Annual Report and Accounts · parking spaces. In respect of an underground car park at Finsbury Square, London, we are working with developers to convert part of the space into night

Annual Report and Accounts

02

Overview- Who we are 03

- Investment strategy 04

- Our portfolio 05

- 2007 highlights 06

Business review- Chairman’s statement 07-10

- Operational and financial review – CEO report 11-22

- Directors’ report 23-33

- Independent Auditor’s report 34-35

Financial statement and notes 36-94

Shareholder information 95

Contents

03 04

Delek Global Real Estate Limited (Ticker: DGRE LN) is an AIM quoted, established real estate Company, founded in 1999. DGRE has a high-quality portfolio of 350 properties valued at over £4.5 billion, of which DGRE’s share is over £2.27 billion. The properties are located in Western Europe and Canada and cover over 2.3 million square meters. The portfolio is 98% occupied with tenants, characterised by their strong credit ratings, and with long-term leases. DGRE’s average lease length is around 16 years. DGRE’s historic track record of profitable growth has been impressive, with a very high return on equity, since its initial investment in 1999.

Who we are

OverviewOverview

An established and growing Real Estate Company with multi-billion pound portfolio in Western Europe and Canada

(1) Includes 3.53% held directly by Delek Real Estate Group

Delek Group

Bank Hapoalim

Delek Belron International

VitaniaDankner Investments Limited

Industrial Buildings Limited

Delek Real Estate Yielding Assets

DelekMotorwayServices (Roadchef)

64.03%

75%

Public and other

26.17%

85.03%(1)

Public Float

14.97%

9.80%

100%50% 100% 15.08% 80.01%

DELEK REALESTATE GROUP

Delek Global Real Estate (DGRE) invests in high-quality properties located in western economies. Investment focus is on properties with high residual values, let to tenants with strong credit and on a long-term basis. The existing portfolio has a high rate of occupancy and an average lease period of around 16 years.

DGRE’s strategy is to generate strong returns for shareholders from both income and capital appreciation. To achieve this, we target long-term, largely triple net or equivalent leases with either fixed increase or linkages to inflation. We finance acquisition with non-recourse long term debt with fixed nominal interest. In this way, the Company minimises its cash flow exposure to any short term downside potential in the real estate markets in which it invests. DGRE is also focused on the active management of its portfolio. DGRE acquires properties with strong development potential such as the NCP portfolio and the hotel investments. In such cases we enhance value through partnerships with developers. The Company also focus on the optimisation of the portfolio tenancy and financing arrangements, working closely with its tenants and banks.

Through DGRE’s extensive industry knowledge, networks and contacts of its experienced management team, shareholders and investment partners, DGRE has excellent access to high-quality and sizeable real estate investment opportunities.

03 04

Investment strategy

OverviewOverview

The investment focus is on high residual value assets in western economies with strong tenants and long leases

05 06

DGRE’s property portfolio comprises 350 properties with a value of £4.5 billion, of which DGRE’s share is £2.27 billion. The portfolio comprises office, retail, car parks, hotel and residential assets located mainly in central cities across the UK, Germany, Canada, Switzerland, Finland and Sweden. Our portfolio comprises assets that are primarily let to single tenants with strong credit ratings on long-term leases. Our portfolio is financed using non-recourse bank loans secured at the individual portfolio level. Our debt is typically long dated with an average maturity of around eight years.

Our portfolio

UK Germany Canada Switzerland Scandinavia Total

No. of properties

193 23 36 5 93 350

Total Market Value

£3,138m £635m £327m £284m £202m £4,586m

DGRE Share in Market Value

£1,129m £464m £280m £223m £174m £2,270m

DGRE Share of Loan Balance

£727m £368m £141m £168m £135m £1,539m

DGRE Share of Net Asset Value

£402m £96m £139m £55m £39m £731m

Loan to Value 64% 79% 50% 75% 78% 68%

Net Operating Income

£65.0m £27.8m £20.3m £9.4m £9.5m £132.0m

High-quality, long term lease portfolio, generating secure and growing cash flows

OverviewOverview

Net Operating Income includes NOI from Hotels. Where fixed contractual uplifts are in place, average rent over the period is used in line with IFRS. Asset admin fees are deducted from rent to reach NOI. Net Asset Value = share of asset value less attributable debt, as of 31 December 2007

