Fund for Investment in
Commercial Real-Estate in
the U.S.
JUNE 2010 Investors Presentation
History has presented us with a rare window of
opportunity, occurring only once in decades, of which
we intend to take full advantage
Background: Striving to Identify Trends and Opportunities Early (Eastern Europe Case)-
14 years ago, at the time when The Elbit Group began the initiation and development activities in
Eastern Europe, those markets offered yields ranging between 13% - 15%, while Western
markets were only offering5 - 7% yields.
The group has the ability, experience and know-how built during the last 14 years, as well as the
financial resources, to take advantage of this rare opportunity.
The Funds Goals:
Today, U.S. real estate market conditions have created an opportunity for acquisition of shopping
centers at yields ranging between 7% and 10%, with immediate rent proceeds, and without
development risks.
When the world emerges from the current crisis, within 2-3 years in our view, we will be able to
sell those properties at much more favorable yields ranging between 5% - 7%.
U.S. Investment Analysis
2
14-Year Track Record (1)
A vast and extremly well established network of business connections with most
anchors and large international tenants
The Elbit Group has constructed, and continues to construct, a portfolio of over 50 malls
These activities have allowed the Group to establish long-term and close personal and business
relationships with the management bodies of its anchor tenants and large lessees, such as Mango,
Zara, C&A, Match, Peek & Cloppenburg, Tesco, H&M and other major international retailers
These business contacts will be utilized to enhance the tenant mix in the acquired malls
Extensive business relationships with large international funds and real-estate
players
The Elbit Groups relationships with major property owners will be used by the Fund in sourcing single
investments portfolios of attractive retail properties.
3
14-Year Track Record (2)
Significant access to U.S. and international funding sources
EPN and its sponsors have rich experience of equity and debt raising around the world,
and in Israel, and wide-ranging business relationships with decision makers in the West-
European, U.S. and Israeli credit and capital markets.
These contacts will be utilized for the benefit of the fund, including financing the
acquisition of retail properties and upgrading their existing debt structure
The Group experience
The Elbit Group has extensive experience of shopping center and mall management and
operation, and in creating an optimized anchor and tenant mix
Local expertise
EPN and its sponsors have a successful track record of building high performing local
teams. We are already building such a team in the U.S., composed of experienced local
branch managers.
The team will provide active day-to-day transaction involvement and asset management
4
The Opportunity
Why the U.S. and Why Now?
The American Real-Estate Market Purchase and Lease
Todays property valuations are the lowest experienced in the past 15 - 20 years,
notwithstanding an ongoing solid cash flow and stable rental income based on lease
agreements in place of the assets.
While there have been very few transactions in the market in the last 12 to 18
months, we see that the yield rates have increased by 2% - 3% such that yields from
the disposal of leading shopping malls has risen from 5% - 7% in 2007 to 7%-10%
today.
The Real-Estate Market and the REIT Funds
The U.S. retail real estate market has been, until today, dominated predominantly by
REIT funds.
These funds, in light of the severe financial crisis, are currently focused more on
stabilizing their structure and less on new acquisitions, which results in reduced
competition greater opportunity for investors ready to do business.
The market void has not been filled by new players, as many of potential investors
core businesses have been severely impacted leaving them with very little attention to
analyze new opportunities.
Ambitious players, equipped with experience, solid strategy, financial firepower and a
focused approach, will be able to locate and conclude, highly attractive acquisitions
and joint ventures at great value.
5
U.S. Economy - Crisis
GDP contraction in 2008 and 2009 (see below)
Unemployment rate rose to 10.1%
Bank financing disappeared
Average cap rates increased substantially (see below)
There was negative net retail space absorbtion in 2008 and 2009
Retail asking rates dropped by as much as 40% in some markets
6
U.S. Economy - Present
Strong GDP growth 5.6% annualized in Q4 2009
Unemployment rate is slowly decreasing (9.9%)
Credit availability is growing
Retail sales are increasing
Huge increase in retail expansion plans
Vacancy levels and rental levels have started to stabilize
7
U.S. Investment Model
Acquisition of Assets:
Focus on acquisition of higher quality (primarily A, A-) U.S. retail properties
Stable and dominant assets to be acquired from capital seeking owners and lenders
Holding and Maintaining the Assets:
Willing to hold the assets for a period of three to five years, until U.S. assets are traded
again, following the recession, at their historical yields and values
Engage in active asset management during the holding period, so as to preserve the
properties cash flow, enhance tenant mix and position the assets to outperform
competitive properties
Selling the Assets with a High Profit:
The ultimate goal is to sell the assets as a portfolio or individually, to realize the highest
value to the investors
8
Fund Target Assets Characteristics
The venture is focused on acquisitions of U.S. shopping centers
The acquired shopping centers characteristics:
Location and Character:
Dominant properties that display commercial stability in their trade areas.
