, with a B.A.

in Agricultural

Economy and Administration from

the Faculty of

Agriculture at the Hebrew University in

Jerusalem. Has gained experience as a real estate appraiser since 1997 Mr. Ronen Katz is a certified real estate appraiser, with a B.A.

in Agricultural

Economy and Administration from

the Faculty of

Agriculture at the Hebrew University in

Jerusalem. Has gained experience as a real estate appraiser since 1997

Presented according to fair value under the comparative method

N/APresented according to fair value under the comparative method

N/A

8.4

Competition

Beyond the aforesaid, in the Company's estimation, over recent years, the retail centers and malls in Israel segment has been characterized with high competitiveness, and to the best of the Company's knowledge, there are more than 300 retail centers in Israel. The structure, size and business mix of the retail centers are mostly adjusted to the characteristics of the demand of those leasing areas in the geographical region in which they are located. The competition in this area revolves around several parameters, of which the main ones are: (1) the geographical location of the properties and the level of demand for spaces for lease in such area; (2) the level of revenues in the properties; (3) the rent level and management and maintenance costs; (4) the quality of construction of the leased buildings; (5) the level of auxiliary services and, (6) The Lessor's goodwill.

As of the Report Date, the Company operates in this operating segment principally in the development of retail centers, and focuses on discovering reserves of land in attractive locations and with the potential for high revenues, and therefore the competition vis-à-vis bodies which concentrate primarily on acquisitions of existing retail centers is lower. In retail complexes and centers located in residential areas a competition could also develop with local developers. The market trends over the recent years and the attempt to adjust the characteristics of the retail center accurately to local demands and to the substitutes available to the consumer have blurred the lines distinguishing between the different types of retail centers.

Due to the intensification of the competition in the sector, the addition of retail space in many regions and a trend of increase in on-line commerce, the Company acted in 2020 and will continue to act for the development of the end consumer marketing segment. Inter alia, the Company continues activity for branding of the Group's malls through a uniform language of communication in the properties themselves, marketing activities and campaigns on the different types of media, and planning of further marketing, branding and differentiation activities and sales campaigns for all of the Group's malls (hard sale).

The Group also operates a shopping website under the Azrieli.com brand, which offers, inter alia, the businesses operating in Group-owned malls and retail centers an online selling platform with the related logistic services, such as storage services and delivery services to the customers' homes or to collection points located at the Group's properties. For details with respect to the Company's e-commerce operations, see Section 13 of this Chapter A.

To the best of the Company's knowledge, a number of entities operate in Israel which hold significant portions of properties in the retail centers and malls segment, including REIT 1 Ltd., Gazit Globe Ltd., Melisron Ltd., Industrial Buildings Ltd., Amot Investments Ltd., Jerusalem Economy Ltd. and Big Shopping Centers (2004) Ltd. In addition, to the best of the Company's knowledge, in recent years new players are joining the market such as the institutional bodies (either directly or through a managing body which knows the operating segment well) and investment funds, that seek alternative yield for the members and for themselves.

The Company estimates that the geographic location of the retail center and its differentiation directly affect its characteristics and its tenant mix since each center adjust itself to the sizes of the geographic market in which it is located in order to create a center of attraction which is unique therefor and deal with centers existing in the area which created the consumers' purchase habits. For the most part, the tenants will consider the benefit of space in a retail center with a better geographic location, a mix conforming to its business operations versus its cost and with a better reputational image.

Competition for the private consumer is also mainly characterized by the geographic location and against other centers of the power center-type as well as shops on city streets. Most of the retail centers and malls serve the population residing or employed in the geographic area in which the retail center is situated. Nonetheless, the Azrieli Tel Aviv Mall, due to its location, accessibility and proximity to the train station and to major intersections, serves consumers from all across Israel.

In the Company's estimation, the competition vis-à-vis the private consumer is influenced, inter alia, by the tenant mix, the types of the shops and their branding, the atmosphere and shopping experience, benefits to consumers, events initiated in the framework of the retail center, access to the retail center and availableparking (free or paid). The malls and retail centers are therefore required to renovate, upgrade and adjust the tenant mix therein from time to time.

In the Company's estimation, the volume of its operations in the retail centers and malls in Israel segment is large, and it is one of the leading companies in the field in Israel. As of the Report Date, approx. 1,840 tenants operate stores and retail in the Group's retail centers and malls. In the Company's estimation, the factors and methods that help the Group cope with the competition in the segment are as follows:

▪ Most of the retail centers and malls of the Group are characterized by quality planning and a high-quality tenant mix, which the Company carefully maintains over the years and that contribute to its competitive advantage and offer to the visitors to the retail centers and malls a quality shopping experience;
▪ The volume of the Company's business in the segment allows the Company to engage with chains and service providers at beneficial terms, thus allowing it to specialize in the management of retail centers and malls in an efficient manner in order to lead to savings in costs and in manpower;
▪ Most of the Company's tenants are large chains and/or companies with superior financial strength and the lease agreements therewith are for a relatively long period;
▪ The Company's retail centers and malls are located in high-demand areas, enabling the Company to lease the properties to numerous and diverse types of tenants;
▪ The expertise of the Group in the planning and development of retail centers and malls according to the needs of the tenants and visitors in the retail center and/or mall;
▪ The scale of the business and the Company's experience in the segment, allows it to carry out marketing activities also to the end consumers, the mall visitors and to adopt innovation in the retail segment, improving the experience of shopping at the Company's shopping centers, including use of digital media. For details with respect to the Company's e-commerce operations, see Section 13 of this Chapter A.

8.5

Goals and business strategy for the segment

See Section 26 of this Chapter A for the Company's goals and the Group's strategy.

9.	The leasable office and other space in Israel segment
9.1	General information on the operating segment
9.1.1	General

In this operating segment, as of the Report Date, the Group is engaged in the development, acquisition, lease-out, management and maintenance of office and high-tech parks, office buildings and buildings for industry, workshops, storage and residence in Israel. The office parks and office buildings are designated primarily for businesses in the segments of liberal professions, service providers, headquarters of financial entities, hotelkeeping, medical services and high-tech industry, which are characterized by a large number of personnel and a demand for adjacent parking spaces.

Most of the Group's lease agreements are for periods of about five years on average, with the tenant given an option for additional lease periods of about five years and the rent is at a fixed amount per each square meter of the leased space. A recent trend is the engagement in lease agreements for large spaces, for longer periods of around 10 years.

All of the Group's leasable office and other space properties in Israel include also car parks (above-ground or underground) which serve the tenants and their customers.

In this operating segment, the Group's income-producing areas that are leased to third parties are mainly divided into two types:

▪ Parks for businesses and for high-tech industries - The Group specializes in responding to the special needs of the high-tech industries and the construction of purpose-built buildings fitted in advance to the needs of the tenants. The purpose-built construction provides a comprehensive and complete solution to tenants, that includes the guidance of the tenant beginning from the stage of preparing the working plans for purposes of the design requested by the tenants, the planning and construction of the building in full cooperation with the tenant and through responding to all of the tenant's demands as to the interior of the leasehold. The business parks present a quality and clean working environment in a central location, quality infrastructure, green areas and parking spaces.
▪ Office towers - The Group has office towers that are leased, in most cases, with high occupancy to numerous and diverse tenants for long lease periods.

The Group's leasable office and other space in Israel segment is managed in relation to each building or group of buildings through the Company or designated management companies owned by the Group, which engage with the tenants in management agreements. Most of the management agreements determine that the management fees will be paid based on the cost of the management services plus overhead expenses. The management companies collect from the tenants the management fees or the maintenance fees, which are used, inter alia, for financing the maintenance of public areas, whereas in most of the management agreements between the Company or the management companies and the tenants, the management companies undertake to maintain and operate the public areas, including cleaning, security, renewals and insurance, on the conditions and in the scopes as determined by the management companies from time to time.

9.1.2 The structure of the operating segment and the changes occurring therein

The leasable office and other space segment is mainly affected by the economic activities in Israel and abroad. Various entities are active in this operating segment which locate, plan, construct, lease and maintain properties designated for lease for various uses. There are many companies in Israel in the office and other space for lease segment, including large, veteran and leading companies, which own properties in large volumes, as well as smaller, local developers who operate in specific geographic areas. The business in this segment is generally characterized by the fact that part of the costs of construction or acquisition is financed by independent sources and the remainder is financed by credit from outside sources.

9.1.3 Restrictions, legislation, standards and special constraints applying to the operating segment

9.1.4 Changes in the volume of business and profitability of the segment38

In recent years, the Company has acted to expand its business in this operating segment, inter alia, by developing new projects (in recent years the Company has built Azrieli Sarona in Tel Aviv, the Azrieli Holon Center and the office tower in Azrieli Rishonim Center, Azrieli Holon HaManor and Azrieli Town Tel Aviv which was almost fully occupied on the date of its opening). Furthermore, as part of the business strategy the Company is examining attractive investment opportunities and the creation of new growth engines also in tangential segments, and possibilities to create a synergy with the other operating segments thereof.

For a number of years, until the end of 2019, the office market was growing. According to reviews reported in connection with the office market, in H2/2020, in view of the Covid-19 pandemic, a trend of deceleration in demand for offices was identified in the office market, and moderate rent reductions were recorded in most office areas in the center of Israel. In addition, according to the said reviews, in H2/2020, a decrease of approx. 9% was recorded in office rent in the City of Tel Aviv.

Further to the aforesaid about the Covid-19 pandemic, and due to the increase in the supply of new office buildings in the center of Israel, certain areas saw a more significant decrease in rent.

Despite the trends described above, as of the report date, the Group has maintained very high occupancy rates at its income-producing properties in the segment, and has even increased its total revenue from rent. As stated in Section 2.2 of the Board Report, the Company's income from the office segment in Israel has not been materially affected since the outbreak of Covid-19, other than due to the granting of specific requests for relief by tenants in the Company's office properties (mainly tenants whose opening was prohibited or significantly limited such as gyms, colleges, etc.), and the spreading out of rent payments due to the Covid-19 crisis. Debt collection in 2020 is about 100%.

The Company estimates that its financial strength, the strength of the Company's tenants, some of which constitute the leading firms in the economy (AAA tenants), its high liquidity and standing in the financial market are advantages and strengthen its status in the segment.

Despite the Covid-19 pandemic which has had a significant impact on the Israeli economy, the strength demonstrated by the high-tech industry generates, and in the Company's assessment will continue in the coming years to generate, demand for office space which meets its needs, due to the forecast of continued increase in the number of persons employed in the information, information security and cyber technology industry. In view of the aforesaid, there is a noticeable increase in the Company's exposure to the high-tech sector, due to the increase in the lease of offices to companies of this sector. Conversely, the Covid-19 pandemic has encouraged the development of the work-from-home culture, which may reduce the demand in the sector.

The Company's properties are essentially characterized by a high standard of construction, location and management, the demand for which in recent years has been constantly on the rise. In addition, a large part of the increase in the supply of offices in the center of Israel is made up of buildings that are being built in the context of purchase groups, or buildings that are intended to be sold to a large number of buyers, which in the

38 The information in this section is taken from the following sources:

H2/2020 Office Market Review - Inter Israel Cushman & Wakefield CBRE Q4/2020 Market Review.

Company's estimation, may mainly increase the supply of leasable office space for areas of 200-500 sqm. In addition, in the Company's estimation, the coming years may see changes in the competitive balance between the players in the income-producing real estate sector, inter alia, due to the lease-up of office space projects, primarily in the Dan Metropolitan Area, which pose challenges for the sector.

For further details on the impact of Covid-19 on the segment and the development of the revenues from this operating segment, see Sections 2.2 and 2.10.2 of the Board Report.

The Company's aforesaid estimations with respect to the changes in the segment and the effect thereof on the Company's results are merely subjective estimations and constitute forward-looking information within the definition of such term in the Securities Law. Actual results and effects may materially differ from the aforesaid estimations and the implications thereof, for various reasons, inter alia, a further intensification of the competition, a decrease in the demand for office space and an adverse change in the economic situation in Israel, inter alia, in view of the effects of the COVID-19 pandemic.

9.1.5 Critical success factors in the operating segment and changes occurring therein

The Company estimates that the main success factors of the Company in the segment are, inter alia: the geographic dispersion and the location of the income-producing properties in areas in demand throughout Israel for offices, commerce and industry; the quality of the properties; expertise in development and architectural planning; management of the construction of properties that are tailored to potential tenants, in relation to which the Company has engaged in lease contracts in advance through the professional management team employed by the Group; the level of demand and supply of properties of a similar type which dictate the terms of the lease contracts and the potential changes thereto; know-how and experience in marketing, property management and operation; positive goodwill; and business positioning and financial strength which allows immediate response to attractive business opportunities.

9.1.6 Main entry and exit barriers of the operating segment and changes occurring therein

Barriers to entry - In the Company's estimation, entities operating in this operating segment require mainly equity and financial strength. Also important are professional know-how, experience in the development sector, a positive reputation in the industry and available and planned land reserves in areas with high demand for leasable space in office buildings . Development in the segment requires financial soundness which enables operating in the development segment at relatively low financing costs

Barriers to exit - Exiting this operating segment is primarily contingent on the ability to liquidate properties, which is a direct result of the location of the properties, their physical condition and the condition of the economy, as well as various costs, including in connection with land taxation.

9.1.7 Structure of competition in the operating segment and changes occurring therein

See Section 9.3 of this Chapter A for a description of the structure of competition in this operating segment.