05 06

2007 highlights• Pre-taxprofitsof£107.1millionbeforeminorityinterest

• EarningsPerShareof30.1pence

• TripleNetAssetValueof228pencepershare

• PropertyRevaluationin2007of£93.6million

• LoantoValueof68%

• Proposedfinaldividendofsevenpencepershare,makingatotalof 11 pence per share for 2007

• Well-positionedtowithstandthecurrentuncertaintiesoftheglobalproperty and credit markets due to high-quality property portfolio which yields strong cash flows

• DGRE’sshareofacquisitionsin2007totalled£527million

• Totaldisposalsof£102million(DGREshare–£27million)

• JelmoliArbitration–provisionof£1.43millionandwrite-offof £1.38 million. No further provisions were made on the basis of opinions obtained from leading Swiss law firms

Our portfolio

OverviewOverview

On top of this, we experienced significant turbulence in world financial markets, which seems to be worsening as we end the first quarter of 2008.

Against this background, I am pleased to present my first annual Chairman’s statement since our admission to AIM on 5 April 2007.

This was a particularly active year with our share of the portfolio value growing by some £660 million since our admission to AIM. The Company continues to enjoy a secure and growing cash flow from a high-quality portfolio. Notwithstanding the quality and diversity of our property portfolio, a robust mix of offices, retail, car parks and hotels and residential investment assets, with secure rental income, guaranteed rental uplifts and minimal voids, together with positive cash flows, it is very disappointing to see the

poor performance in our share price, which on 24 March 2008 stood at 73 pence per share, against an IPO price of 200 pence per share.

Whilst we are not immune from the present reality of the AIM market and sentiment in the real estate sector, to stand at a discount of 68% to net assets is not a true reflection of the real value of DGRE and every effort will be made over the coming months to persuade the market of the intrinsic value of your Company.

As previously disclosed, we remain committed to move from AIM to the main market as soon as circumstances allow and our parent Company Delek Belron International Ltd who, together with their parent Company, Delek Real Estate Ltd, currently hold some 85.03% of our issued ordinary shares, are working with us to achieve this objective.

2007 was an eventful year for the real estate market sector beginning with an active market and ending with a significant weakening of demand for commercial property and a fall in real estate values.

Year ended 31 December 2007Chairman’s statement

07 08

07 08

ResultsNet profit before tax and minority interests, for the year ended 31 December 2007, was £107.1 million (2006: £130.7 million). The net asset value at 31 December 2007 was £605.4 million.

A direct comparison between 2007 and 2006 is meaningless because of the major reorganisation put into place at the time of the IPO and a much clearer guide to our progress since IPO in April 2007, is to compare our NAV of £520.1 million at the time of IPO (as adjusted by the further issue of some 5.3 million shares at 200 pence per share in May 2007), with the NAV of your Company at 31 December 2007, of £605.4 million, net of minority interests, an increase of £85.3 million, or 32 pence per share.

In accordance with our stated strategy of pursuing a progressive dividend policy, your board has proposed a final dividend of seven pence per share to shareholders. A maiden interim dividend of four pence per share was paid on 1 October 2007, bringing the total dividend for the year of 11 pence per share. The shares will be declared ex-dividend on 16 April 2008 with a record date of 18 April 2008 and payment of the final dividend is expected to be made on or around the 6 May 2008.

PortfolioYour Company continues to own a high-quality investment portfolio spread across continental Europe and Canada. As at 31 December 2007, the portfolio comprised offices 41%, car parks 26%, retail 19% and hotels and residential 14%. Voids are minimal, at 2% of gross lettable area and the average unexpired lease length is 16.7 years. Some 59% of the rent roll derives from leases with more than ten years unexpired. 80% of rent roll flows from government and corporate tenants with rated investment grading by S&P and Moodys. More detail is set out in the operating and financial review by the Chief Executive Officer, Ilik Rozanski, which follows.

Pre-tax profits of £107.1 million, before minority interest and tax

Development potential While DGRE primarily invests in properties with secure rental income, we also own assets with significant development potential, notably within the NCP and Hilton Hotels portfolios.

Because so many of the NCP car parks are surface car parks, we receive many approaches from developers seeking to take advantage of this unique land bank, for example at sites in Liverpool, Wolverhampton and Ipswich.