Located in major metropolitan markets
Location allowing limited current and future competition
Tenant Mix:
Properties that demonstrate superior tenant mix and composition in the fashion and
commerce branches
Outstanding above average anchors and tenant mix
Stable Income and Proceeds:
Long term and solid income and rent cash flow
Low vacancy in prior periods, both up and down markets, currently, and projected in the
future
9
The Fund Structure
Elbit
Imaging
LTD.
Eastgate Property
LLC
Israeli
Investors
EPN GP LLC (The Cornerstone Investor)
~68%
50% 50%
50%
50%
European
Investors
Limited Investors
USD 200 M USD 200 M
Legend:
Business Partnerships
EPN Business Entities
Business Partnerships
Invested Parties
The Fund Structure
11
Plaza
Centers
N.V.
Elbit Plaza USA LP
The Fund Structure
EPN GP, LLC is a joint venture between:
Elbit Plaza USA LP and
Eastgate Property LLC
Eastgate Property LLC is an affiliate of an investment manager based in the US
The US based investment manager has been investing primarily in Eastern European
markets since 1993
As at 31 December 2009, the US based investment manager had approximately US$3.8
billion in assets under management (of which approximately US$800 million is dedicated
to real estate) across nine active funds held on behalf of institutional investors
EPN is in the process of raising a Fund totaling US$400 million, with Elbit Plaza
USA and Eastgate each committing US$100 million of seed equity towards the
investment program; to date, a total of US$227 were comitted
This will enable EPN to fund property investments valued up to $1 Billion
12
Chief Executive Officer / Managing Principal
Mr. Alexander Berman serves as CEO and the managing senior officer of EPN
Investment Management L.L.C., responsible for strategic decisions and
overall management Including personnel and transactions.
Mr. Berman started his career as a Certified Public Accountant and has over 25 years of
management, investment, finance, and business development experience in the United
States and internationally. From 1999 to March 2009, Mr. Berman was an executive with
General Growth Properties, Inc., one of the most prominent U.S. mall developers, owners
and operators, where he was a Corporate Officer. He most recently led GGPs
international expansion as Founder and Head of GGP International and previously held
the position of GGPs Senior Vice President of Capital Markets and Finance.
Management Structure
13
MDT Deal
MDT- Overview
Macquarie DDR Trust (Trust)
Is an Australian registered investment scheme which invests in community shopping
centers in the US. It was jointly owned by Macquarie Group Limited (Macquarie) - a
global provider of banking, financial, advisory, investment and funds management
services - and Developers Diversified Realty Corporation (DDR) - a REIT listed on the
New York Stock Exchange
After its inception in 2003, the Trusts share price peaked at 1.37 AUD per share in 2007,
but afterwards because of the crisis, the share price went spiralling to 0.05 AUD.
DDR
Provides property management services for all of the Trusts properties as set out under
role of the Property Manager below. As at 30 June 2009, DDR owned and managed
approximately 690 retail operating and development properties (totaling approximately
151 million square feet) located across 45 US states and certain other regions (including
Puerto Rico, Brazil and Canada).
DDR is a self-administered and self-managed real estate investment trust operating as a
fully integrated real estate company which acquires, develops and leases shopping
centers.
15
MDT
Unsecured debt 108
US REIT I
Assets 41
Value 1,264
Debt 918
US REIT II
Assets 38
Value 219
Debt 194
Mervyns LLC
Assets 31
Value 224
Debt 227
Venice
Assets 7
Value 118
Debt 89
100% 100%
Longhorn I
Value 103
Debt 85
Longhorn II
Value 183
Debt 145
Longhorn III
Value 49
Debt 39
Individual
Value 28
Debt 9
Bison
Value 184
Debt 109
Homart
Value 382
Debt 268
Revolver
Value 334
Debt 263
US REIT II: 49.99%
DDR: 50.00%
US REIT II: 90.33%
DDR: 9.67%
Amounts in US$ millions
Structure Prior to
Recapitalization
MDT- Legal Structure
16
Transaction Stages
Private Placement and acquiring Macquaries share- 15.3%
The introduction of EPN GP, LLC as the Cornerstone Investor through a AUD 9.5 million
Cornerstone Placement. The Cornerstone Placement was completed at a price of AUD 6.7
cents per Unit (representing a Trust value of approximately US$55 million)
In addition, EPN acquired Macquaries total holding of Units according to the above value
and reached a total holding of 15.3%
Entitlement Offer and sub-underwriting- reaching 48%
An Entitlement Offer at an issue price of AUD 5.5 cents per New Unit to raise AUD 198.9
million. The Cornerstone Investor has committed to act as sub-underwiter; As a result of
the Entitlement Offer, EPN reached a total investment in MDT of US$116 million and a
holding of 48%,
EPI acquired Macquaries 50% interest in the US Manager for US$2.7 million and will run
the fund jointly with DDR (50/50)
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Value * 1,264
Secured Debt 918
Unsecured Debt 108
NAV 238
LTV 81%
Before Entitlement Offer After Entitlement Offer
Value 1,264
Secured Debt 843
Unsecured Debt -
NAV 421
LTV 67%
US$ 183M
(AU$210M)
Cash injection as
a result of the deal
In USD millions
In USD millions
* According to latest published valuations
18
Shopping Centers Portfolio
(REIT I + Venice)
(31)
(54)
19
The Companys Assets (1)
Total Owned Square Feet (Thousands): 13,395 (Shopping Centers: 10,942, Single Box:
2,453)
Average Occupancy: 88.77% (% leased today)
Average Rent Per Square Foot: $11.76 (in place rents today)
The Trusts rental revenue remains relatively stable with over 80% of its Annual Base Rent
derived from large and junior anchor retailers which predominantly have a national
presence and are secured by relatively long-term leases
The decrease in the NOI between 2008 - 2010 was mainly caused by the sale of some assets by MDT.