9.1.8 Manner of executing acquisitions of the Company

See Section 8.1.8 of this Chapter A for a description of the manner of acquisition and disposal of the Group's rights in properties. In this context, after the Report Date, the Company sold the mall and the office building "Azrieli Kiryat Ata", for details see Section 1.3.8 of this Chapter A above.

9.2

Details of the Group's highly material properties in the leasable office and other space segment

9.2.1 Azrieli Tel Aviv Towers

The following tables present a summary of data with respect to the office towers in Azrieli Tel Aviv Center, the revenues from which, as of the Report Date, constitute approx. 10% of the Company's total revenues and consequently it meets the definition of a highly material property.

The Group, through Canit Hashalom, holds all leasehold rights in the center named "Azrieli Center". Azrieli Center extends over a land block the total area of which is approx. 33 thousand sqm, located in the center of Tel Aviv, on an intersection that serves as a principal traffic artery and close to Tel Aviv's principal arterial roads (Ayalon Highway, HaShalom Road, Menachem Begin Road) and to HaShalom Railway Station which is located on Hashalom Interchange.

To the best of the Company's knowledge, as of the Report Date, Azrieli Center is the largest business center in Israel, with a total gross built-up area of approx. 328,393 sqm, comprised of an underground car park and storage facilities (122,258 sqm), a mall consisting of 3 retail floors and a public floor (61,110 sqm), public passage bridges over Menachem Begin Road and Hashalom Railway Station (1,365 sqm) and three towers: The Round Tower (55,823 sqm), which consists of 38 office floors and an additional roof floor that holds an observatory and a restaurant; the Triangular Tower (47,348 sqm), which consists of 35 office floors and 2 additional service floors; and the Square Tower (40,489 sqm), a mixed-use tower which consists of 18 office floors over 13 hotel floors. For details with respect to the Company's plans to expand the Azrieli Tel Aviv Center, see Section 7.7 of Chapter A of the Report.

9.2.2 Presentation of the property

Details as of December 31, 2020

Name of property: Location of property:

Azrieli Towers

Tel Aviv

Property areas - broken down by usage:

Offices - 133,201 sqm; hotel - 18,000 sqm; offices used by the Group - 2,450 sqm.

Company's share in the property:

100%

Property holding structure:

Held by Canit Hashalom which is wholly-held (100%) by Azrieli Group

Actual share of the corporation in the property: Names of partners in the property:

100% -

Property acquisition date:

The land was acquired in August 1992.

Specification of legal rights in the property (ownership, leasehold etc.):

Capitalized leasehold.

Significant unutilized building rights:

Status of registration of legal rights:

Registration of Canit Hashalom's leasehold rights with the Land Registry was completed in July 2014.

Special issues (material building code violations, soil contamination, etc.):

There are no special material issues.

Method of presentation in the Financial Statements:

Consolidation

It is noted that all Azrieli Center areas are designated for lease on the free market, with the exception of an area for self-use by Canit Hashalom and the Group's companies (on the top office floor of the Round Tower and part of Floor 33 and additional negligible areas, such as archives, a gallery, a storeroom, etc.), and with the exception of an area of approx. 5,500 sqm in the project's basements which serves as a sub-station of the Israel Electric Corp. Ltd. (IEC) and was sub-leased thereto in 2006 in consideration for approx. NIS 14 million for the entire term of Canit Hashalom's leasehold.

Yarden Hotels M.H.Y. Ltd. which operates the hotel in the Square Tower of Azrieli Towers, has a business license for operation of the hotel, which, as of the Report Date, is valid until December 31, 2030.

9.2.3 Main figures

Figures for 100%.

The Company's share in the property - 100%

Y2020

Fair value at the end of the period (NIS in millions)

3,239

Revaluation profit (loss) (NIS in millions)

)27(

Average occupancy rate (%)

98%

Leased space (sqm)

134,496

Total income per year (NIS in millions) (*) Average rent per sqm per month (NIS) (**) Average rent per sqm per month in contracts signed during the period (NIS) (***)

235

114

118

NOI (NIS in millions)

200

Adjusted NOI (NIS in millions) Actual yield rate (%) Adjusted yield rate (%)

232

6.2%

7.2%

Number of tenants at end of report year

131

Y2019

3,227

180

~100%

148,630

250

106

126

213

220

6.6%

6.8%

135

(*) The revenues and the NOI include 50% of the revenues and the NOI of the car park.

Construction cost (NIS in millions) Land acquisition date

On Property Acquisition

Date

1,292

August 1992

- - - - - - - - - -

(**) (1) In view of relief given to some of the tenants in 2020 due to the spread of Covid-19, rent per sqm was presented according to contracts as of December 31, 2020 with no relief.

(2) Excluding the hotel's rent. If the average included the hotel's rent, the average for 2020 would be approx. NIS 109 per sqm.

(***) With new tenants only (excluding the extensions of contracts with preexisting tenants).

9.2.4 Breakdown of revenues and costs structure

Figures for 100%.

The Company's share in the property - 100%

Y2020

Y2019

Revenues:	(NIS in millions)	(NIS in millions)
From rent - fixed	174	178
From rent - variable	-	2
From management fees	36	38
From the operation of car parks	21	26
Others	4	6
Total Revenues	235	250
Costs:
Management, maintenance and operation	35	37
Depreciation	-	-
Other expenses	-	-
Total Costs:	35	37
Profit:	200	213
NOI:	200	213

9.2.5 Principal tenants in the property

The Company does not have an anchor tenant (as defined in the Disclosure Provision) or a principal tenant at the property the revenues from whom represent 20% or more of the property's revenues.

9.2.6 Projected revenues in respect of signed lease contracts

For the year ending December 31, 2021

For the year ending December 31, 2022

For the year ending December 31, 2023

For the year ending December 31, 2024

For the year ending December 31, 2025 forth

NIS in millions )figures for 100%. The corporation's share in the property is 100%)

Fixed components Variable components (estimate)* Total

208

189

114

265

-208

208

189

114

265

* **

In the rent calculation, additions to the rent on account of a percentage from the turnover were not taken into consideration, as the Company's management has no estimate of such sums.

The figures are according to signed contracts as of December 31, 2020, excluding Covid-19 relief. Therefore, actual revenues may differ from the above figures.

The amounts of revenues in the above table, were calculated based on the basic amounts specified in the lease agreements, being linked to the known CPI on December 31, 2020, and based on the following: (1) Exclusion of the exercise of options for extension of the terms of lease under the lease contracts (although many of the Company's tenants usually extend the lease contracts upon expiration thereof); (2) Exclusion of lease contracts under which the term of the lease has expired and new lease contracts have not yet been signed with the tenants; (3) Exclusion of early exit fees, if any; and (4) No change in the advance payments of management fees of every tenant for Y2020.

The above figures are based on the Company' assessment considering the signed agreements as of the Report Date and constitute forward-looking information within the definition of such term in the Securities Law. Actual results may significantly differ from the aforesaid estimates and the implications thereof, for various reasons, including the early termination of lease contracts or a business crisis experienced by any of the tenants, inter alia, in view of the effects of the COVID-19 pandemic.

9.2.7 Specific financing for the property

Specific Financing	Loans
Balances in the Statement of Financial Position	December 31, 2020 (NIS in millions)	Presented as current maturities:	89
Presented as long-term loans:	-
December 31, 2019	Presented as current maturities:	89
Presented as long-term loans:	89
Fair value as of December 31, 2020 (NIS in millions)	89
Original loan taking date	August 2013
Original loan amount (NIS in millions)	710,000
Effective interest rate as of December 31, 2020 (%)	1.16%
Principal and interest repayment dates	The principal is repaid in equal semiannual payments until August 2021. Interest is paid on the outstanding balance every 6 months.
Key financial covenants	The lender has the right to accelerate the loan upon the occurrence of standard causes specified in the agreement, including, inter alia, a material adverse change in the number of tenants in the Round Tower or where the ratio between the balance of the loan as of the calculation date and the value of the Round Tower (as determined by an appraiser that will appraise the Round Tower once a year) (LTV) is, as of the expiration of two years from the date of provision of the loan, no more than 70% (the rate thereof decreasing over the term of the loan down to 25% one year prior to full repayment of the loan). As of December 31, 2020, such ratio is approx. 7%.
Other key covenants	-
Is the corporation compliant with key covenants and with the financial covenants as of the end of the report year	Yes
Is it non-recourse?	No

9.2.8 Security interests and material legal restrictions on the property

Type	Amount Secured by theDetails Security Interest December 31, 2020 (NIS in millions)

Part of the lobby floor, the roof floor and Floors 11-49 of the Round Tower are subject to a fixed charge in favor of an institutional body group (also see Section 19.3 below).

PledgesFirst-ranking

(1) Canit Hashalom has provided the Tel Aviv Municipality a guarantee of NIS 8 million, linked to the Residential

Construction Input Price Index (amounting, as of December 31, 2020, to approx. NIS 25 million), which is intended to secure the completion of Canit Hashalom's performance of its obligations in connection with the performance of the project's development and construction work. Such guarantee is expected to be returned to Canit Hashalom upon the issuance of a certificate of completion for the project. As of the Report Date, Canit Hashalom is acting to obtain such certificate of completion and does not expect any amounts to be forfeited out of this guarantee.

The provisions of this section constitute forward-looking information, within the definition of the term in the Securities Law, which is based on the Company's assessments based on past experience, and actual results may be different, primarily due to authorities' requirements which are unknown as of the Report Date.

(2) On February 28, 2008, Canit Hashalom signed a letter of undertaking to the Tel Aviv Municipality and provided an additional bank guarantee of approx. NIS 8 million, linked to the CPI (amounting, as of December 31, 2020, to approx. NIS 9 million), in connection with the issuance of a Form 4 for the project's Square Tower in accordance with a condition for occupancy under the zoning plan, in the context of which the Company undertook to build a tunnel to arrange for additional access to the project's underground car park. Construction of the tunnel requires the relocation of a water line by NTA as part of the work for construction of the Light Rail's red line. The relocation work is expected to be completed by June 2021.

In order for the tunnel work to be carried out, it is required to extend the term of the performance permit, which is presently effective until October 2021. According to Canit Hashalom's estimation, the cost of construction of the tunnel is approx. NIS 20 million.

The provisions of this section constitute forward-looking information, within the definition of the term in the Securities Law, which is based on the Company's assessments based on NTA's plan for completion of the relocation work. Actual results may be different as a result of numerous factors, primarily due to possible delays in the relocation work.

9.2.9 Details regarding the valuation

Y2020	Y2019
Determined value (NIS in millions)	3,239	3,227
Identity of the appraiser39	Ronen Katz of Greenberg Olpiner & Co.	Ronen Katz of Greenberg Olpiner & Co.
Is the appraiser independent	Yes	Yes
Is there an indemnification agreement	Yes	Yes
Effective date of the valuation (the date to which the valuation pertains)	December 31, 2020	December 31, 2019
Valuation model	Income approach	Income approach
Main parameters used for the purpose of the valuation
Valuation according to the income approach	Gross leasable area used in the calculation (sqm)40	151,201	148,690
Representative occupancy rate out of the leasable area for the purpose of valuation (%)41	89%	~100%
Average representative monthly rent per leased sqm for the purpose of valuation	109	104
Representative NOI for the purpose of valuation (NIS in millions)42	232	220
Average periodic expenses per year for preservation	See under "Other main parameters" below	See under "Other main parameters" below
Weighted cap rate used in the valuation	6.81%	6.65%
Other main parameters	Expected investments in the property, as well as investments due to a contractual obligation to the Tel Aviv Municipality, were deducted. Overall depreciation of the property due to the aforesaid totaled approx. NIS 173 million	Expected investments in the property, as well as investments due to a contractual obligation to the Tel Aviv Municipality, were deducted. Overall depreciation of the property due to the aforesaid totaled approx. NIS 76 million
Value Sensitivity Analyses	Change in value (NIS in millions)
Cap rates	0.25% increase	(121)	)120(
0.25% decrease	130	129
Average rent per sqm	0.5% increase	149	143
0.5% decrease	(149)	)143(

9.3

Competition

The income-producing real estate sector in general, and the leasable office and other space segment in particular, are characterized by intense competition. Competition in the leasable office and other space segment in Israel revolves around several parameters, chief of which are the: (1) geographic location of the properties and the level of demand for leasable space in the area; (2) rent level and management and maintenance costs; (3) quality of construction of the leased buildings; (4) standard of auxiliary services, and (5) the lessor's reputation. The competition in this sector exists both at the stage of identifying properties for enterprise, development and property construction purposes and at the stage of lease-up of the properties. In Israel the Group is exposed to competition by numerous companies engaged in the lease of business real estate,

39 Mr. Ronen Katz is a certified real estate appraiser, holding a B.A. in Agricultural Economy and Administration from the Agriculture Faculty of the Hebrew University in Jerusalem, and has gained experience as a real estate appraiser since 1997.

40 Excluding an area of approx. 2,450 sqm on the top office floor and part of Floor 33 of the Round Tower, which is used by the Company itself.

41 Represents the ratio of marketed area to total area, but the value of vacant space is also taken in appraisals.
42 Including 50% of the representative NOI of the car park which is included in the value of the property (the remaining 50% were included in the valuation of the mall).

in areas of demands similar to those in which the Group's properties are situated, while in most cases, the competition is local. Thus, for example, prestigious office buildings in Tel Aviv compete against the Azrieli Tel Aviv Center and other alternatives for office buildings in the area compete against the Herzliya Business Park.

