My Fellow Shareholders
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My Fellow Shareholders, I have always said that our business model allows us to increase our returns through the active management of our investments in top-quality, necessity-driven real estate assets that generate healthy, continuous, and predictable cash flows. Over the years, the compounding effect of these steady, safe and growing cash flows, together with our prudent financing activities, have enabled us to expand our portfolio and venture into new markets. Over time, we have based each move on the solid foundation established by prior well-considered moves, building Gazit-Globe into one of the world’s largest multi-national shopping center operators; we are continuously expanding the scope of our activities while delivering great results year after year. As our primary strategy for reducing risk, we focus on assets that serve the daily necessities of affluent, urban populations in politically stable, investment-grade, hard- to-penetrate markets – the regions and neighborhoods that offer superior stability and resilience in all stages of the economic cycle. At the same time, through a focus 2012 was another excellent year for Gazit-Globe – a year on skilled execution, we constantly streamline our cost marked by across-the-board growth, successful equity and models and improve our profitability. debt offerings, portfolio upgrades, and creating value and realizing synergies across the Group’s platform. To finance In 2012, our primary strategic initiatives included the nearly NIS 5.7 billion of acquisitions and development as following: well as to refinance our debt, we raised equity totaling NIS 1.8 billion, recycled over NIS 2.4 billion from divesting non- Continuous Upgrade of Our Portfolio: During the past core assets, and issued nearly NIS 6.2 billion of long-term few years, we have focused on selling non-core assets debentures. We decreased our overall leverage, lowered and recycling capital to acquire assets that better fit our the cost of our debt, and partnered with a number of top- target model: top-tier properties in highly built-up, densely- tier international institutions. Equally important, following populated metropolitan areas. our listing on the NYSE, we began to observe increased international interest in our company. In 2012 our stock In 2012, our “stand-out” acquisitions included Citycon’s appreciated 40%, with an average total annual return of EU530 million purchase of Stockholm’s Kista Galleria, more than 18% since the beginning of 2000; our annual one of Europe’s strongest, and one of Sweden’s top- dividend increased for the 14th consecutive year. three, shopping centers (the transaction closed in January 2013), and Equity One’s completion of the The Gallery at These positive developments demonstrate the soundness Westbury Plaza in Long Island, NY, a prime property in an of the strategy that we have been following for more than elite shopping corridor. In January 2013, our acquisition two decades: an approach that continues to work as well of the Prado Shopping Center in the state of Sao Paulo, today, when we are managing more than 600 properties Brazil, furthered our expansion into targeted, highly- and more than 15,000 leases, as it did when we bought desirable emerging markets. our first shopping center 22 years ago. On the divestment side, during 2012 our subsidiary Royal to achieve at a multinational organization and I would like Senior Care sold the majority of its senior housing facilities to thank personally each of our team members for their for $230 million dollars, which was in addition to the sale by talents, dedication and hard work. I believe that Gazit- the Group of lower-tier secondary-market assets totaling Globe offers significant opportunities for career and approximately $400 million. We recycled this capital to personal development and I look forward to continuing to make new core acquisitions in high-density urban markets. build the Company together for many years ahead. Capitalizing on Synergies and Efficiency: As part of our Outlook pursuit of increased efficiency, during 2012 we restructured We believe that the world is currently in a slow, sometimes our subsidiary, Gazit America, and sold the majority of Royal painful, process of recovery from a very deep crisis. As Senior Care. These activities generate savings related to such, we expect to see a few more years of sluggish management costs of approximately $5 million per year, growth in Europe and North America, punctuated from while also enabling management to increase its focus on time to time by eruptions of unresolved crises. The process our core business. Furthermore, we continue to implement of healing will be gradual and bumpy, experiencing both best practices at all of our subsidiaries. progress and setbacks. Improving Our Balance Sheet: Based on a firm belief In this unpredictable environment, we believe that our that balance sheet strength will determine who will, and strategy of investing in resilient, necessity-driven asset who will not, succeed in global real estate, in 2012 