20
The Companys Assets (2)
Group Number of
assets (*)
Square feet
(millions)
2009 NOI
(millions) (**)
Premium Properties 9 3.3 $35,857
Above Average Properties 31 6.2 $48,973
Average Properties 11 2.1 $14,986
Below Average Properties 3 0.6 $1,998
TOTAL 54 12.2 $101,814
(*) Number of assets after splitting 5 shopping centers to 2 parts for evaluation matters.
(**) According to EPN estimation
Portfolio Overview (1)
21
Portfolio Overview (2)
22
Portfolio Overview (3)
23
Key Tenants
The Trusts Shopping Centre Portfolio has a diversified income base:
Approx. 460 tenants, with the largest tenant representing 5.9% of the portfolios Annual Base Rent.
No single lease more than 1.9% of Annual Base Rent.
Over 80% of the rental revenue predominantly derives fromlarge and junior anchor retailers which
have a national presence.
Rank Tenant Market Capitalization
(USD millions)
% of
ABR
Owned GLA
(sqf 000s)
No.
Leases
1 TJX Companies 18,971 5.9% 655.4 17
2 PetsMart 3,986 4.7% 389.1 17
3 Kohl's 16,881 4.7% 811.1 9
4 Best Buy 19,205 3.3% 328.2 7
5 Dick's Sporting Goods 3,344 2.6% 254.9 5
6 Bed Bath & Beyond 12,100 2.6% 246.3 8
7 Wal-Mart 201,633 2.2% 304.9 4
8 Jo-Ann Stores 1,205 2.1% 200.9 5
9 Home Depot 59,656 2.0% 219.0 2
10 Gap 16,505 2.0% 149.7 8
Total 32.2% 3,559.4 82
Portfolio Overview (4)
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Main Assets
Square Feet: 778,476 (including cinema)
Year Built: 1994/1997
Occupancy: 100.00%
Primary Market median hh inc.: $85,069
2009 NOI: $12,506,346
Major Anchors
SQF Anchor
45,000 SF
Toys R Us
39,884 SF
T. J. Maxx
50,081 SF
Marshalls
50,090 SF
Best Buy
103,276 SF
Kohls
Shoppers World, Framingham, MA
26
Square Feet: 509,041
Year Built: 1993/1998
Occupancy: 90.50%
Primary Market median hh inc.: $70,253
2009 NOI: $6,124,666
Major Anchors
SQF Anchor
30,273 SF Off 5th
40,000 SF Nordstrom Rack
40,000 SF Marshalls
33,008 SF Michaels
30,000 SF Borders
Woodfield Village Green, Chicago, IL
27
Square Feet: 497,667
Year Built: 1999
Occupancy: 81.77%
Primary Market median hh inc.: $68,546
2009 NOI: $3,666,505
Major Anchors
SQF Anchor
20,000 SF Old Navy
45,850 SF Jo-Anns
132,700 SF Sears
45,948 SF Best Buy
86,841 SF Kohls
Riverdale Village Outer Ring,
Miniapo, Minnesota
28
Square Feet: 280,380
Year Built: 1993-2003
Occupancy: 98.64%
Primary Market median hh inc.: $68,546
2009 NOI: $3,622,129
Major Anchors
SQF Anchor
19,141 SF Petsmart
10,300 SF Ulta Salon
21,641 SF Border's
93,480 SF J.C. Penny
25,136 SF DSW Shoe Warehouse
Riverdale Village Inner Ring,
Miniapo, Minnesota
29
Square Feet: 253,298
Year Built: 1994
Occupancy: 99.33%
Primary Market median hh inc.: $110,342
2009 NOI: $3,990,868
Major Anchors
SQF Anchor
61,322 SF Safeway
37,246 SF T.J. Maxx
39,669 SF Bed Bath & Beyond
47,230 SF United Artists Theatre
22,906 SF JoAnns Stores
Fairfax Towne Center
Washington D.C., VA
30
Square Feet: 267,796
Year Built: 1994
Occupancy: 85.08%
Primary Market median hh inc.: $60,917
2009 NOI: $2,692,309
Major Anchors
SQF Anchor
50,540 SF Walmart
32,900 SF T.J. Maxx
19,000 SF Total Wine and More
25,500 SF Ross Dress for Less