We have received offers to build over 250,000sq.m of commercial and hotel space, together with a large number of additional car parking spaces.

In respect of an underground car park at Finsbury Square, London, we are working with developers to convert part of the space into night club premises and extend the remaining car park space.

There are plans to add 160 rooms to the Hilton Hotel at Gatwick Airport, which we believe will add value of between £70,000 and £100,000 per room.

All our plans are subject to planning permission and agreement with the tenants.

Pipeline dealsYour Company continues to receive many quality investment proposals, which we carefully analyse and process. We have sufficient resources available to the Company to make substantial acquisitions where we believe we will enhance the quality and value of the overall portfolio. We believe that under current market conditions we will see even more attractive opportunities arising for the Company.

FinanceOur loan to value ratio at 31 December 2007 was 68%, with 98% of our debt either fixed or hedged and an average debt expiry profile of eight years. Twenty four percent of our debt does not fall for repayment for more than ten years and we borrow in the currency of the country in which we invest. Our debt is typically non-recourse at the portfolio level. Please see further details in the operating and financial review, which follows.

09 10

Chairman’s statement


Our share of the portfolio grew by some £660 million since admission to AIM

Proposed final dividend of seven pence per share, making a total of 11 pence per share in respect of 2007

JelmoliJelmoli Arbitration – In the financial statements of the Company for the year 2007, the Company included a provision in the amount of CHF 3.3 million (£1.43 million). This amount reflects the Company’s assessment of the Company’s share in the shareholder’s loan granted to the Swiss Company and which was utilised by the Swiss Company to pay the downpaymenttoJelmoli.Inaddition,the Company wrote off in the financial statements of the Company for the year 2007, an amount of approximately £1.382 million which were granted by the Company to the Swiss Company as shareholder loans. On the basis of legal opinions obtained from leading Swiss law firms, the Company believes that at this stage of the arbitration proceedings there is no need for any further provisions to be made.

Other mattersWe continue to pursue our stated strategy of investment in high-quality assets in prime locations providing secure positive cash flow and where the asset offers significant investment gain over the medium term.

We have a dedicated and experienced management team supported by a focused board of directors, all determined to deliver value for our shareholders and I thank them on behalf of the shareholders for their continuing efforts.

We feel that these results clearly demonstrate that your Company is well able to withstand current real estate and economic uncertainties and has the resources to take advantage of opportunities that will undoubtedly arise in present market conditions.

Howard Stanton Chairman 27 March 2008

09 10



Operational and financial review – CEO report

I am pleased to present my first annual operational and financial review for Delek Global Real Estate (DGRE) for the year ended 31 December 2007.

This year, which ended with turmoil in world financial markets, was particularly volatile, experiencing sharp movements in property value, both up and down, in particular in the UK, but also with some impact in Western Europe, and was characterised by a significant tightening of credit lines. Against this backdrop, I am pleased to report that the Company’s strategy of buying high quality assets with excellent tenants on long term leases, has been rewarded, providing stability of cash flow and values.

Net after tax profits for the year ended 31 December 2007 attributable to DGRE shareholder were £70.7 million, compared to £117.1 million for the previous year. The major reorganisation undergone by the Company at the time of the IPO in April 2007 makes direct comparisons to 2006 performance figures difficult and not meaningful.

Earnings per share were 30.1 pence and the net asset value at 31 December 2007 was £605.4 million (after minority), representing 228 pence per share. I believe a far more meaningful guide to our progress in 2007, since IPO, is to compare our NAV at 31 December 2007 of £605.4 million with the pro forma indicative NAV as set out on page 116 of the IPO document, after adjustment for the further issue of 5.3 million shares at 200 pence per share, of £520.1 million. This shows an increase in NAV for the period of £85.3 million, representing growth of 16.4%.

In the year under review, we acquired properties in Germany, Switzerland and Finland at a cost of £346 million. In addition, we acquired a 17% stake in the Marriott hotel UK portfolio, which completed on 30 March 2007, at a total cost of £1.06 billion (Our share – £181 million).