To the best of the Company's knowledge, several entities are operating in Israel and holding significant portions of leasable office and other areas, including REIT 1 Ltd., Gav Yam Land Ltd., Nitzba Holdings 1995 Ltd., Industrial Buildings Ltd., Levinstein Properties Ltd. and Amot Investments Ltd. In the Company's estimation, the scope of its operations in the leasable office and other space in Israel segment is of the most significant from among the leading companies in the sector, especially once the projects that are under various stages of construction as of the Report Date are completed.

The factors assisting the Company to deal with the competition in this segment are as follows:

▪ The Company's volume of operation in the segment enables the Company to communicate with companies and service providers at beneficial terms, and it further enables it to specialize in the management of commercial parks and office buildings in an efficient manner which leads to savings in costs and in manpower.
▪ Most of the Company's tenants are companies with high financial strength and the lease agreements therewith are for a relatively long period of time.
▪ The Company's office and other space for lease is located in areas of high demand, enabling the Company to lease the properties to numerous diverse types of tenants.
▪ The unique characteristics of the Group's properties, such as: a retail center in proximity to the office space for rental, access to public transportation, including the railroad and underground car parks for the convenience of the tenants and their customers.
▪ Most of the Company's office space is characterized by its high quality and prestigious nature, which distinguishes the Company's property from those of the competing companies and strengthen its competitive edge.

9.4

Goals and business strategy in the segment

See Section 26 of this Chapter A for details on the Company's goals and the Group's strategy.

9.5

Material Properties

The following table presents a summary of figures pertaining to material properties of the Group in the leasable office space segment as of December 31, 2020, which were appraised by the valuator Mr. Ronen Katz, a partner at Greenberg Olpiner & co (*) by applying the income capitalization method:

11.98%

According to Regulation 8b(i) (as applicable)

2020

6.69%

100%

11243

TerritoryIsrael

2019

Main rent cap rate-6.5%.

Weighted cap rate- 6.47%.44

6.7%

11%

294

100%

111

Main rent cap rate-6.5%45. Weighted cap rate-6.47%.

Azrieli Sarona

Tel Aviv

Functional currency

Main useOffices

2018

2,429

117

4.8%

7.4%

138

99%

110

N/AMain rent cap rate-7.0%. Weighted cap rate-7.13%.

Construction cost (NIS in millions)

Corporation's share (%)

1,514 100%

TerritoryIsrael

2018

3,025

177

207

6.9%

7.2%

16%

(8)

~100%

106***N/AMain rent cap rate-6.75%. Weighted cap rate-6.95%.

Azrieli Tel

Functional currency

NIS

Aviv Center

(**) ( **** )

Construction cost (NIS in millions)

Corporation's share (%)

Main use

1,292 100%

43 The average rent per sqm in 2020 according to contracts as of December 31, 2020.
44 Approx. 31% of the rent (for areas leased at bare-shell level) were capitalized according to a cap rate of 6.0%.
45 Approx. 31% of the rent (for areas leased at bare-shell level) were capitalized according to a cap rate of 6.0%.

** Azrieli Towers became a highly material property in 2019. See Section 9.2 above.

*** Excluding the hotel rent. Had the average included the hotel rent, the average for 2018 would be approx. NIS 101 per sqm. **** The figures include 50% of the profits from the Azrieli Center car park.

For a summary of figures regarding a material property under construction - the expansion of Azrieli Center (the Spiral Tower), see Section 8.3 of this Chapter A.

10. The income-producing properties in the U.S. segment

10.1 General

As of the Report Release Date, the Group owns eight (8) office rental properties outside of Israel (seven in the U.S.), of a total leasable area of approx. 246 thousand sqm (the Company's share is approx. 237 thousand sqm), leased to approx. 200 tenants. The Company's properties in this operating segment do not amount to material properties or very material properties. For aggregate details regarding all of the Company's income-producing properties in this operating segment (including land reserves in Section 7.8 of this Chapter A), see Section 7 of this Chapter A, under the geographic territory of the U.S.

About 50% of the Group's office properties in this operating segment are multi-tenant properties and the other 50% are properties with a small number of tenants. All are Class A properties that also include car parks (above-ground or underground) which are used by the tenants. The properties are located in high demand areas with more office building clusters. Unlike the Company's properties in Israel, in some of the Company's properties in the U.S., the Company holds the property together with one or more local partners. As of the Report Date, the Company is routinely examining the expansion of its activity in additional markets, mainly in North America (in addition to Houston and Austin in Texas), with an emphasis on markets where the population of the metropolitan area exceeds two million residents.

The office buildings in the operating segment are mostly intended for businesses (inter alia from the energy and high-tech industries) and service providers which are characterized by a large number of employees and demand for adjacent parking spaces. Most of the Group's lease contracts in this operating segment are for periods of between three and ten years, while often the tenant is given an option for additional lease periods of approx. five years. The rent is at a fixed amount per square meter (or the U.S. customary unit - sq. ft) of the leased area, while often the lease contract includes a rent increase during the term of the lease.

Unlike the Group's office properties in Israel, the Group's office space in the U.S. is managed by external local management companies who act professionally, with which the Company has engaged in agreements, and which the Group is entitled to terminate by advance notice of 30 days. The management companies collect from the tenants the rent, as well as current expenses, such as security, cleaning, maintenance, municipal taxes, insurance, gardening, maintenance of elevators and other mechanical systems. The Company is examining, in a current manner, possibilities for both operational and property management streamlining.

10.2 The structure of the operating segment and changes occurring therein

Between 2011-2018, the Company expanded its business in the U.S. and made several purchase transactions - the first of three office towers in the "Galleria" area of the city of Houston, Texas, and two additional transactions for the purchase of two office buildings in the "Energy Corridor" and "West Belt" area of Houston, Texas. In the course of 2016, the Company purchased an office building in Austin, Texas and a land block in Houston, which is adjacent to a Company-owned property. At the end of 2017, the Company purchased 33.33% and 25% of Riverway 1 and 3, respectively, in which properties the Company had already held 33.33% and 45%. In the course of 2018, the Company purchased an additional office building in Austin, Texas. Most of the Group's properties in the U.S. are situated in the Houston metropolitan area, which has around 7 million inhabitants46 and where population growth in the last 30 years exceeded the U.S. average. Such growth stemmed, inter alia, from a high quality of life, business opportunities that led to a low unemployment rate, the absence of state income tax and low cost of living.

The Group's income-producing property segment in the U.S. is affected by the economic activity in the U.S. economy, and mainly by the economic business in Houston and its office lease market.

46 Data taken from publications of real estate brokerage firm Cushman and Wakefield.

The recovery process in Houston after the economic crisis which began in 2008, was among the quickest throughout the U.S. and good figures continued to be recorded in the local economy, mainly thanks to the strong connection that the local economy has with the energy market which experienced a significant price increase until mid-2014. The summer of 2014 saw the beginning of a global downtrend in energy prices, which affected the local economy in 2015-2016. This downtrend was halted in the course of 2017, and a moderate rise in prices began. In early 2018, energy prices continued the slow recovery trend, which was halted in Q4/2018, when energy prices declined again. Energy prices in 2019 were characterized by significant volatility.

The Covid-19 crisis, a global health crisis which led to upheavals both in the U.S. economy in general and in Texas and Houston in particular, erupted in early 2020. Hundreds of thousands of jobs were eliminated, and instructions were issued by the authorities ordering anyone not employed in an "essential" job not to leave the house, which aggravated the said upheavals. In addition, the demand for oil and other energy products declined as a result of the global economic slowdown, the slowdown in production and in all types of land and aerial transportation, which led to a sharp decline in energy prices. Geopolitical struggles also contributed to the decline in energy prices.

The condition of the employment market in the Houston metropolitan region deteriorated in 2020 although, similarly to previous years, the unemployment rate continues to be lower than in the general U.S. market. In August 2020 the unemployment rate in the metropolitan region was 8.1% (compared with 8.4% in the general U.S. market), versus 3.9% in the previous year.47

The effect of the decreases of energy prices on the office real estate market in Houston and the effects of the COVID-19 crisis during 2020, are reflected in 2016-2020 in various ways such as: A high rate of vacant office spaces, high competitiveness for engagements with new tenants, which increased the costs of the engagement process with these tenants. Furthermore, energy companies offered large spaces in the sublease market, which resulted in a decline in the number of new lease transactions (compared with 2014-2015), and a decrease in the number of projects planned towards commencement of construction. At the same time, the increased willingness of property owners to grant incentives to new tenants such as a high budget for "improvements to the leased property" and a long "grace period".

Furthermore, the real estate office market in 2020 was characterized by a small number of deals due to the closures ordered by the authorities, the transition to working from home and the general uncertainty, due to which only tenants whose lease was nearing expiration acted in the market, and a significant portion thereof chose to renew their contracts for a short period or take risk mitigation measures, avoiding taking long-term decisions.

Despite the aforesaid, the Company's revenues from the segment of income-producing real estate in the U.S.A. had been moderately affected since the outbreak of Covid-19, due to the granting of specific requests by tenants to spread out rent payments. Rent collection in 2020 was conducted as usual.

In addition to the effect of the petrochemicals, gas and energy sector on Houston's economy, to the best of the Company's knowledge, the local economy is also affected by its large medical center (Houston Texas Medical Center), which is the world's largest medical center that continues to develop, as well as the growth in the activity of Houston's port, in which extensive investments were made in recent years and will be made in the coming years, to adjust it to larger cargo ships and tankers.

In August 2017 Houston was struck by the "Harvey" tropical storm, which caused extensive flooding, mostly in residential buildings. Two of the Company's properties in Houston suffered water damage during the storm. During 2019, the Company completed the repair of the damage in properties thereof that suffered water damage due to flooding caused by the "Harvey" tropical storm and during 2020, the Company invested in and acted for the construction of engineering elements to prevent similar water damage in the future in those properties which were previously damaged. It is noted that these properties are covered by an insurance policy.

47 Data taken from publications of real estate brokerage firm Cushman and Wakefield.

In 2016-2018, the Company purchased two office properties in Austin, Texas. Both properties are buildings whose construction had been completed not long before their purchase. One of the growth engines of the demand for office space in Austin is the numerous high-tech companies whose research and development activities are concentrated in this city and indeed both properties are occupied mainly by high-tech companies.

10.3 Restrictions, legislation, standards and special constraints applying to the operating segment

This operating segment is subject mainly to the local planning and building laws and land laws. In addition, the business in this segment is affected by legislation and regulation of authorities in the fields of environmental protection, safety, business licensing, land taxation and municipal taxation. For details in the matter of the tax reform in the U.S. see Note 26(a)(3) to the Financial Statements. See Section 23 of this Chapter A for details on the matter of the restrictions, legislation, standards and additional constraints applying to the entire Group.

10.4 Changes in the volume of business and profitability of the segment

Like 2019, 2020 saw a continued trend of increase in vacant space in the Houston office market, albeit to a lesser degree relative to 2019. The Increase in vacant space derives mainly from the upheavals in the energy sector which led in recent years to a decrease in the oil prices and together with that, to an increasing activity of mergers and acquisitions of companies in this sector, also due to the impact of the COVID-19 pandemic due to the economic slowdown brought by the pandemic in the U.S. and worldwide. The COVID-19 pandemic also led to uncertainty with respect to the office market in Houston that together with the transition to working from home led to an increase in vacant space, as well as to a large amount of office space which is on the sublease market. Due to the above uncertainty and continued work from home, in many cases tenants currently refrain from entering into long-term agreements as well as the lease of additional areas for expansion. The total rate of vacant space in the Houston metropolitan area grew from 19.3% to 22.3% in the course of 2020, with the rate of vacant space in Class A office buildings amounting to 22.15% at the end of 2020 (the total rate of vacant space for lease, including the sublease market, was 26.93% at the end of 2020).48 In addition, to the best of the Company's knowledge, in 2020, rent prices and tenant incentive packages remained at a level similar to that of 2019. Although the cost of incentives to tenants in new transactions is similar to that of 2020, it is relatively high over time.

Notwithstanding the aforesaid, the Company's revenues from the segment of income-producing properties in the U.S. were limitedly affected since the outbreak of the COVID-19 crisis and the collection of rent during the Report Period was carried out smoothly. For details with respect to the effects of the COVID-19 pandemic on the Company's operating segments, including the tenants of its properties, see Section 2.2 of the Board of Directors' report.

10.5 Critical success factors in the operating segment and changes occurring therein

The Company estimates that the main success factors in this operating segment are its know-how, expertise and experience in the location and acquisition of attractive properties that will yield a high return, and the location of local management companies specializing in the local market, for the purpose of management of the properties and marketing of the space therein. The Company estimates that the success factors in the acquisition of such properties in the operating segment are, inter alia, location of worthwhile transactions and identification of opportunities in the market with a fast response capability, acquisition of properties in attractive, high demand locations with improvement potential, acquisition of properties of a high building and finishing standard, acquisition of properties with a range of related services that are not available in nearby properties which are competing for new contracts, performance of meticulous due diligence investigations, inter

48 According to figures included in MarketView, Houston, Office Q4 2020, published by CBRE in Q4 2020.

alia with respect to the expected expense structure in the property and the profit increase potential, the strength of the tenants in the property and the nature of the collateral, as well as knowledge of the financial markets and the various players therein for the purpose of achieving attractive financing terms.

