News Column

Gazit-Globe Reports Second Quarter 2014 Financial Results

September 1, 2014

FFO grew by 15% to NIS 163 Million; FFO per share grew by 8%

The Group Liquidity Totaled NIS 10.9 billion; Net debt to total assets (LTV) declined to 53.4%

TEL-AVIV, Israel, Sept. 1, 2014 (GLOBE NEWSWIRE) -- Gazit-Globe (NYSE:GZT) (TSX:GZT) (TASE:GZT), one of the world's leading multi-national real estate companies focused on acquisition, development and redevelopment of supermarket-anchored shopping centers in major urban markets, announced today its financial results for the second quarter ended June 30, 2014.

References to the "Group" relate to Gazit-Globe's consolidated statements. References to the "Company" relate to Gazit-Globe's stand-alone financial statements. Unless otherwise stated, financial information included in this press release relates to the "Group".

Highlights:

• NOI for the quarter decreased by 4% to NIS 832 million (US$ 242 million) compared to NIS 865 million (US$ 252 million) in same quarter last year. Excluding the effect of changes in exchange rates, NOI increased by 1% compared to same quarter last year• FFO for the quarter increased by 15% to NIS 163 million (US$ 47 million), or NIS 0.92 per share (US$ 0.27), compared to NIS 142 million (US$ 41 million), or NIS 0.85 per share (US$ 0.25), in same quarter last year. The number of shares grew by 5% between the periods• Investments during the quarter totaled NIS 562 million (US$ 163 million). The group also recycled capital from the divestment of non-core assets in the amount of NIS 596 million (US$ 173 million). (Assuming consolidation of jointly controlled companies that are presented according to the equity method, total investments equaled NIS 618 million (US$ 180 million), and divestment of non-core assets totaled NIS 878 million (US$ 255 million))• Same Property NOI for the period, excluding the effect of changes in exchange rates, grew by 1.5% compared to same period last year• Occupancy rate as of June 30, 2014 increased to 95.4%, compared to occupancy rate of 95.0% as of December 31, 2013, and 94.5% as of June 30, 2013• Shareholders' equity as of June 30, 2014 totaled NIS 7,687 million (US$ 2,236 million), or NIS 43.7 per share (US$ 12.71), compared to NIS 7,802 million (US$ 2,269 million), or NIS 44.4 per share (US$ 12.91), as of December 31, 2013, and to NIS 7,809 million (US$ 2,271 million), or NIS 44.4 per share (US$ 12.91), as of June 30, 2013• EPRA NAV per share as of June 30, 2014 was NIS 56.6 (US$ 16.46) compared to NIS 57.9 per share (US$ 16.84) as of December 31, 2013, and NIS 57.0 per share (US$ 16.58) as of June 30, 2013• As of June 30, 2014, the Group had liquid assets and unutilized revolving credit facilities in the amount of NIS 10.9 billion (US$ 3.17 billion) of which NIS 3.1 billion (US$ 0.90 billion) is at the Company level. A jointly controlled company (Atrium) has additional NIS 1.2 billion (US$ 0.35 billion) in cash• As of June 30, 2014, net debt to total assets (LTV) was 53.4%, compared to 55.1% as of December 31, 2013, and 55.1% as of June 30, 2013• The Company's Board of Directors declared a quarterly cash dividend of NIS 0.45 per share, which represents an annualized dividend per share of NIS 1.80, payable on October 1, 2014 to shareholders of record as of September 16, 2014• Our consolidated subsidiary, U. Dori Construction Ltd., reported material deviations in its estimated costs and expected revenues from projects it performed, totaling a net amount of NIS 441 million cumulatively since the fourth quarter of 2012. As a result, Gazit-Globe has restated its financial reports for the relevant periods. Gazit-Globe's board of directors approved the grant to Gazit-Globe Israel (Development) Ltd. of a loan in the amount of up to NIS 200 million that will be used to strengthen the capital structure, liquidity and cash flows of Dori Group. As a result, Gazit Development presented a framework for investment in Dori Group, including, among other things, the injection of NIS 130 million of equity into Dori Group, the issuance of a perpetual capital note in exchange for the assignment of credit lines provided to Dori Construction in the sum of NIS 250 million, and the issuance of a NIS 70 million credit line to Dori Group, following the completion of the purchase of the Dori construction bonds. The framework is subject to customary approvals required by law.