11 12

As part of our ongoing strategy to exit from investments when we feel that full value has been achieved, we sold properties for £102.6 million (our share £26.8 million)1 realising gross gain2 of £42.5 million (our share £9.9 million). This included a gross gain of £33 million (our share £5.6 million) from the sale of five non-core Marriott hotels. In consequence of the Marriott transaction, a dividend of £20.16 million (our share £3.43 million) was distributed to the Company.3

The total value4 of our share in the portfolio as at 31 December 2007 was £2.27 billion, compared to £1.6 billion on admission to AIM. Our strategy and business model have proved successful due to the high quality of the portfolio, its largely governmental and institutional tenants (with strong credit ratings) and the long leases, resulting in both secure and growing cash flows.

The progress of the Company’s asset portfolio has been dynamic and rapid. The following table shows the detail of such positive progress since admission to AIM in April 2007.

We have continued with our strategy of acquiring high quality investment assets in good locations, with rents that are either subject to fixed contractual uplifts, such as in the case of the NCP portfolio, Buckingham Gate, the Puukeskus portfolio, the Metro portfolio and most of the Canadian portfolio, or subject to upward-only rent review, as is the balance of the UK portfolio or index linked, in respect of most of the European portfolio.

Date (attributed to DGRE share)

Number of assets in portfolio

Fair value in £million

Date of admission5 281 1,604

30.06.07 326 1,863

30.09.07 344 2,001

31.12.07 350 2,270

1 The figures exclude car parks under CPO as referred to in section VII below.2 This represents the total economical gain earned for the full period that the asset was held by the Company.3 It is noted that the gains are not reflected directly in the P&L report because of the properties’ revaluation

mechanism, although they are reflected in the Cash Flow statement.4 This refers to the aggregate fair value of the portfolio.5 This excludes Marriott and Leipzig.

Our strategy and business model have proved successful due to the high quality of the portfolio

11 12

Portfolio at 31 December 2007

i) The portfolio at a glance

The following table illustrates the geographic diversity of the Company portfolio, showing the large concentration of assets in the UK and Germany, in view of primary economic values.

Geographically diversified portfolio

UK Germany Canada Switzerland Scandinavia Total

No. of properties 193 23 36 5 93 350

Total Fair Value £3,138m £635m £327m £284m £202m £4,586m

DGRE Share in Fair Value £1,129m £464m £280m £223m £174m £2,270m

DGRE Share of Loan Balance(1) £727m £368m £141m £168m £135m £1,539m

DGRE Share of Attributable NAV(2) £402m £96m £139m £55m £39m £731m

Loan to Value 64% 79% 50% 75% 78% 68%

Attributable NAV(2) (ex. Cash) of £731 m

(1) Non-recourse debt at asset level.(2) Attributable NAV – Aggregate difference between DGRE’s share of properties’ fair value and the balance of the

Non-recourse loans related to those properties.

ii) Fair value analysis

Set out below is a table illustrating the progress of our asset value in 2007, split between each of the assets and portfolios. We stated in our prospectus that we would conduct valuations once yearly, but this year we were required to value some of our assets in September 2007, due to regulatory requirements imposed on the parent Company. The table clearly shows that fair values have increased from December 2006 to September 2007, but declined from September to December 2007.

Overall, we feel valuations of the UK properties of the Company have not been as volatile as the UK market as a whole, largely due to the high concentration of value on the NCP portfolio which is let for almost 30 years on an increasing rent and the long term leases and quality of assets of the remaining portfolio.

In Germany and Switzerland, a significant part of the value was recently acquired at reasonable yields, whilst our Canadian assets continue to manifest their high quality and strong tenant base.

13 14

Operational and financial review –

CEO report

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13 14

iii) Property acquired in the period

Our acquisition strategy remained the same throughout 2007. We have continued our aggressive acquisition strategy by focusing on Germany, Switzerland and Finland, acquiring assets that have high residual value, with quality tenants at yields that reflect a decent spread to borrowing costs.Towards the latter end of the year, we benefited from both a slight relaxation of pricing of assets combined with a decrease in the medium term interest rates. We were therefore able to lock in spreads at relatively high gearing, generating double digit pre-amortisation cash on cash returns.