10.6 Main entry and exit barriers of the operating segment and changes occurring therein

Barriers to entry - In the Company's estimation, entities operating in this operating segment require mainly equity and financial strength which allow the acquisition of existing properties at relatively low financing costs. In addition, professional know-how, experience in the segment of acquisitions and management of income-producing properties, as well as know-how and experience in the credit and financing sector are important. A positive reputation from another important element, both during tenders for the acquisition of income-producing properties and in order to draw attractive tenants to the properties.

Barriers to exit - Exiting this operating segment is conditional, mostly, on the ability to realize properties, which is a direct result of the location of the properties, their physical condition and the condition of the economy, as well as various costs.

10.7 Structure of competition in the operating segment and changes occurring therein

The income-producing real estate sector in the U.S., including in Houston and Austin, is characterized by intense competition. Competition in this segment revolves around a number of parameters, of which the principal ones are; (1) the geographic location of the properties and the level of demand for the leasable in that area; (2) the amount of the rent and the management and maintenance costs; (3) the grant of incentives to new tenants or upon renewal of the lease agreement, such as improvements in the leased premises or a certain lease period in which the tenant is charged no rent; (4) the quality of construction of the leased buildings; (5) the level of related services; and (6) the reputation of the lessor. The competition in this sector exists both at the stage of acquisition of the properties and at the stage of lease-out of the properties. See Section 10.10 of this Chapter A for a description of the structure of competition in this operating segment.

10.8 Manner of execution of the Company's acquisitions

For the purpose of the Group's development in this operating segment, the Group focuses, as of the Report Date, on the acquisition of existing and populated income-producing properties and is not building new properties itself. In addition, the Company usually enters into financing agreements with different financing bodies for the purpose of the acquisition of the properties in this operating segment, usually under non-recourse terms (with exceptions standard in the U.S. with respect to which a guarantee of the Company is provided). See Section 8.1.8 of Chapter A of the Report for a general description of the manner of acquisition and exercise of the entire Group's rights in properties.

10.9 Acquisitions in the Report Period

No acquisitions were made during and after the Report Period.

10.10 Competition

The income-producing real estate sector in the U.S. is generally characterized by a high level of competition in all aspects pertaining to the rent, the quality of the finishing of the building and other unique characteristics of the property. The Group is exposed in the U.S. to competition by numerous companies engaging in business property lease, in areas of demands similar to those in which the Group's properties are located. The market of leasable offices in Houston, Texas, constitutes approx. 220 million sq. ft. of leasable office space (of whichapprox. 121 million sq. ft. is defined as Class A), and includes a large number of properties. To the best of the Company's knowledge, several bodies are active in Houston, holding significant shares of the office lease areas segment49, and the Group's share in the income-producing property segment in the U.S. is negligible.

The factors assisting the Company in coping with the competition in this segment are as follows: (1) The Company's office lease areas are located in attractive high-demand areas, enabling the Company to lease the properties to numerous and diverse types of tenants; (2) most of the Group's properties in this operating segment have special characteristics, including: green building rating (LEED Certificate), financially sound tenants, attractive location adjacent to large retail centers, as well as a high parking space ratio relative to the size of the property; (3) most of the Company's office space in this operating segment is characterized by a high building and finishing standard and has been granted the highest rating level of office properties (Class A).

The Group engages in this operating segment in management agreements with local entities which have vast experience in and deep knowledge of the local market, for the purpose of management and lease of the properties.

10.11 Goals and business strategy in the segment

See Section 26 of this Chapter A for details on the Company's goals and the Group's strategy.

49 According to figures appearing in MarketView insert, Houston, Office, Q4/2020 published by CBRE in Q4/2020.

11.

The Senior Housing Segment

General information about the senior housing segment

The Group's operations in the senior housing segment are presently performed through corporations which are held thereby directly and indirectly, under the "Palace" brand ("Palace" or the "Palace Chain") and it engages in the operation and development of senior homes for the elderly population that feature a high finishing standard and the provision of high-standard related services, which are generally designated for residents who are capable of leading an independent life. As of the Report Release Date, the Palace Chain employs, directly and indirectly, approx. 630 employees in total. As specified below, all senior homes of the Palace Chain operate long-term care (LTC) units (either inside or adjacently to the senior homes). The construction of an LTC unit is also planned for the senior home under construction.

As of the date of this Report, Palace holds and operates four upscale senior homes as specified below:

▪ Palace Tel Aviv - a senior home in the center of Tel Aviv, including an advanced medical center for recuperation and LTC, also known as "Palace Tel Aviv", which consists of 231 senior home residential units, and "Palace Medical", which contains 136 beds in 4 different units (jointly: "Palace Tel Aviv");
▪ Palace Ra'anana - a senior home in Ra'anana, including an LTC unit, also known as "Palace Ra'anana" (formerly Ahuzat Bayit), which consists of 323 residential units and 67 LTC beds in two units ("Palace Ra'anana"), as well as an active retail center located adjacently to the senior home and known as Azrieli Ra'anana (formerly: "Park Mall").
▪ Palace Modi'in - a senior home in Modi'in, which is known as "Palace Modi'in", whose construction ended during 2018, with resident move-ins having commenced in October 2018. Palace Modi'in comprises 239 residential units and approx. 136 LTC beds in 4 different units, 34 of which are recuperation units ("Palace Modi'in").
▪ Palace Lehavim - A retirement village within the Lehavim Local Council, which includes an LTC wing, known also as "Palace Lehavim", which after the completion of Phase B of the project, is expected to include approx. 350 residential units and approx. 72 LTC beds ("Palace Lehavim"). In May 2020, a Form 4 was received in connection with the construction of Phase A of the project, as well as in respect of the retail space, and occupancy of the project began. In July 2020, a Form 4 was received for the LTC wing (around 5,000 sqm). For further details, see Section 7.7 of this Chapter A.

In addition, in March 2016, the Group won a tender of the Israel Land Authority for the purchase of long-term leasehold rights in a lot of approx. 3.4 thousand sqm designated for senior housing and situated in the HaRakafot neighborhood in east Rishon LeZion, which is designated for the construction of up to 275 residential units, an LTC wing and approx. 3 thousand sqm of retail space ("Palace Rishon LeZion"). The project is at construction stages. For further details, see Section 7.8 of this Chapter A.

In addition, the Group is promoting a zoning plan for additional rights, inter alia for senior housing, in the Azrieli Jerusalem mall.

See Section 2.2 of the Board of Directors' Report for details regarding the impact of the Covid-19 pandemic on the Company's operating segments, including on the senior housing segment.

A-73

Structure of the senior housing operating segment and the changes occurring therein51

To the best of Palace's knowledge, recent years have seen an increase in the life expectancy of the elderly population in Israel52, alongside a rise in the standard of living of such population. According to data from the Central Bureau of Statistics (CBS)53, at the end of 2019, there were approx. 1.093 million residents aged 65 or older living in Israel, representing a rate of approx. 12% of the population of Israel's residents. According to population forecasts, by 2040 persons who are 65 years of age or older will be around 1,900,000 in number, representing approx. 14.3% of the population. According to CBS data and publications by Ma'alot54, alongside the increase in life expectancy, there is considerable improvement in the standard of living of the elderly, which is reflected in their increased participation in the Israeli employment market, an improvement in their physical, financial and social wellbeing, and an increase in their general satisfaction with their lives. In the elderly housing sector, a distinction may be made between two main solutions: retirement homes and senior homes. Most retirement homes are characterized by elderly residents of middle-to-low socioeconomic status, who are not independent and require constant nursing and medical services. Residents of the traditional retirement homes mostly share one room and their schedule is dictated by the retirement home's operator.

Unlike retirement homes, the senior housing market is aimed at an aged population which is financially established and mostly independent. Senior homes feature modern and luxurious services and facilities, including deluxe complexes that include expansive public areas containing facilities, such as: a swimming pool, spa and fitness club, class rooms, restaurant, cafeteria, clinic, and the like. Senior homes provide a respectable and high-quality solution for the elderly, and allow the residents to lead an independent life in the residential units, along with a social life in the public complexes and the provision of initial medical attention and LTC when necessary. According to estimates of Geocartography, as of the Report Date, the senior housing market consists of approx. 14,000 senior housing units. As a result of the increase and improvement in the life expectancy of the elderly, as described above, and due to the desire of such residents to conduct an active and social lifestyle, there has been an increase in the demand for senior residential units.

The Senior Housing Law, 5772-2012, which took effect in 2012, and the regulations promulgated thereunder (hereinbelow in this Section, jointly: the "Senior Housing Law"), regulates operations in the Israeli senior housing sector for the first time. The Senior Housing Law prescribes various rules in relation to the permits and requirements for the operation of senior homes, including the duty to receive a senior home operation license, and also prescribes sanctions for the violation of such rules. For additional details with respect to the regulation of the senior housing sector, see Section 23.1.3 of this Chapter A.

Resident agreements

Palace's engagements with the residents of the senior homes are made by means of resident agreements, that grant the residents the right to use the residential unit and the public areas and also grant them entitlement to the service basket offered and provided by every senior home to its residents, inter alia, in view of the provisions of the Senior Housing Law and by virtue of the relevant engagement agreement. The language of the agreements with the residents varies among the various senior homes operated by Palace (inter alia, considering the fact that

51 This information was taken from the following sources:

Mashav (national database for planning for the elderly) - the elderly in Israel statistical yearbook 2016:https://goo.gl/ouxS3D,

The Central Bureau of Statistics - A press release in honor of World Senior Citizen's Day of September 27, 2017 -https://goo.gl/cxEkj4,Amidar - senior housing -https://goo.gl/JAkoGT.

52 Central Bureau of Statistics - 2020 Statistical Yearbook, Table 3.5:https://www.cbs.gov.il/he/publications/doclib/2020/3.shnatonhealth/st03_05.pdf 53 CBS publication on population by age as of the end of 2019:https://www.cbs.gov.il/he/publications/LochutTlushim/2020/%D7%90%D7%95%D7%9B%D7%9C%D7%95%D7%A1%D7%99%D7%99%D7%942019-2000.xlsx

54 Ma'alot - The Senior Housing Market in Israel, June 2015 -https://goo.gl/F3oj4Iand the Central Bureau of Statistics - Press Release for the World Senior Citizen's Day of October 3, 2018:https://www.cbs.gov.il/he/mediarelease/DocLib/2018/284/11_18_284b.pdf.

A-74

some were purchased from previous owners), and according to the time of their signing and the provisions of the law at such time.

As a rule, the engagement is made by means of the standard track, i.e., the deposit forfeiture track, which includes the resident depositing a deposit for the duration of the term of the agreement. In most cases, the amount of the deposit is determined according to the location of the home and the services provided thereby, the size of the apartment and the finishing level, the levels of demand, and more (the "Deposit"). The resident agreement determines the period over which the deposit will be forfeited (mostly over the course of 12-14 years) (the "Forfeiture Period") and the rate at which it will be forfeited every year (mostly at a rate ranging between 3% and 4%, plus V.A.T. as required by law). At the elapse of the Forfeiture Period, the forfeiture of the Deposit comes to an end and the balance of the principal plus linkage differentials is repaid to the resident or his heirs upon the expiration of the resident agreement and the discontinuance of use of the residential unit.

The resident agreement also specifies the collateral to be provided to secure the Deposit, all subject to the relevant legal provisions at such time.

In view of the Group's financial soundness, Palace also enables residents to engage in alternative tracks to the deposit forfeiture track described above, including a lease track in which the resident pays rent on a monthly basis etc.; however, the scope of such tracks is smaller than that of the track described above.

In addition to the forfeiture of the Deposit and/or the payment of rent as described above, the resident agreement provides the amount of the monthly maintenance fees to be collected from the resident. Subject to the provisions of the Senior Housing Law, Palace may increase the maintenance fees at a real rate and subject to an actual increase in the operating expenses of the home, and, in any event, by no more than the maximum increase rate specified in the resident agreement.

Restrictions, legislation, standardization and special constraints applicable to the senior housing operating segment

For details with respect to restrictions, legislation, standardization and special constraints applicable to the operating segment, see Section 23.1.3 of this Chapter A.

Changes in the scope and profitability of the senior housing operations

According to the various publications, as specified in Section 11.2 of this Chapter A, the increase in life expectancy combined with the increase in population and the improvement in the standard of living among the elderly population targeted by Palace lead to an increase in the scope of demand for high-quality and luxurious senior housing solutions in Israel and to the expansion of Palace's operations in the segment.

Furthermore, the increased awareness of the target group to the advantages of senior housing and the recognition that senior homes for the aged population are a respectable and high-quality solution for this population, while differentiating this operating segment from the image associated with traditional retirement homes, contributes to the development of this segment. As of the Report Date, Palace holds rights in one site on which it is planning and constructing an additional senior home (Palace Rishon LeZion), and Palace's management expects that its completion and occupancy will increase the scope of its operations in the senior housing segment and turn Palace into a significant and leading agent in the senior housing market in Israel.

The information regarding the factors which in the estimation of Palace's management may affect the scope of its operations in the senior housing segment and the implications thereof on Palace's positioning as a significant and leading factor in the senior housing market as aforesaid, constitute forward-looking information, as defined in the Securities Law, which is based on the estimations of Palace's management. Such estimations are based on external information sources and subjective assessments by Palace's management. Actual results may differ from the

A-75

estimations so predicted, inter alia, as a result of non-realization of the estimations of the external information sources.

