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Zrieli Group Ltd Azrieli Group Ltd. Periodic Report As of December 31, 2012 Part A Description of the Corporation's Business Part B Report of the Board of Directors Part C Audited Consolidated Financial Statements As of Dec. 31, 2012 Part D Further Details about the Corporation Part E Corporate Governance Part F Annual Report on the Effectiveness of Internal Controls on financial Reporting and Disclosure ZRIELI GROUP Part A Description of the Corporation's Business Azrieli Group Part A Page Business Description of the Company – General A-2 Part one: Description of the General Development of the Company’s Business (1) Business of the Company and description of the business development thereof A-4 (2) Main operating segments of the Group A-10 (3) Investments in the Company’s capital and transactions in its shares A-12 (4) Dividends A-12 Part two: Other Information (5) Financial data regarding the Company’s operating segments A-13 (6) General environment and effect of external factors on the Company’s business A-17 Part three: Description of the Group’s business in the investment property segment - aggregate Aggregate disclosure with respect to the investment property segment (for the (7) A-22 three operating segments together) Part four: Description of the Group’s business per operating segment and material properties (8) The retail centers and malls segment in Israel A-38 (9) Office and other space for lease segment in Israel A-49 (10) The income-producing property in the U.S.A. segment A-61 Part five: Granite Segment (11) Granite segment A-65 Part Six – Azrieli Group – Additional Business (12) Additional business A-115 Part Seven – Matters Common to the Group’s Activities in All of its Operating Segments (13) Fixed assets, land and facilities A-120 (14) Intangible assets A-120 (15) Human capital A-120 (16) Working capital A-123 (17) Financing A-124 (18) Insurance A-133 (19) Taxation A-133 (20) Environmental risks and the management thereof A-133 (21) Restrictions and monitoring the corporation A-135 (22) Material agreements and collaboration agreements A-136 (23) Legal proceedings A-136 (24) Goals and business strategy A-137 (25) Forecast for development A-137 (26) Discussion of risk factors A-138 All chapters of the report and the annexes hereto constitute a single whole and complement one another A-1 CONVENIENCE TRANSLATION FROM HEBREW Important Notice Set out below for your convenience is a convenience translation into English of the periodic report for the year 2012 and the financial statements annexed thereto (the “Report”) of the Azrieli Group Limited. Please note that this document should not be regarded as a substitute for the complete, original, Hebrew version of the Report. This document is a convenience translation into English of the Hebrew language Report and the financial statements annexed thereto, of the Azrieli Group Limited (The “Company”) (the “Report”). The binding version of the Report for all intents and purposes is the original Hebrew version filed by the Company with the Israel Securities Authority through the MAGNA website (www.magna.isa.gov.il). Nothing in this translation constitutes a representation of any kind in relation to the Report nor should it be regarded as a source for interpretation of the Report. In the event of a discrepancy or inconsistency between this translation and the Hebrew version of the Report, the provisions of the Hebrew version shall prevail. This translation was neither performed by the Company, nor checked by it, and accordingly, the Company does not undertake that the translation fully, correctly or accurately reflects the Report and its content. The full and legal version of the Report, in Hebrew, was released by the Company on March 20, 2013, and may be viewed on the MAGNA website. The translation of the financial statements annexed to the Report (the “Financial Statements”) was neither performed by Brightman, Almagor, Zohar and Co., Accountants (the “Company’s Auditors”), nor checked by the Company’s Auditors, and accordingly, they do not undertake that the translation of the Financial Statements fully, correctly or accurately reflects their content, and the Company’s Auditors’ report on the Financial Statements relates solely to the Company's Financial Statements in Hebrew. The full and legal version of the Financial Statements was released by the Company, as part of the Report, on March 20, 2013, and may be viewed on the MAGNA website. A-2 CHAPTER A: BUSINESS DESCRIPTION OF THE COMPANY General Azrieli Group Ltd. hereby respectfully files the Description of the Corporation’s Business Report as of December 31, 2012 (the “Report Date”), reviewing the description of the Group and development of business thereof, in 2012 (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 and the draft establishment of disclosure directive on investment property activity in securities regulations, as published on December 13, 2012, which was adopted by the Company even before the aforesaid amendment took effect. 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 subsequent to the Report Date and soon before the date of release thereof on March 20, 2013 (the “Report Release Date”) and in such cases the Company states that these are provided as of the Report Release Date. 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 contains in part forward-looking information as defined in the Securities Law. Such information presented below and referred to as forward-looking information, includes forecasts, estimates, evaluations or other information which are uncertain information addressing a future event and which relies, inter alia, on the publications of the Central Bureau of Statistics, the publications of the Bank of Israel, publications of other relevant professional entities and also on internal evaluations of the Company which are based on the collection of statistics, experience and information accumulated by the Company along the years. The actual results may be significantly different from those predicted within the forward-looking information as aforesaid, as a result of a multitude of factors, including as a result from the risk factors, in whole or in part, as described in Section 26 below, all as shall be specified in the specific references to forward-looking information further along the chapter. Sentences containing expressions such as: “projected”, “intends”, “estimates”, “forecasts”, “expects” and similar expressions indicate that such is forward-looking information. Such information reflects the Company’s current point of view, in respect of future events based on evaluations which are therefore subject to risks and uncertainty. A-3 Definitions In this Chapter, the following terms will be ascribed the meaning listed next thereto: TASE The Tel Aviv Stock Exchange Ltd.; “Granite Granite Hacarmel Investments Ltd.; Hacarmel” “Financial The consolidated financial statements of Statements” the Company as of December 31, 2012; “Company” Azrieli Group Ltd.; “Companies The Companies Law, 5759-1999; Law” “Securities The Securities Law, 5728-1968; Law” “Nadav Investments” Nadav Investments Inc., a private company incorporated under Canadian Law, fully owned and controlled by Azrieli Holdings Inc., a private company incorporated under Canadian Law, which is fully owned and controlled by Mr. David Azrieli and his family members. “Azrieli The Company and/or subsidiaries and/or Group” or the companies affiliated thereto; “Group” “Prospectus” A public offering prospectus published by the Company on May 12, 2010 as amended on May 25, 2010.; A-4 PART ONE: DESCRIPTION OF THE GENERAL DEVELOPMENT OF THE COMPANY'S BUSINESS 1. Business of the Company and description of the business development thereof 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 the Company became a public company, within the meaning thereof in the Companies Law. Trade in the Company’s shares on TASE began on June 7, 2010, and commencing from July 1, 2010, the shares of the Company are included in the Tel Aviv 25 Index. As of the Report Date, the controlling shareholder of the Company is Azrieli Holdings Inc. ("Azrieli Holdings"), a private company, incorporated under Canadian law, which holds the entire share capital of Nadav Investments, the direct controlling shareholder of the Company. Azrieli Holdings is fully controlled and owned by Azrieli family members: Mr. David Azrieli, Chairman of the Company's Board of Directors, holds directly and indirectly, approx. 38.9% of the issued and paid-up share capital in Azrieli Holdings, and his four children holding, directly and indirectly, the balance of the share capital of Azrieli Holdings. As of the Report Date and as of the Report Release Date, Azrieli held holdings in 71.42% of the share capital and the voting rights of the Company in practice, on a fully diluted basis. For further details see, incorporated by reference, immediate report on interested party holdings dated January 7, 2013 (reference 2013-01- 006597). As of the Report Date, the Company is engaged, both on its own and through its subsidiary and investee companies, primarily in the income-producing property segment, with most of the business operations of the Company being in the retail center and mall segment in Israel and in the office and other space for lease segment both in Israel and overseas.
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