Property name Country DGRE share

Total DGRE investment

Total DGRE

equity

NOI (1)

Annualised

Return on investment

Average return

on equity

Leipzig Germany 90% 17.76 3.21 1.38 7.75% 18.98%

Marriott UK 17% 180.76 35.20 13.26* 7.34% 11.50%

World Trade Center

Switzerland 100% 48.92 8.86 2.31 4.72% 5.43%

Berlin University(2)

Germany 50% 36.66 4.13 2.83 7.73% 21.27%

D.T. Germany 100% 14.04 2.29 0.81 5.74% 8.22%

Puukeskus Finland 95.5% 38.38 5.95 2.54 6.61% 13.37%

Metro Germany 100% 190.11 21.29 11.63 6.12% 17.6%

526.63 80.93 34.75 6.60% 13.28%

DGRE share in M £

(1) NOI = Rent excluding any operational expenses related to the asset (2) Associate Company in DGRE books * Marriott portfolio is pure invesment in respect of which DGRE receives dividends in line with the Company’s policy and not NOI

15 16



CEO report

iv) Geographic split

Our assets are well diversified in Western economies with stable regulatory regimes. We have continued to acquire assets in each of the countries in which we have operations and we have sought to increase our exposure to Germany and Switzerland that have, in our view, the best real estate fundamentals in Western Europe in order to implement and fulfil the Company’s strategy. We aim to achieve the right balance across Europe and Canada, providing stability of cash flows. We strive to continue and develop our contacts in each country by building relationships with existing tenants, brokers, partners and financiers, a strategy that proved effective in garnering additional deal flow, improving financing terms and generating additional income from existing assets with limited capital expenditure.

(1) Fair value attributed to DGRE share(2) Net operational Income = Rent less any operational expenses related to the asset (3) Include Hotel’s NOI in spite of the fact that DGRE receives only dividends

Country No. of properties

Value(1) £m

% NOI(2) £m

%

UK 193 1,129 49.7% 65.0(3) 49.3%

Canada 36 280 12.3% 20.3 15.4%

Germany 23 464 20.4% 27.8 21.1%

Switzerland 5 223 9.8% 9.4 7.1%

Finland 92 157 6.9% 8.7 6.6%

Sweden 1 17 0.8% 0.8 0.6%

Total 350 2,270 100% 132 100%

15 16



CEO report

Geographically and sectorial diversified portfolio by number of assets

vi) Lease expiry profile

We believe the lease expiry profile of our portfolio is the mainstay of its stability for our portfolio. Our expiry schedule provides additional reassurance during volatile times such as these. The quality of our tenants, the terms of the lease and the long term finance associated with such leases provide additional comfort and yield a long term, growing and secure cash flow to the Company.

Our average unexpired lease length is 16.7 years and our void rate is 2%.

Hotels/residential

Offices Parking lots

Petrol stations

and retail

Total assets

England 58 8 127 - 193

Canada 2 2 - 32 36

Switzerland - 4 - 1 5

Sweden - 1 - - 1

Finland - 2 - 90 92

Germany - 8 - 15 23

Total 60 25 127 138 350

Term -Years

<5 19.5%

5 - 10 24.8%

10 - 20 30.2%

>20 25.5%

100%

17 18

Sector Share Value £m

Office 41% 935

Car parks 26% 590

Retail 19% 439

Hotels 12% 264

Residential 2% 42

Total 100% 2,270

v) Sector split by value

Across sectors, we have sought to maintain a balance between our office, retail and hotel segments, with a continued focus on the high residual value inherent in the assets themselves. We continue to look for assets in each sector with a particular focus on high quality retail and office space.



CEO report

vii) Property sales

We continuously evaluate each asset in our portfolio and seek to sell assets that we feel have reached their maximum potential. This year we have earmarked some of the regional UK assets for sale, and together with our partners, sold those for fair value.

Because revaluation surpluses were taken into account in the accounts of previous years, the gross capital gain is not fully reflected in the 2007 accounts. Also, although our share of the sale of the five Marriott hotels was £5.6 million, we received our share of profits from our 17% investment in the total portfolio by way of dividend.