Developments in the markets or changes in the characteristics of customers

The scope of the operations in the senior housing segment is growing, as a result of the increased life expectancy of the aged population. This trend is also characterized by the desire of parts of such population to preserve the high standard of living and quality of life to which they have become accustomed during the years of their life, and the feeling of loneliness and lack of independence created due to the difficulty in accessibility to the various community services compared with the fulfillment of needs provided by senior housing. In addition, whereas the elderly population had been deterred in the past from moving to senior housing due to the negative image associated therewith and the poor level of services featured thereby, the senior housing setting presently provides a high quality of life while ensuring a safe environment that preserves the resident's independence, cares for his health, ensures an active daily schedule, which includes culture, sports, social interaction and community, and facilitates living at a high level of comfort in luxurious centers. The entry of leading entities, such as Palace, into the senior housing sector, which players introduce a modern construction standard of high-level senior homes into the sector, also contributes to the improvement of this image. These developments have brought with them new market demands for expansion of the services offered in senior housing. Therefore, recent years have seen an increased demand for an environment that offers, in addition to the basic services, a variety of social and cultural activities, such as a swimming pool, spa, classes, restaurant, cafeteria, alternative medicine services and more.

Critical success factors in the senior housing operating segment and the changes occurring therein

It is Palace's management's position that there are several critical success factors in the operating segment, which include: (1) Knowledge, experience and management: The senior housing segment is complex and requires experience in and knowledge of issues that are unique to the elderly population, with an emphasis on the operation of senior housing homes. The ability to optimally manage a senior home bears great importance in Palace's coping with the competition against the existing competitors in the sector; (2) Financial soundness: The Group's ability to withstand the costs involved in the construction, purchase and/or operation of premium high- level senior homes is critical to the subsistence of Palace's operations and its positioning as a leading factor in the senior housing market, and may be a central consideration in the choice of a senior home by potential residents. In addition, Palace's ability to provide collateral to the residents and repay the funds of the Deposit deposited by them, as mandated by the Senior Housing Law, constitutes, in the estimation of Palace's management, a key success factor; (3) Structure of the senior home, the residential units and the surroundings: Since the senior housing sector is on the course of constant development, both in terms of the quality of the structures and residential units and in terms of the level and variety of services, it is necessary to maintain a high construction and finishing standard in the senior home and the public areas thereof, which constitutes a critical success factor in the sector; (4) Location and nationwide presence: A central and accessible location that also facilitates access to nearby centers, recreation and cultural institutions, convenient access to railway stations and public transportation as well as traffic arteries, in the area of the senior home, constitutes an advantage and a central consideration in the choice of a senior home. Furthermore, the location of the senior home in relation to the place of residence of the children and family and former life center of the resident is a highly significant factor that affects the resident's choice of such or other senior home. A more attractive location of the senior home brands it as a more luxurious place and affects the price and the amount of the deposits that may be charged for the residential unit; (5) The size of the residential center: A large residential center consisting of hundreds of residential units entails economies of scale in view of the number and diversity of the residents residing therein, which enables and creates an abundance of activities and a vibrant community and social life; (6) Reputation and branding: The right branding of a senior home, i.e., the attribution of positive values, such as quality, enjoyment, luxury, value for money, the branding of the company running the senior home, years' long reputation, the

A-76

company's stability, etc., and the creation of a positive position and perception among consumers with respect to the senior home, bear importance in the positioning of the senior home in relation to its competitors; (7) Resident satisfaction: Residents who express high satisfaction with their standard of living in the senior home are a major marketing tool vis-à-vis potential clients, which has a high cost-to-benefit ratio. Palace ensures that it is attentive to the needs of the residents and provides them with a quick response, while maintaining a high level of service and personal response to each and every resident. Palace also holds various multigenerational events, that involve the residents of the homes and their families in order to expose Palace's senior homes and the services provided thereby to as many potential clients as possible.

Key entry and exit barriers of the senior housing operating segment and the changes occurring therein

In the estimation of Palace's management, the principal barriers for entry into the senior housing operating segment are:

1. The need for unique knowledge, experience and reputation, which are required for the development and management of a senior home;
2. The need for material capital investments for the purpose of purchase or construction of modern senior housing homes of a high finishing standard and their marketing;
3. The shortage of potentially economically viable land for the construction of senior homes;
4. The ability to comply with regulation requirements that prescribe threshold conditions for the operation of senior homes;
5. The requirement for financial soundness and current cash flow for the purpose of ensuring the ability to repay deposits, and, inter alia, the provision of collateral to the residents according to the provisions of the Senior Housing Law.

In the estimation of Palace's management, the principal barriers for exit from the senior housing operating segment are:

1. The difficulty in finding a purchaser for such operation due to the substantial scope of investment, the knowledge and the experience required for the operation of a senior home under the provisions of the Senior Housing Law;
2. Long-term contractual obligations and the difficulty in evicting residents within a short time.

Alternatives to the senior housing sector and the changes occurring therein

As of the Report Date, the principal alternative to the senior housing sector is the residence of the elderly in households. In 2019, approx. 97% of persons aged 65 or older were living in households55. Among the reasons leading to such high rates, one may specify the improvement in the lifestyle and health of the aged population in recent years, which allow for independent living, and the increase in the variety of services offered to the aged population at home (for example, emergency call centers, medical care at home, etc.). Furthermore, the ability to be assisted by live-in caregivers makes it easier for the elderly to stay at home.

Another alternative to the operating segment is retirement homes, which are mostly characterized by elderly residents of middle-to-low socioeconomic status, who are not independent and are in need of constant medical and nursing services, with the cost of residence in such homes being lower than that of senior homes. It is noted that Palace's management estimates that the existing alternatives on the market do not fully address the social

55 The Central Bureau of Statistics - Press Release for World Senior Citizen's Day of October 1, 2020:https://www.cbs.gov.il/he/mediarelease/DocLib/2020/314/11_20_314b.pdf.

A-77

and cultural life aspects that Palace offers in the senior homes, and the sense of security that senior homes provide to their residents, which constitute a significant consideration when choosing an alternative to senior housing,

Manner of performance of the Group's acquisitions in the senior housing segment

For a description of the manner of purchase and exercise of the Group's rights in properties, see Section 8.1.8 of this Chapter A.

Acquisitions made during and after the Report Period

No acquisitions were made during or after the Report Period.

Competition

To the best of Palace's knowledge, as of the Report Date, there are approx. 50 entities operating approx. 100-105 senior homes in Israel, among which are Mish'an Center, Mediterranean Towers, Ahuzot Rubinstein, Ad 120, Bayit Bakfar, Bayit Balev and others, with half of them being located in the center of Israel, primarily in the area of Tel Aviv and Hasharon. In the estimation of Palace's management, the following may be listed among the factors that affect the structure of the competition in the sector: (1) Geographical location, which constitutes a central consideration in the choice of a senior home by potential residents, who tend to prefer a senior home located in proximity to their family members' place of residence or in proximity to their previous living environment; (2) The nature of the residents in the senior home and their lifestyle, due to the importance of the cultural and social life that senior homes offer residents; (3) The standard of the residential units, public areas and other facilities that the senior home offers its residents; (4) The amount of the deposit and the usage fees collected from the residents. In Palace's estimation, as of the date of this Report, Palace's market share in the senior housing market is approx. 6% based on the presently existing homes and irrespective of the operation of the Medical units.

Principal methods for coping with the competition

In order to preserve Palace's competitive position in the senior housing market and cope with the existing competition, Palace takes, inter alia, the following measures:

1. Preserving and ensuring a high standard of services and maintenance in the senior homes. In Palace's estimation, the standard of maintenance and services that Palace provides its residents is among the highest in the sector.
2. Constructing new senior homes in attractive and competitive geographic locations, built to a high finishing standard that includes public areas, luxurious convenience facilities, including infrastructure for the provision of functional services according to the residents' needs.
3. Preserving and ensuring a high level of resident satisfaction, attention to their various needs and quick personal response.
4. Maintenance of an effective marketing and sales layout and branding of the chain as a premium chain under the "Palace" brand.

In the estimation of Palace, its competitive position is favorably affected by the following factors: The reputation and high branding of the existing homes (Palace Tel Aviv, Palace Ra'anana, Palace Lehavim and Palace Modi'in), impeccable management and service, the Group's financial soundness, presence in demanded marketing areas and more.

A-78

In the estimation of Palace, its competitive position may be adversely affected by the following factors: entry into and/or expansion of competitors into the senior housing market, mainly in the geographical areas in which Palace operates.

Goals and business strategy in the segment

For a specification of the Company's goals and the Group's strategy, see Section 26 of this Chapter A.

12.

Income-Producing Real Estate - Additional Operations:

Data Centers

12.1.1. Current activity

Following the Company's reports, according to which it examines from time to time entry into operating segments tangent to its income-producing property activity, the Company examined the data centers market. After studying the market and the key players in the field, in 2019 the Company adopted a decision to invest in a company engaged in this field, while noting the growth potential that exists in the field and with the intention that it will serve as another growth engine for the Group's activities. For further details see the presentation released by the Company on the Data Centers market and Compass and its business of July 18, 2019 (Ref. 2019-01-073897), which is incorporated herein by reference.

The Group decided that the first step in the Company's entry into the field would be through equity investment in a company operating in North America, with an option to increase the holding rate in this company, which has significant development and entrepreneurial potential in the field.

Accordingly, on July 18, 2019, the Company completed, through a wholly owned (indirectly) subsidiary, an investment in Compass, which engages in the field of data centers. In the said transaction, the Company acquired approx. 20% of Compass's members' capital (the "Initial Investment") with an option to increase its holding to approx. 33% at the unit price of the Initial Investment, plus future investments. For further details regarding the transaction, see Section 1.3.2 of this Chapter A. In February 2020 and September 2020, additional rounds of investment in Compass were made, such that as of the Report Date, the Company holds (indirectly) approx. 24% of Compass's members' capital.

The Company estimates that the data centers operating segment is expected to grow at a significant rate and could constitute an additional growth engine for the Group's operations.

The Company's estimates in this Section 12.1 of Chapter A are forward-looking information, as this term is defined in the Securities Law, based on subjective estimates of the Company as of the Report Release Date and sources of information external to the Company, there is no certainty as to their realization, in whole or in part, or they may be realized in a materially different way, inter alia, due to changes in project schedules, their actual scope and marketing and due to factors beyond its control, including changes in the global data centers market.

A-79

12.1.2. The structure of activity and changes therein

In the 1950s, relatively widespread use of computers started emerging. In the late 1980s and early 1990s, the computing infrastructure model has moved to a "server-client" architecture which was vastly adopted by large organizations and by home users. In the early 2000s, the use of cloud computing began, which supported the transition from purchasing software, which is accessible through on-premise servers, to purchasing software as a service through the Data Center infrastructure (off-premise). Accordingly, there was a sharp growth in Internet users, and as of 2021, there were over 4.66 billion Internet users worldwide56.

The accelerated pace of digital data production has led to the increasing complexity of processing, managing and storing of digital data. In view thereof, companies are increasingly turning to cloud service providers in order to find solutions for managing their digital data, and concurrently transferring their server infrastructure to external service providers. Compass focuses on building data centers for cloud service providers such that they may have infrastructures that support the high demand rate for their services, as well as for organizations that transfer the management of their digital data infrastructures in external websites. The purpose of the data centers is to provide renters using them with the optimal space and conditions for the efficient operation of IT equipment. For such efficient operation, the data centers must be located in an area where there is broad and fast connectivity to communication networks, through optical fibers, and for that area to have access to large and available power supply, to support the transfer of information from and to customers and for processing, storage and cooling of the environment in which the servers are located.

Currently, the global data centers market is one of the highest growing in the income-producing property segment and the annual revenues thereof in 2020 were estimated at approx. $42 billion and are expected to be $56.5 billion in 202457.

12.1.3. Changes in scope of activity

In recent years, the data centers market has been growing rapidly.

This growth is mainly due to an increase in the amount of data and volume of cloud-backed information of government, business and private entities.

While the average monthly information traffic in 2016 stood at 96 ExaBytes, the projection is that by 2021, it will reach 278 ExaBytes, that is, a compound annual growth rate (CAGR) of 23.7% within five years of online content consumption58.

Demand in the data centers market is influenced, among other things, by the following developing factors: cloud services companies, Internet Of Things (IOT), Artificial Intelligence (AI), 5G networks, smart transport, Augmented Reality and Crypto Currencies.

Furthermore, given the expectation that the "digitization" of the economy will continue to generate a huge amount of data, the International Data Corporation (IDC) estimates, that the volume of data generated will increase from 33 zettabytes (ZB) in 2018, to 175 zettabytes (ZB) in 202559. As mentioned above, the rise in demand for data centers storage services also stems from the global trend of transition to outsourcing information management. While in 2016, only 12% of the data centers services were provided by outsourcing and the rest were managed by the companies themselves, in 2019, the share of outsourcing increased to 45% of said services60. The main causes for the transition to outsourcing are, inter alia, the companies' desire to focus on their core business, increasing viability (given the increase in costs and complexity of management of information

56 Digital 2021 Global Report, HootSuite.
57 451 Research (Q3-20 Globsl Data Center Knowledgebase), Cowen and Company.
58 Clipperton Finance, Cisco.
59 The Digitization of the World From Edge to Core -link.
60 IDC, Worldwide Datacenter Installation Census and Construction Forecast, 2019-2023, Doc #US43797219, Apr 2019, The analysis includes datacenters only (without server closet and server rooms).