21,285 SF Beall's Outlet
Carillon Place, Naples, FL
31
Square Feet: 566,481
Year Built: 1999
Occupancy: 92.67%
Primary Market median hh inc.: $59,392
2009 NOI: $5,469,032
Major Anchors
SQF Anchor
135,197 SF Lowe's
90,000 SF Lowe's Cinema
86,854 SF Kohl's
24,123 SF DSW Shoe Warehouse
50,800 SF Dick's Sporting Goods
Connecticut Commons, Plainville, CT
32
Square Feet: 476,125
Year Built: 1958/1993/1998
Occupancy: 98.41%
Primary Market median hh inc.: $56,723
2009 NOI: $5,474,414
Major Anchors
SQF Anchor
24,841 SF DSW Shoe Warehouse
49,373 SF Marc's
36,859 SF Bath & Beyond
26,261 SF Petsmart
113,521 SF Home Depot
Great Northern Plaza North
Cleveland, OH
33
Square Feet: 261,897
Year Built: 1992
Occupancy: 53.08%
Primary Market median hh inc.: $47,546
2009 NOI: $905,953
Major Anchors
SQF Anchor
46,300 SF Sweetbay
25,899 SF Premiere Cinemas
Lake Walden Square, Plant City, FL
34
Main Assumptions
We used an average purchase yield of 8.51%
We used the following estimation for the refinancing terms:
35 year amortization
Annuity
5.5% interest
The refinance is reducing the principle of the original loan
NOI:
For the valuation we used the NOI for the financial year of 2009 after the correction of
the onetime elements of the income side
In that cash flow we are not evaluating the empty units, meaning that the sale yield is
calculated on the in place NOI, and not on the stabilized
Our assumption is that we will sell the portfolios at the end of 2014, in about avg.
1.5% lower yield comparing to the purchase yields
Cash Flow Model (1)
35
2010 2011 2012 2013 2014
NOI 95,928,709 94,996,796 95,129,009 94,446,441 96,687,821
Loan repayment -49,442,584 -51,669,541 -54,029,305 -54,189,776 -54,208,074
DSCR ratio 194.02% 183.85% 176.07% 174.29% 178.36%
Principle -601,852 -1,777,608 -4,504,585 -5,960,075 -6,335,506
Interest -49,246,652 -50,297,853 -49,930,639 -48,658,218 -48,311,852
Total Net Cash 46,486,125 43,327,255 41,099,704 40,256,665 42,479,746
Refinancing amount (net, after paying old
debt) 0 -28,926,992 -47,057,111 3,507,626 0
Refurbishment costs -1,508,600 -785,000 -2,787,508 -4,148,000 -198,000
Sale:
Sale Yield 7.00%
Sale Year 2014
Sale Value 0 0 0 01,381,254,579
Total Net Cash after Sale & Refinance 44,977,525 13,615,262 -8,744,915 39,616,290 597,226,687
Average Purchase Yield (based on EPN's
valuation) 8.51%
Cash Flow Model (2)
36
Equity invested 120,000,000
Total Net Cash after Sale -120,000,000 21,589,212 20,420,282 18,389,854 17,332,159
ROE 17.99% 17.02% 15.32% 14.44%
Total Net Cash after Sale & Refinance -120,000,000 21,589,212 6,535,326 -4,197,559 19,015,819 286,668,810 209,611,608
ROE 19.78% 5.99% -3.85% 17.42% 262.63%
IRR 25.25%
EPN Share (48%)
Cash Flow Model (3)
37
Huge potential in leasing vacant areas and thus increasing NOI---value
Optimizing bank finacing structure and terms, using the new cash in the Trust
Will enjoy the result of the anticipated yield compression on the market
Analyzing opportunities in Mervyns portfolio whos value was not considered in
the transaction
Upside anticipated from transaction
38
Thank You for
Your Attention