In addition, during the preceding year, four car parks forming part of the NCP portfolio were subject to compulsory purchase orders (CPO). For our car park in Newcastle we received a value well in excess of book value, and in the other three car parks in Cardiff, we are in advanced negotiations to exchange them for new car parks that will form part of a large shopping centre with improved lease terms.

viii) Development potential

Parking lot development in NCP The NCP portfolio comprises 1276 car parks, of which only 13 are

underground. A significant number of car parks are surface car parks and as such the portfolio lends itself to significant development potential. For the past few years the portfolio has attracted approaches from a number of developers wishing to take advantage of this unique land bank, seeking to build on the existing car parks, incorporate them into their neighbouring sites or replacing them with different schemes.

Full transaction (000 GBP) DGRE share (000 GBP)Property name

DGRE share

Date of Acquisition

Date of sale

Original

cost

Selling

price

Gross

Capital gain*

Original

cost

Selling

price

Gross

Capital gain*

% Capital

gain

City Plaza 45% Mar-99 Aug-07 16,014 24,000 7,986 7,206 10,800 3,594 50%

Five non-core hotels in the Marriott portfolio

17% Mar-07 Oct-07 36,000 69,000 33,000 6,120 11,730 5,610 92%

Sim Chem 45% Dec-00 Dec-07 7,992 9,550 1,558 3,597 4,298 701 19%

Total 60,006 102,550 42,544 16,923 26,828 9,905 59%

* Represent the total economical gain earned for the full period that the asset was held by DGRE

6 Excluding 3 car parks which are under CPO, as described in the previous section.

17 18



CEO report

The limits on parking imposed by local authorities make the sites more attractive than other adjacent sites. Over time, we have entertained offers to build over 250,000 sq.m of commercial and hotel space over our site and a large number of additional car parking spaces. Some of the sites have been earmarked for development in the short to medium term. These include the Cardiff car parks mentioned above, and the Finsbury Square car park in London, where an underground car park is to be converted in part to a night club and the remaining part extended. Additional sites are pending approval by NCP for the development of these sites, and these include large surface car parks in Liverpool, Wolverhampton and Ipswich.

Development and investments in the rest of the portfolio Together with its partners, the Company is implementing an

investment plan of around £32 million for the portfolio. A possibility to add additional 160 rooms in Hilton Gatwick is in an advance stage of planning with an estimated added value of between £70,000 and £100,000 per room. Additional potential exists in vacant land lots in the UK, Germany and Switzerland which will either be sold or developed over time.

ix) Pipeline deals

The Company’s management has been receiving numerous proposals for acquisition of assets located in the countries where the Company operates, and which correspond to the Company’s strategy. The Company anticipates that, in particular, in the current period of slowdown in the markets, it will be possible to buy attractive assets at reasonable prices, with yields well in excess of borrowing rates. However, the Company examines each proposal diligently and cautiously, pursuing such opportunities subject to the availability of finance at attractive rates.

19 20



CEO report

Country Debt- Local currency million

Debt- £m % Exchange Rate 31/12/07 per £1

UK £726.8 726.8 47.2% 1.0000

Canada C$276.9 140.9 9.2% 0.5088

Germany €501.6 368.2 23.9% 0.7340

Switzerland SFr.379.6 168.4 10.9% 0.4436

Finland €172.1 126.3 8.2% 0.7340

Sweden Sk111.7 8.7 0.6% 0.0779

Total 1,539.2 100%

Term Debt- £m Share

<5 569.5 37.0%

5 – 10 607.3 39.4%

10 – 15 39.9 2.6%

>15 322.5 21.0%

Total 1539.2 100%

Debt repayment profile – 31 December 2007

Value and debt as at 31 December 2007 Our debt profile shows a balanced and gradual expiry schedule with some

concentration of refinancing coming up in 2010, 2011 and 2013. We believe the high quality of our assets, the long term nature of our leases and our strong tenants will serve us well in the years to come.

InJanuary2008,theexistingBellTowerloanwhichhadanannualinterestrate of 6.45%, expired. The Company was granted a new loan by the same lender for 25 months for the same principal amount but with a reduced annual interest rate of 5.18%.

19 20

x) Debt analysis

DGRE’s share in the total debt at 31 December 2007 is summarised below.

The Company’s debt is all non-recourse at the subsidiary level. 98% of our interest obligations are fixed or hedged and our average maturity for the debt outstanding is 8 years. All of our debt is in local currency. DGRE is debt free at the holding Company level.

At 31 December 2007, DGRE held cash reserves of £47 million (excluding cash held in subsidiaries and associates). Our loan to value ratio, excluding cash, as at 31 December 2007 was 68%.