A-80

systems internally) and the switch to IT services, from companies that provide cloud services - companies that specialize in providing services that include all IT infrastructure building and maintenance tasks as well as the retention of data and information on the servers of those "cloud companies".

The increase in demand has in recent years resulted in an increase in the volume of consumption and use of data centers61. While in 2016 the output was 5,353 Utilized MW, in 2018 the output was 6,439 Utilized MW, and it is expected that in 2023, the output will be 14,100 Utilized MW62.

The profitability of the data centers, like other real estate and infrastructure assets, is measured by a cost recovery model, and this market is characterized by significantly higher returns, compared to other income-producing property segments in the international markets.

12.1.4. Developments in markets or changes in customer characteristics

The development of the cloud sector and the transition of companies to information management through outsourcing has led, as aforesaid, to rapid growth in the data centers market.

Furthermore, the US market is a high maturity market and positioned as a global leader in the field.

To the best of the Company's knowledge, as of the Report Date, approx. 39% of the world's data centers capacity (in terms of output, i.e. MW) is in North America, approx. 41% in Asia-Pacific, approx. 19% in Europe and the remainder in the rest of the world63.

12.1.5. Critical success factors

In the Company's estimation, there are a number of critical success factors in the field of data centers, including: (1) Segment entry strategy: The Company's strategy for entering the field is investment in the capital of an existing company operating in the field in North America with an option to increase the holding rate in this company, which has significant development and entrepreneurial potential; (2) Asset location: The location of the data centers assets is a significant factor for the customer, consequently, the location of the assets is of critical importance, when amongst other things, significant parameters include - the ability to supply large amounts of electricity from environmentally friendly sources, priority to cold areas with low electricity costs, and proximity to communication networks. In addition, the physical deployment with respect to customer location is relevant in view of the importance of the data transfer speed (latency), as well as the requirement of cloud companies for data center redundancy and the data centers' physical deployment requirements that include defining distances between centers; (3) High level of professionalism: A high level of professionalism and understanding is required in the relevant engineering fields of electrical, mechanical systems and communication systems and computers engineering; (4) Relationships with significant customers: In this area, there are a limited number of HyperScale customers, who are large consumers, such as large cloud service providers and telecommunications companies who are sophisticated customers with very complex and specific requirements. Therefore, the ability to communicate with these customers is an important element of success in the field; (4) Regulation: Continued growth in data consumption encourages regulators to prescribe provisions concerning protection of end-user IT infrastructure, which strengthens the vitality of the data centers market; (5) Digitization: Digitization processes and technological developments affect demand levels in the field. According to an assessment of the International Data Corporation (IDC), by 2025 each person will perform over 4,900 operations involving digital data a day (once every 18 seconds)64, which is expected to increase demand for data centers.

61 According to the overall forecast of Retail Colocation deployment (<7676300KW) in addition to Hyperscale and Scale.
62 CMA Strategy Consulting.
63 Structure Research, Global Data Center Report (Dec 2020).
64 The Digitization of the World From Edge to Core -link.

A-81

12.1.6. The main entry barriers

The Company estimates that the main entry barriers in the field of data centers are as follows:

Entry barriers: (1) Very high capital requirements; (2) Relevant knowledge for creating value in the field of real estate; (3) Deep technical understanding of data centers' design and ability to build them quickly; (4) High availability of electricity for supply in high volume, with emphasis on renewable production sources; (5) The need for maintenance or creation of infrastructures, in a high-connectivity fiber optic communication system near the data center location; (6) Efficient capital utilization.

12.1.7. Substitutes

While data center design and deployment may change, the need for them is increasing.

As of the Report Date, there are approx. 27 billion devices connected to the Internet. This number is set to grow to more than 75 billion devices in the next four years65, that is, a massive increase in the number of internet devices is expected, and as a result, an even larger increase in the volume of data that will require storing.

Should these projections be realized, additional infrastructures will be required to provide the services currently offered by the data centers and solutions that may replace them may be developed.

As of the Report Date, to the best of the Company's knowledge, there is no substitute for the services provided in data centers. However, as technology advances and demand increases, substitutions may develop. In the event that new server technology evolves to meet customer needs at lower costs, the data centers' infrastructure may be less attractive.

12.1.8. Key products and services of the operating segment

As of the Report Date, the Company (indirectly) holds about 24% of Compass's members' capital.

Compass's products include the leasing of data centers assets to companies for self-use as well as to wholesale companies and companies providing cloud services in North America and EMEA66. Compass's management is experienced in developing and starting data centers as well as in relationships with strategic clients in the field, with an emphasis on Hyperscale clients.

As of the Report Date, Compass has 12 active sites and 6 Hyperscale facilities under construction and development.

Compass places emphasis on the location of the data centers in central areas and near major communications networks and major power sources. Compass also makes sure to tailor its services to its clientele.

12.1.9. Customers in the field

In the field of data centers, leasing to customers is based on power units (kw) instead of units of space.

Customers are classified according to the amount of kw (the units of measure) requested, as follows: Hyperscale (>5 MW), Wholesale (300 KW - 5 MW) and Retail (<300 KW).

Due to the sensitivity and materiality of the services provided in data centers, customers in the field tend not to make frequent changes to their server farms and information bases, and consequently engagements in the field are long-term and characterized by stability and few replacements by tenants. Thus, for example, the duration of

65www.idc.com.
66 Under construction.

A-82

leases that characterize engagements with Hyperscale and wholesale customers (large cloud service providers, telecommunications companies, etc.) ranges from 5-10 years, and the duration of typical leases with retail customers (medium business - banks, airlines, etc.), is for 1-3 years.

The compound annual growth rate (CAGR) of data centers revenue from outsourcing, from 2017 to 2022, is as follows: Hyperscale - increase of 49%, wholesale - increase of 20% and retail - increase of 15%67 (see also Section 12.1.3 above regarding changes in scope of activity).

Other customers in the field of data centers are entities from various fields, including: healthcare services, finance and government institutions. Communication with these entities takes place directly, due to the sensitivity of the information, the importance of information security and the protection of the privacy of the end customers.

Compass is focusing on Hyperscale clients.

12.1.10. Marketing and distribution in the field

Compass's marketing strategy is a direct appeal to the management of its prospective customers. This marketing strategy is consistent with the direct sales approach that is prevalent in the field of data centers (unlike other types of real estate, where the brokerage-based sales approach is used).

As of the Report Date, Compass has no dependency on any of its marketing methods, the loss of which would have a material adverse effect on the operating segment or which would cause Compass a material cost increase as a result of the need to replace it.

12.1.11. Competition in the field

The data centers industry is characterized by high competitiveness.

Competitiveness in the field exists in a variety of aspects, including: (1) Competitiveness between entrepreneurs with similar assets; (2) Competitiveness with respect to the lease rates offered in data centers; (3) Competitiveness with respect to the proposed rental spaces (considering other factors such as: considerations of location, connectivity, security, etc.).

As of the Report Date, there are approx. 300 certified data centers worldwide, ranging from large public companies to smaller private companies.

To the best of Compass's knowledge, its key competitors are: Digital Realty, CyrusOne, QTS, NTT, Vantage, Aligned, Stack and other similar companies.

Compass is coping with the competition in the field, inter alia, through modular programs based on a number of models of dedicated facilities, standardization and strict adherence to fair pricing and asset development in high-demand locations.

67 Cowen Research, Sourced from Structure Research July 2019.

A-83

Hospitality

12.2.1. Current Activity

As part of the Company's business strategy, the Company periodically examines entry into operating segments related to its income-producing property activity. During 2019, the Company examined the expansion of its operations into the hotel industry and in this context, it recruited to the Company staff a person with extensive experience in the hotel industry. After a long and in-depth examination process conducted by the Company, the Company concluded that entering the hotel industry would be an opportunity to expand the Group's operations mix, using the existing entrepreneurial capabilities of the Company and its real estate assets and the operational experience gained in the Company in the field of senior housing. The expansion of such activities is to be carried out, inter alia, through the development, planning, purchase of hotels in Israel, as well as the operation of hotels in Israel.

On December 9, 2019 the Company announced its entry into the hotel industry. For further details, see the Company's presentation of December 9, 2019 (Ref. 2019-01-107397), which is incorporated herein by reference.

On February 9, 2020, the Company closed the acquisition of the Mount Zion Hotel in Jerusalem (in this section: the "Hotel"). For further details on the Hotel purchase transaction, see the Company's immediate reports of December 9, 2019, December 18, 2019 and February 9, 2020 (Ref. 2019-01-107367, 2019-01-111237 and 2020-01-014439 respectively), which are incorporated herein by reference.

On March 17, 2020, the Company closed the activity of the Mount Zion Hotel in view of the directives encumbering the activity of hotels due to the Covid-19 crisis. As of the Report Release Date, the Company is working on planning renovation of the Hotel and exercise of the building rights for expansion of the Hotel to include 350 rooms and an underground parking garage that includes around 250 parking spaces. Renovation and expansion of the Hotel are subject to receipt of a building permit. After the hotel's renovation and expansion, the Hotel will be reopened. For details on the impact of the spread of Covid-19 on the Company's business, including the Hotel, see Section 2.2 of the Board of Directors' Report.

In addition, as part of the Company's activities in the hotel industry, the Company plans to build hotels as part of projects owned by the Group, characterized by a mixed-use and granting, among other things, building rights for hospitality designation, as follows: development of a hotel in the city of Modi'in (lot 21), located near the Azrieli Modi'in Mall, which is expected to include approx. 85 hotel rooms and suites; In addition, the development of a hotel in the expansion of the Azrieli Center (Spiral Tower) in Tel Aviv, which is expected to include approx. 250 hotel rooms and suites.

The Company's estimates in Section 12.2 of this Chapter A are forward-looking information, as this term is defined in the Securities Law, based on subjective estimates of the Company at the Report Release Date and sources of information external to the Company, there is no certainty as to their realization, in whole or in part, or they may be realized in a materially different way, inter alia, due to factors beyond its control, including changes in market conditions and in the hotel industry in particular, and the continued impact of Covid-19.

12.2.2. General environment and the effect of external factors on the Company's activities

The Company's hotel operations are expected to concentrate on the Israeli hotel market; therefore, the Company is exposed to changes in the Israeli economy as a whole, and in the hotel industry in particular.

The Company's revenues from hotel operations are expected to derive from the accommodation of tourists from Israel (in this section: "Domestic Tourism") as well as from tourists from different countries of the world (in this section: "Inbound Tourism").

A-84

The significant and unique factors that may affect the Company's business results in the hotel industry are as follows: (1) Political-security related events: Since the Company's activity in the hotel industry is expected to concentrate in Israel, deterioration in the security situation, hostilities and political and military conflicts between Israel and its neighbors could lead to a decline in demand for hotel services (both foreign and domestic tourism), thus adversely affecting the state of the tourism industry in general and the Company's business in the hotel industry in particular; (2) Economic situation in the Israeli and global economy: The population's consumption habits are directly influenced by the economic situation in Israel as well as worldwide. A global or local economic crisis and economic instability can lead to a decline in general consumption and especially in consumption in the leisure and recreational field, which includes the hotel industry; (3) Continued imposition of limitations on the opening of hotels due to Covid-19 and its effects on the tourism industry.

12.2.3. The structure of activity and changes therein, and changes in the scope of the activity68

The hotel industry is considered a volatile industry, quickly affected by economic changes. Moreover, the industry consists of many operating inputs, thus containing inherent operational risk.

Nevertheless, according to the Central Bureau of Statistics, the hotels supply in Israel has increased slightly, so that in 2020, there were 43169 hotels for tourism in Israel, compared to 429 hotels in 2019.

In addition, the number of guest rooms in 2020 was estimated at approx. 55,749 rooms, compared with approx. 55,700 rooms in 2019. Due to the impact of Covid-19, the annual room occupancy decreased in 2020 to about 20% compared with around 70% in 2019, and in a breakdown by selected tourist localities, the highest occupancy rate was recorded in Eilat (37.5%), Tel Aviv-Jaffa (20%) and Jerusalem (19%).

The industry is characterized by great competition, especially in the demand areas. The multiplicity of competitors, at all levels, increases the need for companies operating in the industry to specialize in the operating markets, in marketing, branding and for high operational efficiency, in order to increase profitability rates from operations. In addition, the industry is significantly exposed to seasonal trends, so that in strong seasons, the hotels must also cover the operating costs of the weaker seasons, some of which are fixed costs or minimum necessary costs. Regulation is also a significant factor in some cases, as activity in the industry is subject to numerous legislative provisions and government decisions, which can affect supply and demand in the industry, service prices, scope of investments and more.

12.2.4. Market developments or changes in customer characteristics

As mentioned, the hotel industry in Israel enjoys both Domestic and Inbound Tourism.

According to the Central Bureau of Statistics, after record highs for tourist arrivals to Israel and the number of tourists staying in hotels were recorded in 2019, 2020 was characterized by a sharp decline in these metrics due to the Covid-19 pandemic, which spread in Israel and across the world. The estimated number of overnight stays is 9.2 million overnight stays in hotels in Israel in 2020 - a significant decrease compared with 2019, in which this figure was around 25.5 million overnight stays.

The Central Bureau of Statistics also estimates that about 24% of all 2020 stays are attributed to Inbound Tourism, and the rest (76%) to Domestic Tourism70.