Exchange rate as of June 30, 2014 of 1 USD = 3.438 NIS

Roni Soffer, President of Gazit-Globe: "We conclude a positive quarter for the group's core activity and, notwithstanding material losses recorded by Dori Construction, we saw strong growth in both FFO and FFO per share, while further reducing our LTV, increasing our liquidity, and strengthening our balance sheet. We continue to enhance the quality of our portfolio through capital recycling activity, having recently sold properties in our medical office platform while investing in the Nordic region and Brazil. These steps are aligned with our long-term strategy to focus on our core shopping center operations."

Financial highlights for second quarter 2014:

  • Rental income decreased by 5% to NIS 1,226 million compared to NIS 1,286 million in the second quarter 2014. Excluding the effect of changes in exchange rates, rental income increased by 1% compared to the second quarter 2013
  • NOI for the quarter decreased by 4% to NIS 832 million compared to NIS 865 million in same quarter last year. Excluding the effect of changes in exchange rates, NOI increased by 2% compared to same quarter last year
  • FFO for the quarter increased by 15% to NIS 163 million, or NIS 0.92 per share, compared to NIS 142 million, or NIS 0.85 per share, in same quarter last year. The number of shares grew by 5% between the periods
  • Net income attributable to the Company's shareholders totaled NIS 146 million, or NIS 0.80 per share, compared to NIS *) 60 million, or NIS 0.34 per share, in the second quarter 2013
  • Occupancy rate as of June 30, 2014 increased to 95.4%, compared to occupancy rate of 95.0% as of December 31, 2013 and 94.5% as of June 30, 2013. Occupancy rate as of June 30, 2014 was 95.0% in North America, 96.2% in Europe and 98.3% in Israel
  • The fair value gain from investment property and investment property under development was NIS 241 million compared to NIS 222 million in the second quarter 2013
  • Shareholders' equity as of June 30, 2014 totaled NIS 7,687 million, or NIS 43.7 per share, compared to NIS *) 7,802 million, or NIS 44.4 per share, as of December 31, 2013, and to NIS *) 7,809 million, or NIS 44.4 per share, as of June 30, 2013
  • Cash flow from operating activities totaled NIS 270 million, compared to NIS 79 million in the second quarter 2013

    Financial highlights for the first half 2014:

  • Rental income decreased by 7% to NIS 2,453 million compared to NIS 2,626 million in the same period of 2013. Excluding the effect of changes in exchange rates, rental income increased by 1% compared to the same period of 2013
  • NOI decreased by 6% to NIS 1,649 million compared to NIS 1,748 million in the same period of 2013. Excluding the effect of changes in exchange rates, NOI increased by 1% compared to the same period of 2013
  • Same-property NOI for the first half of 2014, excluding the effect of changes in exchange rates, grew by 1.5%, resulting from an increase of 1.9% in the same-property NOI from North America, a 1.0% increase in same-property NOI from Europe and a 2.2% increase in same-property NOI from Israel
  • FFO increased by 8% to NIS 313 million, or NIS 1.78 per share, compared to NIS 291 million, or NIS 1.75 per share, in the same period of 2013. The number of shares grew by 6% between the periods
  • Net income attributable to the Company's shareholders totaled NIS 303 million, or NIS 1.70 per share, compared to NIS *) 389 million, or NIS 2.32 per share, in the same period of 2013.
  • Cash flow from operating activities totaled NIS 457 million, compared to NIS 143 million in the same period of 2013

    *) Restated to adjust for the deviations in the estimated costs and expected revenues from projects performed by Dori Construction

    Acquisition, Development, Redevelopment and Capital Recycling Activities:

  • During the first half of 2014, the Group invested NIS 1,345 million acquiring 3 income-producing properties totaling 49 thousand square meters and adjacent land parcels for future development in a total amount of NIS 734 million and an amount of NIS 611 million in new development and redevelopment projects
  • During the first half of 2014, the group sold non-core properties for a total amount of NIS 723 million. (Assuming consolidation of jointly controlled companies that are presented according to the equity method, divestment of non-core assets totaled NIS 1,006 million)
  • As of June 30, 2014, the Group had 10 properties under development with a gross leasable area of 206 thousand square meters and a total investment of NIS 1,509 million, and 25 properties under redevelopment with a gross leasable area of 359 thousand square meters and a total investment of NIS 3,570 million. The additional cost to complete the properties under development and redevelopment totals NIS 2,112 million
  • During the quarter, ProMed Properties sold 6 medical office building for $200 million pre-tax and transaction costs. Subsequent to the quarter end, ProMed sold additional 6 properties for $205 million pre-tax and transaction costs
  • Subsequent to the quarter end, Gazit-Globe's wholly owned subsidiary, Gazit Brasil, has entered into an agreement to acquire the "Top Center Shopping" property in Sao Paulo, Brazil for approximately R$ 145 million (US$ 65 million). Closing of the acquisition remains subject to the fulfillment of certain closing conditions
  • Subsequent to the quarter end, Gazit-Globe's wholly owned subsidiary, Gazit Germany, sold one property for 42 million euro, and entered into an agreement to sell two additional properties for 51 million euros, subject to the fulfillment of certain closing conditions.

    Financing Activities:

  • During the quarter, the Group raised NIS 1.0 billion in equity. In addition, the Group raised approximately NIS 1.9 billion through debenture offerings
  • The average cost of debt during the first half of 2014 was 4.7%, compared to 4.9% in the same period of 2013

    ACCOUNTING AND OTHER DISCLOSURES

    The Company believes that publication of FFO, which is computed according to EPRA guidance, more correctly reflects the operating results of the Company, since the Company's financial statements are prepared in line with IFRS. In addition, publication of FFO provides a better basis for the comparison of the Company's operating results in a particular period with those of previous periods and also provides a uniform financial measure for comparing the Company's operating results with those published by other European property companies.

    In addition, pursuant to the investment property guideline issued by the Israel Securities Authority in January 2011, FFO is to be presented in the "Description of the Company's Business" section of the annual report of investment property companies on the basis of the EPRA criteria.

    As clarified in the EPRA and NAREIT position papers, the EPRA Earnings and the FFO measures do not represent cash flows from operating activities according to accepted accounting principles, nor do they reflect the cash held by a company or its ability to distribute that cash, and they are not a substitute for the reported net income. Furthermore, it is clarified that these measures are not audited by the Company's independent auditors.

    CONFERENCE CALL/WEB CAST INFORMATION

    Gazit-Globe will host a conference call and webcast in English on Tuesday, September 2, 2014 at 5:00 pm Israel Time / 3:00 pm Central European Time / 10:00 am Eastern Time, to review the second quarter 2014 financial results. Shareholders, analysts and other interested parties can access the conference call by dialing 1877 280 2342 (U.S./Canada) or 0800 279 4977 (U.K.) or +44 (0) 20 3427 1907 (International) or 1809 212 923(Israel), or on the Company's website www.gazit-globe.com. (Conference ID 8293579)

    For those unable to participate during the call, a replay will be available for future review on Gazit-Globe's website under Investor Relations.

    About Gazit-Globe

    Gazit-Globe is one of the largest owners, developers and operators of predominantly supermarket-anchored shopping centers in major urban markets around the world. Gazit-Globe is listed on the New York Stock Exchange (NYSE:GZT), the Toronto Stock Exchange (TSX:GZT) and the Tel Aviv Stock Exchange (TASE:GZT) and is included in the TA-25 and Real-Estate 15 indices in Israel. Gazit-Globe owns and operates 561 properties in more than 20 countries, with a gross leasable area of approximately 6.6 million square meters and a total value of approximately US$ 22 billion.

    FOR ADDITIONAL INFORMATION

    A comprehensive copy of the Company's annual report is available on Gazit-Globe website at www.gazit-globe.com

    Investors Contact: IR@gazitgroup.com, Media Contact: press@gazitgroup.com

    Gazit-Globe Headquarters, Tel-Aviv, Israel, Tel: +972 3 6948000 / New York Office, Tel: +1 212 897 9741

    FORWARD LOOKING STATEMENTS

    This release may contain forward-looking statements within the meaning of applicable securities laws. In the United States, these statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements involve a number of known and unknown risks and uncertainties, many of which are outside our control, that could cause our future results, performance or achievements to differ significantly from the results, performance or achievements expressed or implied by such forward-looking statements. Important factors that could cause or contribute to such differences include risks detailed in our public filings with the SEC and the Canadian Securities Administrators. Except as required by applicable law, we undertake no obligation to update any forward-looking or other statements herein, whether as a result of new information, future events or otherwise.