we classes continues to be the right path for generating strong continued to pursue balance-sheet quality and reduce our returns. As such, we will continue to seek opportunities to cost-of-capital, both at the Group and subsidiary levels. strengthen our position and to expand and improve our Our success is demonstrated by the major rating agencies platform, while simultaneously maintaining a strong balance upgrading all three of our rated publicly traded subsidiaries sheet and fortifying our risk control methodologies. We during the year. are confident that this is the path to achieving sustained growth across the economic cycle. Protecting the Environment: As responsible corporate citizens, we continue to invest in “green” initiatives aimed at With an abundance of opportunities, an expanding base increasing the sustainability of our properties and business of skills and experience, and a proven strategy, we are activities. We are implementing comprehensive monitoring positioned to continue building value for years to come. and reporting methodologies to establish baselines and to We thank you, our stakeholders, for your ongoing interest measure our progress while also expanding our application and support; we do not take your commitment lightly and of green building best practices. Beyond their importance we pledge to continue to move forward for our mutual for the environment and our communities, we recognize benefit and success. that many of these activities – for example, reducing the electricity and water consumption of our properties – have the power to boost our bottom line. Developing Our People: The success of the Group is Sincerely yours, directly attributable to the quality and dedication of an extraordinary team. Like the many parts of a well-oiled machine, we complement and support each other across a global network, sharing knowledge as we balance day- Chaim Katzman to-day workloads. This level of co-operation is not easy Chairman of the Board GAZIT-GLOBE LTD. - CHAPTER A – DESCRIPTION OF THE COMPANY'S BUSINESS Periodic Report for 2012 Chapter A – Description of the Company's Business Chapter B – Directors' Report on the State of the Company's Affairs Chapter C – Financial Statements as of December 31, 2012 Chapter D – Additional Details about the Company (Including a Corporate Governance Questionnaire) Chapter E – Presentation of Financial Information from Consolidated Financial Statements Attributed to the Company as of December 31, 2012 Chapter F – Report on the Effectiveness of Internal Control over Financial Reporting and Disclosure Chapter G – Financial Statements of an Equity-Accounted Company as of December 31, 2012 A-2 CHAPTER A – DESCRIPTION OF THE COMPANY'S BUSINESS – TABLE OF CONTENTS Section Page 1 The Company’s activities and its business development 3-5 2 Investments in the Company’s capital and transactions in its shares in the last two years 6 3 Dividend distributions in the last two years 6 4 Financial information concerning the Company’s fields of operation 7-9 5 General environment and the effect of external factors on the Company’s operations 10-11 6 Acquisition, development and operation of shopping centers in the U.S. 11-27 7 Acquisition, development and operation of shopping centers in Canada 27-40 8 Acquisition, development and operation of shopping centers in Northern Europe 41-54 9 Acquisition, development and operation of shopping centers in Central and Eastern Europe 55-65 10 Initiation, development, management and construction of residential projects 65-70 11 Supplementary activities of the Company that do not comprise a separate segment 70-81 12 Required adjustments at the Group level 82-83 13-28 Issues relevant to all fields of operation of the Group 83-111 A-3 GAZIT -GLOBE LTD PERIODIC REPORT DESCRIBING THE COMPANY'S BUSINESS The Company's operations are described on a consolidated basis, unless explicitly stated otherwise. A. Description of the general development of the Company's business and a summary description of its fields of operation 1. The Company’s activities and its business development 1.1 Gazit-Globe Group - General 1.1.1 Gazit-Globe Ltd. (the “Company"), through its affiliates1 (collectively: the “Group”), is the owner, operator and developer of income-producing properties in North America, Europe, Israel and Brazil, and focuses mainly on the supermarket-anchored shopping center sector. In addition, the Group is engaged in the initiation and construction mainly of residential projects in Israel and in Eastern Europe, as well as in activities complementary to its core fields of operation. The Group's activity includes several fields of operation as follows: A. Acquisition, development and management of shopping centers in the United States – activity carried out through the subsidiary Equity One Inc. ("EQY"). B. Acquisition, development and management of shopping centers in Canada – activity carried out through the subsidiary First Capital Realty Inc. ("FCR"). C. Acquisition, development and management of shopping centers in Northern Europe – activity carried out through the subsidiary Citycon Oyj ("CTY").