68 This information is taken from the following sources:

Midroog - Hotel Companies Rating - Methodological Report 2016[link] Globes - 2019 Brand Index[link]

Israel Hotel Association website[link]

69 According to the Israel Hotel Association, there are currently 431 tourist hotels in Israel: [link]
70 Central Bureau of Statistics - Press release: Overnight stays in tourist hotels in 2020 [link]

A-85

In recent years, several major trends have been observed in the hotel industry in Israel, attributed to customer characteristics and preferences, among others: (1) Changes in customer expectations: An increase in the importance of the level of service, the desire for a hospitality experience that combines culture, leisure, culinary and more; (2) Integration of technologies: A trend of adapting hotels to technological changes and developments, integrating technologies in the services offered, among other things, transition to the execution of online bookings used as the key marketing and sales tool; (3) Branding: Focus on branding and creating the characterization of the hotel according to its geographical location, target audiences and its surroundings.

Critical success factors

The Company estimates that there are a number of critical success factors in the hotel industry, including: (1) The expansion strategy in the hotel industry: The Company's possible ways of entry into the industry are, among other things, the acquisition of an existing hotel with potential for high positioning, building hotels as part of a mix-use, use of existing real estate property owned by the Group, development through the acquisition of lots, development and construction, acquisition of a hotel/ hotel chain and adapting them to the Group's standards as well as the acquisition and conversion of an existing building serving other uses to a hotel; (2) Hotel location: Operation of hotels in attractive locations; (3) Expansion and upgrading: In the event of the acquisition of an existing hotel and in particular in connection with the Mount Zion Hotel - investment in expansion, renovation and the interior and exterior design of the hotel, for its positioning as a luxury brand; (4) Customer experience: Emphasis on a high level of hospitality, courteous service, ensuring food quality and offering a wide range of services to customers; (5) Integration of technologies: Investment in information systems and technology, to improve operational efficiency and profitability; (6) Exploiting business opportunities: Locating profitable deals and exploiting business opportunities in the hotel industry; (7) Goodwill and branding: Creating a positive branding and goodwill, among other things, through high standards of construction and service, attribution of positive values, such as: quality, enjoyment, luxury, appropriate value for money; (8) A wide range of customer services: Offering a wide range of customer services, including: shops, restaurants, spa, health club, conference and event halls, swimming pools and more; (9) Maintenance and operations: Financial strength for financing ongoing high-level maintenance.

12.2.5. The main entry and exit barriers

The Company estimates that the main entry and exit barriers into the hotel industry are as follows:

Entry barriers: (1) Obtaining approvals and permits for opening a new hotel and the time required for its establishment; (2) Obtaining regulatory approvals and licenses during the hotel's ongoing operations after its opening; (3) Access to business opportunities; (4) Capital required for the ongoing maintenance and renovation of the buildings and equipment; (5) Positioning, branding and establishing customer audiences; (6) Creating and maintaining a new and successful brand given the competitiveness in the industry and alongside the veteran chains, which enjoy great reputation.

Exit barriers: (1) Realization of hotel assets, most of which are of significant value; (2) Statutory difficulty and complexity in changing a hotel designation for other purposes; (3) Cancellation or termination of existing rental and management agreements, engagements with suppliers and more.

12.2.6. Substitutes

In recent years, hospitality alternatives have been expanding and the main alternatives today include: (1) Private properties: privately owned properties, which are rented for short periods, both independently (e.g. sublet) and through brokerage sites (such as Airbnb); (2) Guest houses, boarding houses and field schools; (3) Hostels. It should be noted that these alternatives appeal to certain market segments and are distinct from the Company's planned activity in the hotel industry in both the nature and level of hospitality and in the customer experience.

A-86

12.2.7. Competition in the field

The hotel industry in Israel is characterized by high competitiveness. Competitiveness in the field exists on a variety of levels, including: at the individual hotel level in relation to other hotels at and around its level, in a specific hotel category (e.g. luxury hotels, boutique), at a geographical level (specific region), national, regional (the Mediterranean) and international level (tourism in Israel relative to other destinations around the world). Private properties, serving as an alternative to short-term rentals, pose competition for hotels, especially in Tel Aviv and Jerusalem and in respect of a particular market segment. The same is true of guest houses and boarding houses, however, there is a difference in the quality of the accommodation, its nature and in the customer experience and service.

As of the Report Release Date, the Group's share in the hotel industry is its holding in the Mount Zion Hotel, which is closed and will reopen after the Hotel's renovation and expansion.

12.2.8. Seasonality

The hotel industry in Israel is significantly affected by seasonality and there are fluctuations in hotel occupancy rates and room rates between seasons. As a rule, the second and third quarters (i.e., April - September), which include warmer months and most of the Israeli holidays, are characterized by higher demand in the first and fourth quarters (i.e. January - March and October - December, respectively). The difference in the income of the hotel industry between the various quarters is due to differences in price levels between the different seasons, according to demand, so that in the second and third quarters prices are higher than their level in the first and fourth quarters. Furthermore, seasonality is expressed differently depending on the regional location of the hotels in Israel and the target population of the hotels.

With the aim of coping with the existing seasonality in the hotel industry, the Company will work to adjust its expenses to expected revenues during the same period, inter alia, by adjusting the manpower required for the hotel operations during that period.

A-87

13.

The Granite Segment - Discontinued Operations

Until November 2019, the Company operated in another operating segment under Granite Hacarmel, which engaged, inter alia, through Supergas, in the marketing of alternative energy sources. In view of the closing of the transaction for the sale of the holdings in Granite, which held Supergas, Granite is presented in the Financial Statements as discontinued operations. For further details regarding the sale of Granite, see Section 1.3.3 of this Chapter A.

In addition, on May 7, 2020, the transaction for the sale of all of the Group's holdings (100%) in GES, which is presented as discontinued operations in the Company's Financial Statements, was closed. For further details, see Section 1.3.4 of this chapter and Note 7 to the Financial Statements.

For further details regarding the operations of Supergas and GES, see Section 12 of the Description of the Corporation's Business chapter of the Company's Periodic Report for 2018, which was released on March 20, 2019 (Ref. 2019-01-024283), which is included herein by way of reference.

A-88

PART FIVE: ADDITIONAL OPERATIONS

14.

Azrieli Group - Additional Operations

The Group has various operations which are not included in the operating segments described above, and do not meet the quantitative threshold for presentation as reportable segments in the Financial Statements. These activities comprise mainly the following:

The e-commerce business

On June 2, 2016 the Company closed a transaction for the purchase of an e-commerce business from Buy2 Networks Ltd. This business is currently operated by Azrieli E-Commerce (formerly Netex New Media Ltd.).

This company has been operating an e-commerce website since 2010, which until February 2017operated under the brand name "Buy2". As of February 2017, this website was re-launched by Azrieli E-Commerce under the brand name "Azrieli.com" at the addresswww.azrieli.com ("Azrieli.com" or the "E-Commerce Website")

Azrieli.com offers internet users a range of products and services, which are supplied by various businesses of various areas, including electricity and electronics, fashion, home and garden, parents and children, and more. Furthermore, the E-Commerce Website grants internet users benefits that vary from time to time, including free shipping and express deliveries to the customer's home and payment in installments.

Azrieli.com facilitates a comprehensive solution of online marketing and sale for businesses that seek to sell products and services at Azrieli.com, including the storage of products in a central logistics center, the sale, supply and distribution of products to the customer's home, through third parties. Azrieli E-Commerce works on the development of long-term relations and work interfaces with the businesses active on Azrieli.com, aiming to retain and increase the cooperation. Alongside the sale of the businesses' products, Azrieli E-Commerce selectively purchases products it sells on the E-Commerce Website and supplies such products to customers by means of third parties.

In the Report Period, Azrieli E-Commerce signed an agreement for the establishment of a jointly owned limited partnership with the MGS Group for purposes of setting up a specialty website for fashion and sport aimed at the Israeli market. This website, ONE PROJECT by Azrieli, sells clothes, shoes, and accessories of brands whose distribution rights are owned by the MGS Group, as well as many other brands.

Azrieli E-Commerce employs some 80 employees and its offices are located at the industrial zone of Hod HaSharon.

General description of the E-Commerce Business

Recent years saw changes in the shopping habits of Israeli consumers alongside technological changes that enable online shopping and render a larger range of online-offered products and services available to the consumer. Online shopping enables available, quick and convenient service which is customized to the consumer's consumption habits and preferences. In recent years, the e-commerce business in Israel has been developing at an accelerated pace and this sector is expected to grow in the coming years. The Covid-19 pandemic accelerated the changes in the shopping habits of Israeli consumers, which were expressed in an accelerated increase in online shopping and expansion of online shopping clientele. Accordingly, from March 2020, a significant rise is apparent in the volumes of sales on Azrieli.com. At this stage, it is impossible to estimate the long-term effect of the Covid-19 pandemic on the scope of operations of Azrieli.com. For further details regarding the impact of the Covid-19 crisis on e-commerce operations, see Section 2.2 of the Board of Directors' Report.

Concurrently with the increase in the range of products purchased online by Israeli consumers, there is a noticeable increase in online shopping on international websites (such as eBay, AliExpress, Next and Amazon). In

A-89

the estimation of Azrieli E-Commerce, the volume of the activity is affected by the volume of private consumption and changes in Israeli consumers' use of the internet. The growing use of the internet by means of mobile devices, such as tablets and cellular telephones, may contribute to greater exposure and availability of e-commerce services.

Entry and exit barriers

The setup of a line of suppliers, while developing ties and retaining the relationship therewith, may serve as an entry barrier to new players in the short-term and the mid-term. Furthermore, the development of the technology required for the operation of the e-commerce business in similar form and scope and the need to generate a high rate of user traffic may serve as entry barriers to new players, inter alia, due to the great importance of the website's reliability and the high costs involved in the recruitment of user traffic. Moreover, the building of a registered user database, including the ability of mailing thereto, also serves as an entry barrier.

Exit barriers may stem from the need to convert a complex set of agreements with various suppliers, and also from the need to preserve the brand name and its credibility among the public of customers.

Restrictions on and supervision of the operations

The e-commerce operations are subject to various laws, such as: the Consumer Protection Law, 5741-1981, and regulations thereunder, the Protection of Privacy Law, 5741-1981, the Communications Law (Telecommunications and Broadcasting), 5742-1982, and the Payment Services Law, 5779-2019 (which took effect in October 2020 and superseded the Debit Cards Law, 5746- 1986).

Furthermore, since purchases on Azrieli.com are made mainly by credit card, various provisions and restrictions required by the credit card companies apply, including security standard PCI.

Competition

The e-commerce market is a competitive market and includes competition by international websites that offer shipping to Israel (such as eBay, Amazon and AliExpress) along with Israeli e-commerce websites, such as Walla! Shops, Shufersal, GetIt, as well as the websites of other companies on which such companies directly offer their products for sale.

In the estimation of Azrieli E-Commerce, the success factors in the e-commerce operations are, inter alia: (a) The offering of high-quality products and services on attractive terms to internet users; (b) Engagement with reliable businesses, in a blend addressing a broad array of internet users; (c) User traffic and the size of the mailing list; (d) Reliable and available customer service; (e) Technological improvements and innovations that contribute to the improvement of the quality of the website's applications, with an emphasis on the devising of simple and user-friendly interfaces; (f) Compliance with supply time obligations, which contributes to the increase of the number of repeat purchases by Azrieli.com customers.

The Company's estimates with respect to the e-commerce operations, including the development of such operations in Israel, the increase in online purchases and the volume of operations in the segment constitute forward-looking information, within the meaning of this term in the Securities Law, which is based on publications in the field and subjective estimates by the Company's management as of the Report Date. There is no certainty as to the realization

of such estimates, in whole or in part, and they may also be realized in a materially different manner, inter alia, due to factors that are beyond the Company's control, including changes in market conditions, growing competition and deterioration in the economic situation, which might affect customers' consumption habits.

A-90

Investments in financial assets available for sale and other investments

14.2.1. Leumi Card

For details on the sale of the Company's holdings in Leumi Card, see Note 9D to the Financial Statements.

14.2.2. Investment in Bank Leumi

On April 30, 2009, the Company acquired from third parties, unaffiliated with the Company, as a passive financial investment, ordinary shares of Bank Leumi, a banking corporation whose shares are listed on TASE, which represented approx. 4.8% of the issued and paid-up share capital of Bank Leumi, in consideration for a sum total of approx. NIS 742 million. During 2016-2020 and up to the Report Release Date, the Company disposed of some of its holdings in Bank Leumi for a total sum of approx. NIS 485 million, and its holding as of the report release date represents approx. 3.1% of Bank Leumi's issued and paid-up share capital (as of the Report Release Date, the total dividends received over the years and the consideration from sales is approx. NIS 676 million). The value of the Company's investment in Bank Leumi as of December 31, 2020 was approx. NIS 862 million. The Company's investment in Bank Leumi is presented in its books as a financial asset available for sale in accordance with GAAP.

In 2020, the Company recorded comprehensive loss (before tax) of approx. NIS 285 million due to this investment. For details, see Section 3.2.1 of the Board of Directors' Report.

On the date of the acquisition, on April 30, 2009, the Bank Leumi share price was 1,055 Agorot. On December 31, 2020 (the last trading day of the year), the Bank Leumi share price was 1,890 Agorot, whereas at the close of trading on March 24, 2021, the Bank Leumi share price was 2,179 Agorot, such that from the date of the report and until its release, the value of Bank Leumi shares held by the Company increased by the amount of approx. NIS 131 million (before tax).