    Below please find excerpts from our second quarter 2014 financial Report. For our second quarter 2014 financial Report in English, please go to http://www.gazitglobe.com/financial-reports.

           
    CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
           
     June 30December 31,
     2014*) 2013 *) 2013 
     NIS in millions
    ASSETS      
           
    CURRENT ASSETS:      
           
    Cash and cash equivalents 1,895 1,309 1,018
    Short-term deposits and loans  515 670 504
    Marketable securities  112 165 100
    Financial derivatives 41 109 39
    Trade receivables 566 748 689
    Other accounts receivable 315 297 302
    Inventory of buildings and apartments for sale 725 647 692
    Income taxes receivable 10 16 19
           
      4,179 3,961 3,363
           
    Assets classified as held for sale 2,360 455 611
           
      6,539 4,416 3,974
    NON-CURRENT ASSETS      
           
    Equity-accounted investees 5,807 5,208 5,907
    Other investments, loans and receivables 423 908 659
    Available-for-sale financial assets 635 364 435
    Financial derivatives  784 1,134 769
    Investment property 51,105 53,815 53,309
    Investment property under development 2,642 2,296 2,479
    Non-current inventory  4 23 23
    Fixed assets, net 160 198 160
    Intangible assets, net 99 109 106
    Deferred taxes 109 177 106
           
      61,768 64,232 63,953
           
      68,307 68,648 67,927
           
    *)  Restated retrospectively adjusted, refer to note 2F and 8
           
           
    CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
           
     June 30,December 31, 
     2014*) 2013*) 2013
     NIS in millions
    LIABILITIES AND EQUITY   
        
    CURRENT LIABILITIES      
           
    Credit from banks and others 575 362 257
    Current maturities of non-current liabilities 3,259 2,139 2,914
    Financial derivatives 37 23 32
    Trade payables 867 897 940
    Other accounts payable 1,425 1,184 1,272
    Advances from customers and buyers of apartments 298 274 267
    Income taxes payable 63 29 32
           
      6,524 4,908 5,714
    Liabilities attributed to assets held for sale 309 5 73
           
      6,833 4,913 5,787
    NON-CURRENT LIABILITIES      
           
    Debentures 22,838 22,039 22,231
    Convertible debentures 1,210 1,289 1,221
    Interest-bearing loans from financial institutions and others 10,692 14,237 12,692
    Financial derivatives 125 192 169
    Other liabilities 181 197 198
    Deferred taxes 3,379 3,378 3,276
           
      38,425 41,332 39,787
           
    EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY     
           
    Share capital 229 229 229
    Share premium 4,297 4,289 4,288
    Retained earnings 5,305 4,773 5,160
    Foreign currency translation reserve (2,164) (1,614) (2,000)
    Other reserves 41 153 146
    Loans granted for purchase of Company's shares **) -- -- --
    Treasury shares (21) (21) (21)
           
      7,687 7,809 7,802
    Non-controlling interests 15,362 14,594 14,551
           
    Total equity 23,049 22,403 22,353
           
      68,307 68,648 67,927
           
           
    *) Restated retrospectively adjusted, refer to note 2F and 8
    **) Represents an amount of less than NIS 1 million
           
               
    CONSOLIDATED STATEMENTS OF INCOME 
               
     Six months endedThree months endedYear ended
     June 30,June 30,December 31,
     2014**) 20132014**) 2013**) 2013
     UnauditedAudited
     NIS in millions (except for per share data)
               
    Rental income 2,453 2,626 1,226 1,286 5,146
    Property operating expenses 804 878 394 421 1,689
               
    Net operating rental income 1,649 1,748 832 865 3,457
               
               
    Revenues from sale of buildings, land and construction work performed 603 927 272 518 1,672
               
    Cost of buildings sold, land and construction work performed 851 876 413 480 1,688
               
    Gross profit (loss) from sale of buildings,          
    land and construction work performed (248) 51 (141) 38 (16)
               
    Total gross profit 1,401 1,799 691 903 3,441
               
    Fair value gain from investment property and investment property under development, net 266*) 407 241*) 222*) 962
    General and administrative expenses (296)*) (308) (149)*) (153)*) (610)
    Other income 5 7 1 2 218
    Other expenses (21) (54) (16) (37) (74)
               
    Company's share in earnings of equity- accounted investees, net 112 105 34 47 149
               
    Operating income 1,467 1,956 802 984 4,086
               
    Finance expenses (945) (1,153) (566) (676) (2,185)
    Finance income 277 304 157 91 549
               
    Income before taxes on income 799 1,107 393 399 2,450
    Taxes on income 186 143 94 52 265
               
    Net income 613 964 299 347 2,185
               
    Attributable to:          
               
    Equity holders of the Company 303 389 146 60 927
    Non-controlling interests 310 575 153 287 1,258
               
      613 964 299 347 2,185
               
    Net earnings per share attributable to equity holders of the Company:          
    Basic net earnings 1.72 2.34 0.83 0.35 5.41
               
    Diluted net earnings 1.70 2.32 0.80 0.34 5.35
               
    *) Reclassified, refer to Note 2d
    **) Restated retrospectively adjusted, refer to note 2F and 8
               
               
    FFO (EPRA Earnings)
               
    The table below presents the calculation of the Company's FFO, calculated according to the recommendations of EPRA and the guidelines of the Israel Securities Authority, and its FFO per share for the stated periods:
               
     For the 6 monthsFor the 3 monthsFor the year
     ended June 30,ended June 30,ended December 31
     20142013201420132013
     NIS in millions (other than per share data)
               
    Net income attributable to equity holders of the Company for the period303*) 389146*) 60*) 927
               
    Adjustments:          
    Fair value gain from investment property and investment property under development, net (266)**) (407) (241)**) (222)**) (962)
    Capital loss on sale of investment property 19 40 16 24 52
    Changes in the fair value of financial instruments, including derivatives, measured at fair value through profit or loss (218) (247) (120) (57) (435)
    Adjustments with respect to equity-accounted investees 50 4 30 6 60
    Loss from decrease in interest in investees 1 10 -- 10 11
    Deferred taxes and current taxes with respect to disposal of properties 198*) 136 97*) 47*) 262
    Gain from bargain purchase -- -- -- -- (173)
    Acquisition costs recognized in profit or loss 3 3 2 -- 10
    Loss (gain) from early redemption of interest-bearing liabilities and financial derivatives 65 144 68 141 142
    Non-controlling interests' share in above adjustments 25*) 95 26*) 45*) 375
               
    Nominal FFO1801672454269
               
    Additional adjustments:          
               
    CPI and exchange rate linkage differences (15) 56 41 53 152
    Depreciation and amortization 7 8 4 4 16
    Adjustments with respect to equity-accounted investees (3) 19 13 8 27
    Other adjustments(1) 144**) *) 41 81**) *) 23**) *) 121
               
    FFO according to the management approach313291163142585
    FFO according to the management approach per share (in NIS)1.781.750.930.853.42
    FFO according to the management approach per share (diluted) (in NIS)1.781.750.920.853.41
    Number of shares used in the basic FFO per share calculation (in thousands)(2)175,875166,315175,939167,296171,103
    Number of shares used in the diluted FFO per share calculation (in thousands)(2)175,983166,549176,047167,544171,413
               
    *)  Restated (refer to section 1.4 above) and retrospectively adjusted for implementation of a clarification to IAS 12, refer to Notes 2e, 2f and 8 to the financial statements
    **)  Reclassified, refer to Note 2d to the financial statements
    1  Income and expenses adjusted against the net income for the purpose of calculating FFO, which include the adjustment of expenses and income from extraordinary legal proceedings not related to the Reporting Periods, expenses arising from non-recurring expenses relating to the termination of engagements with senior Group officers, income and expenses from operations not related to income-producing property (including the results of Dori Group), as well as internal leasing costs (mainly salary) incurred in the leasing of properties.
    2  Weighted average for the period.
               

    CONTACT: For additional information: Gil Kotler, Senior Executive VP and CFO Gazit-Globe Ltd.1 HaShalom Rd.Tel Aviv, Israel 67892 +972 3 694 8000



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    Source: Gazit-Globe


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