On March 29, 2017, Bank Leumi's board of directors approved a dividend distribution policy, beginning on the release date of the financial statements for Q1/2017. Pursuant to the said policy, the bank will distribute, each quarter, a dividend equal to 20% of its net profit according to the bank's financial statements for the previous quarter and subject, inter alia, to the Bank's meeting its capital adequacy targets also after the distribution of the dividend. On November 20, 2017, the board of directors of Bank Leumi approved a modification to the dividend distribution policy, from 20% each quarter to up to 40% each quarter, of the net profit for that quarter, beginning with the profits of Q3/2017. On April 16, 2020, Bank Leumi reported that in view of the notice of the Supervisor

of Banks regarding reduction of the minimum regulatory capital requirements that apply to the banks as a result
of the Covid-19 crisis, and in view of temporary provisions on the issue of March 31, 2020, the board of directors
of Bank Leumi decided, inter alia, to halt, at this stage, the distribution of a dividend. For further details, see Bank Leumi's immediate report of April 16, 2020 (Ref.: 2020-01-034294). In 2020, Bank Leumi distributed a dividend to its shareholders in the amount of approx. NIS 0.3 billion, while the sum of the dividends received by the Company in respect of such distribution is approx. NIS 9 million as specified below:

Distribution resolution date

Payment date

Total distribution amount

(NIS in millions)

The Company's share out of the total distribution amount (NIS in millions)

26.2.2020

23.3.2020

Approx. 297 (approx. NIS 0.20 per share)

Approx. 9

Bank Leumi's financials are publicly posted on the distribution website of the ISA at:www.magna.isa.gov.il and on the TASE website atwww.tase.co.il.

A-91

14.2.3. Investments in investment funds

As of December 31, 2020, the Company has invested in two investment funds, which are presented at fair value in the sum of approx. NIS 4 million, compared with a fair value in the sum of approx. NIS 5 million as of December 31, 2019.

A-92

PART SIX: MATTERS COMMON TO THE GROUP'S ACTIVITIES IN ALL OPERATING SEGMENTS THEREOF 71

15.

Fixed assets, land and facilities

The Company's offices are situated on the 48th floor and part of the 33rd floor of the Round Tower in Azrieli Center in Tel Aviv. The Company leases its offices, a gross area of 2,450 sqm, from Canit Hashalom for a long-term period, for immaterial amounts.

The Mount Zion Hotel, which was acquired by the Company in 2020 as provided in Section 12.2 above, is presented in the Financial Statements in the fixed assets item.

The Company has no material fixed assets except for the aforesaid.

The fixed assets of Palace Tel Aviv, Palace Modi'in and Palace Lehavim are primarily buildings that contain the LTC and recuperation units, see Section 11.1 of this Chapter A.

16.

Intangible assets

The primary trademark owned by the Company and the Group companies, is a designed mark which includes the inscription "Azrieli Group", and the Group's logo:

As of the Report Release Date, the Company owns registered trademarks, including in respect of new properties, such as the trademarks of the Group's senior housing chain - Palace Senior Housing, and the trademarks of the E-Commerce Website launched by the Company in February 2017 - Azrieli.com. The Group has also registered trademarks of the sphere shape that appears at the entrance of some of the Company's malls, and it also owns the Multi Azrieli trademark. Registered trademarks are valid for 10 years from the date of their registration and can be renewed, per the Company's decision, for additional periods of 10 years each, without limit, subject to the payment of a renewal fee.

71 This part "Matters Common to the Group's Activities in all Operating Segments thereof" does not include the e-commerce business, unless otherwise expressly stated.

A-93

17.

Human capital

General

The Company places special emphasis on the quality of human capital, particularly at the Company's management level, by hiring a professional workforce with vast knowledge and experience in a variety of fields which are required within the framework of the Company's operating segments. Most of the Company's employees, mainly at its management level, have significant seniority in the Company, and vast experience in its operating segments. Unless otherwise noted, the specification in this Section does not include reference to human capital aspects regarding the senior housing segment (see Section 11 of this Chapter A) and the e-commerce business (see Section 14.1 of this Chapter A).

Organizational structure and workforce

The diagram below describes the Group's organizational structure as of the Report Release Date:

Chairman of the Board

Board of Directors

Group CEO

Personal

Assistant to

the CEO

VP Planning, Engineering & Construction

VP, Head of Offices

VP, General Counsel and Company Secretary

CEO of several property compani es

VP Inter-national

Real Estate

Chief Informati on Officer

VP Business Develop-ment & Innovati on

As of December 31, 2020, the Group companies employ 361 employees. The segmentation of the employees in the main segments is detailed below:

Department

Number of Employees as of December 31, 2020

Number of Employees as of December 31, 2019

Management Headquarters*	74	70
Commercial Centers and Malls Segment	186	195
Office and Other Space for Lease in Israel Segment	101	97
Total	361	362

* One employee from the management headquarters is attributed to the income-producing property in the U.S. segment and one employee is attributed to the senior housing segment.

** For details with respect to all employees of the senior housing segment, see Section 11.1 of this Chapter A.

A-94

The Group's management and headquarters employs 74 employees, including the Group's CEO, CEO of Azrieli Malls and Deputy CEO, the Deputy CEO & CFO, VP, General Counsel and Company Secretary, VP and Head of Offices, VP International Real Estate, VP and Head of Senior Housing, VP Planning, Engineering and Construction, Chief Information Officer and VP Business Development & Innovation. The members of the Group's managerial headquarters have considerable managerial experience, and some of them have been by the Group's side for many years. 186 employees are employed in the Group's retail centers and malls segment, of whom 148 work for the management and maintenance teams of the retail centers and malls engaged in the current management of the retail centers and malls, 23 employees are employed in the mail distribution centers found in the retail centers and malls, and 15 provide marketing services to all of the Group's retail centers and malls.

101 employees work in the office and other space for lease in Israel segment, of whom 97 employees work for the segment's management and maintenance teams engaged in the current management of the offices, and 4 engage in the provision of marketing services.

As of the Report Date, the income-producing property in the U.S. segment is managed by the Company's headquarters and VP International Real Estate and management services and other services are provided to the Group in this segment by local professional management companies.

As of the Report Date, there are, between the Company and the Group companies, cooperation and agreements in connection with the provision of management services between themselves, including, inter alia, financial advice, strategic advice and current management advice, in consideration for a monthly payment. In addition, there are management agreements with the Group companies which derive, in part, as a percentage of such company's total expenses. The total payments that were made between the Group companies for these management services, in 2019 and 2020, amounted to the sum of approx. NIS 53 million and approx. NIS 44 million, respectively.

Changes in senior officers in the corporation

On March 25, 2020, Ms. Irit Sekler-Pilosof was appointed as Deputy CEO of the Company in addition to her office as the Company's CFO.

In the report period, the Company appointed Mr. Elad Alon as VP Business Development & Innovation in lieu of Mr. Assaf Aviv, who ended his term of office at the Company.

In the report period, the Company appointed Mr. Uri Kilstein as CEO of Azrieli Malls and Deputy CEO of the Company in lieu of Mr. Arnon Toren. Mr. Kilstein began his term of office on February 1, 2021.

For further details on the senior officers in the corporation, see a specification with respect to Section 26 and Section 26A in Chapter D of the Report.

Investment in training, instruction and development of human capital

The Group companies hold training and instruction workshops from time to time for their employees in accordance with the employee's position and the Group's needs, in order to ensure that employees have adequate training. Once a year, the Company holds concentrated training for officers and employees of the Company in accordance with the Company's Internal Enforcement Program, including in the areas of securities, planning and building and real estate, labor law, environment, safety and accessibility, prevention of sexual harassment, consumer protection, as well as additional training held from time to time according to need. Employees of the Group companies keep abreast of fields touching on their responsibilities in the Group, from time to time, by participating in exhibitions, seminars, conferences and professional courses.

A-95

This is an excerpt of the original content. To continue reading it, access the original document here.

Attachments

Original document
Permalink

Disclaimer

Azrieli Group Ltd. published this content on 25 March 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 29 March 2021 14:47:07 UTC.

Latest news about Azrieli Group Ltd

Transcript : Azrieli Group Ltd, 2023 Earnings Call, Mar 21, 2024	Mar. 21
Azrieli Group Ltd Reports Earnings Results for the Full Year Ended December 31, 2023	Mar. 21	CI
Transcript : Azrieli Group Ltd, Q3 2023 Earnings Call, Nov 27, 2023	Nov. 27
Azrieli Group Ltd Reports Earnings Results for the Third Quarter and Nine Months Ended September 30, 2023	Nov. 27	CI
Brookfield Infrastructure Partners L.P. and Ontario Teachers' Pension Plan Board completed the acquisition of Compass Datacenters, LLC from RedBird Capital Partners LLC and Azrieli Group Ltd.	23-10-02	CI
Transcript : Azrieli Group Ltd, Q2 2023 Earnings Call, Aug 17, 2023	23-08-17
Azrieli Group Ltd Reports Earnings Results for the Second Quarter and Six Months Ended June 30, 2023	23-08-17	CI
Brookfield, Canadian pension fund to buy Compass Datacenters	23-06-20	RE
Brookfield Infrastructure Partners, Ontario Teachers' Pension Plan to Acquire Compass Datacenters	23-06-20	MT
Brookfield Infrastructure and Ontario Teachers' to Buy Compass Datacenters from RedBird Capital Partners and Azrieli Group; No Financial Details Given	23-06-20	MT
Brookfield Infrastructure Brief: Brookfield Infrastructure and Ontario Teachers' to Buy Compass Datacenters from RedBird Capital Partners and Azrieli Group	23-06-20	MT
Brookfield Infrastructure Partners L.P. and Ontario Teachers' Pension Plan Board agreed to acquire Compass Datacenters, LLC from RedBird Capital Partners LLC and Azrieli Group Ltd for $1.4 billion.	23-06-19	CI
Transcript : Azrieli Group Ltd, Q1 2023 Earnings Call, May 24, 2023	23-05-24
Azrieli Group Ltd. agreed to acquire Azrieli Group Ltd. from its shareholders for approximately ILS 130 million.	23-04-16	CI
Azrieli Group Ltd completed the acquisition of Mall HaYam Eilat Ltd. from two unrelated third parties.	22-07-02	CI
Azrieli Group Seeks Acquisitions	21-05-26	CI
Amazon com : opens its platform to local retail market in Israel	19-05-01	RE
Azrieli Group Ltd. Reports Earnings Results for the First Quarter Ended March 31, 2017	17-05-24	CI
Azrieli Group Ltd Reports Earnings Results for the Fourth Quarter and Year Ended December 31, 2016	17-03-22	CI
Azrieli Group Announces Dividend for 2016	17-03-22	CI
Azrieli Group Ltd Announces Earnings Results for the Third Quarter and Nine Months Ended September 30, 2016	16-11-23	CI
Azrieli Group Announces Earnings Results for the Second Quarter and Six Months Ended June 30, 2016	16-08-25	CI
Azrieli Group Ltd Reports Unaudited Consolidated Earnings Results for the First Quarter of 2016	16-05-25	CI
Azrieli Group Ltd completed the acquisition of Ahuzat Bayit Raanana Retirement Home Ltd from Exor Investments Ltd.	16-05-24	CI
Azrieli Group Ltd acquired 6.4 dunam (1.6 acres) in Ramat Hasharon from Sonol Israel Ltd.	16-05-10	CI

Chart Azrieli Group Ltd

Duration

Period

More charts

Company Profile

Azrieli Group Ltd is an Israel-based company. The Companyâs activity is divided into five segments : The retail centers and malls in this segment the Group is primarily engaged in development, acquisition, lease-out, management and maintenance of malls and retail centers in Israel. Offices and other space for rent- in this segment the Company Group is primarily engaged in development, acquisition, lease-out, management and maintenance of office buildings and parks for offices and high-tech industry, logistic areas and storage in Israel. Income- producing properties in the U.S. owns 8 leasable office properties outside of Israel. The Company has three senior homes assigned to Senior housing segment. Others is engaged in the data centers business including e-commerce operations, operations in hospitality sector, investment in banking and financial corporations and investments I investments funds.

Sector

Real Estate Development & Operations

Calendar

2024-05-22 - Q1 2024 Earnings Release

More about the company

Income Statement Evolution

More financial data

Ratings for Azrieli Group Ltd

Trading Rating

Investor Rating

ESG Refinitiv

More Ratings

Analysts' Consensus

Sell

Buy

Mean consensus

OUTPERFORM

Number of Analysts

Last Close Price

244.5 ILS

Average target price

302 ILS

Spread / Average Target

+23.52%

Consensus

EPS Revisions

Estimates Revisions

Quarterly earnings - Rate of surprise

Company calendar

Sector Other Real Estate Development & Operations

	1st Jan change	Capi.
AZRIELI GROUP LTD	+2.82%	7.96B
CHINA RESOURCES LAND LIMITED	+14.64%	29.29B
MITSUI FUDOSAN CO., LTD.	+36.86%	28.36B
SUN HUNG KAI PROPERTIES LIMITED	-8.82%	25.5B
DLF LIMITED	+13.69%	24.47B
MITSUBISHI ESTATE CO., LTD.	+50.95%	23.83B
CHINA OVERSEAS LAND & INVESTMENT LTD.	+11.92%	21.57B
EMAAR PROPERTIES	+1.39%	19.32B
SUMITOMO REALTY & DEVELOPMENT CO., LTD.	+31.19%	16.73B
POLY DEVELOPMENTS AND HOLDINGS GROUP CO., LTD.	-1.82%	15.96B

Other Real Estate Development & Operations