CEO report

Country Name of Asset

Average DGRE share

Currency

Fair Value

Loan

Average Interest

Rate

Average Loan balance on expiry after

amortisation

UK Offices 51.6% GBP 275,510 202,074 6.24% 184,849

Hotels 17.0% 263,517 202,211 6.07% 201,044

Car parks 59.0% 590,000 322,519 6.80% 232,482

Total 47.4% 1,129,027 726,804 6.44% 618,375

Canada Offices 100.0% CAD 386,000 174,354 5.76% 157,672

Residential 100.0% 81,900 46,611 4.32% 42,799

Retail 46.9% 82,094 55,935 5.47% 48,693

Total 92.1% 549,994 276,900 5.46% 249,164

Germany Offices 65.6% EURO 280,688 203,875 5.34% 193,893

Retail 89.2% 350,993 297,741 5.22% 283,194

Total 78.7% 631,681 501,616 5.27% 477,087

Switzerland Offices 87.1% SFR 474,956 356,820 3.60% 330,315

Retail 50.0% 28,850 22,762 3.89% 20,962

Total 85.0% 503,806 379,582 3.62% 351,277

Scandinavia Offices 73.4% EURO 63,561 39,699 4.72% 36,483

Retail 91.7% 173,090 144,283 5.26% 140,126

Total 86.8% 236,651 183,982 5.14% 176,609

Average Valuation DGRE share at 31/12/07

Term Years UK Canada Germany Switzerland Scandinavia Total

<5 129.8 18% 110.9 79% 108.6 29% 85.2 51% 135.0 100% 569.5 37%

5-10 234.6 32% 30.0 21% 259.5 71% 83.2 49% 607.3 39%

10-15 39.9 5% 39.9 3%

>15 322.5 44% 322.5 21%

Total 726.8 100% 140.9 100% 368.1 100% 168.4 100% 135.0 100% 1,539.2 100%

Debt-£Million

Debt repayment profile by countries

21 22



CEO report

LitigationThe Jelmoli ArbitrationInJanuary2008,EmparioHoldingsGmbHreceivedanofficialnotificationfromtheZurichChamberofCommercethatJelmoliHoldingAGinitiatedarbitrationproceedings against Empario and against its indirect shareholders, i.e the Company, Delek Belron International Ltd and Blenheim Properties Group Ltd, by way of a notice of arbitration. For further information, please see the more detailed reference to this arbitration in following Directors’ Report.

Ilik RozanskiChief Executive Officer27 March 2008

21 22



CEO report

Principal activitiesDuring the year the group has continued to develop the business by investing in high-quality properties situated in prime or very good secondary locations with virtually full occupancy rates. The properties are let on long term leases to tenants with strong credit ratings. In addition, as in the preceding year, the portfolio was very actively managed with regard to lease renewals, refinancing and property renovations.

Status and activitiesOn 5 April 2007, in connection with admission of its ordinary shares to trading on AIM the Company issued 50 million ordinary shares of 50 pence each at 200 pence per share, raising gross proceeds of £100 million.

In May 2007, the Company issued the underwriters a further 5,294,555 ordinary shares at 200 pence per share, raising gross proceeds of approximately £10.6 million.

A detailed review of our activities is set out in the chairman’s statement and in the operational and financial review by the chief executive.

In addition to expanding our real estate portfolio, we seek to acquire property assets with significant potential for added value through development, rental uplifts and capital appreciation through hardening yields.

The DGRE share of the debt at 31 December 2007 was £1.54 billion, 98% of which is fixed or hedged in the local currency of the country in which the property is located. All our debt is non-recourse with an average maturity date of eight years. The ratio of debt to the value of the portfolio against which it is secured, is 68%.

The Directors present their report and the audited financial statements for the year ended 31 December 2007.

Year ended 31 December 2007

Directors’ report

23 24

23 24

DirectorsThe present members of the board are listed below. At 31 December 2007 and 25 March 2008 respectively, the directors’ interests in the ordinary shares of the Company were as follows:

Under the agreed terms of the appointment made between the Company and eachofAsafBartfeld,ElishaFlax,PaulHarvey,JonathanScottWarrenandArminZucker, either party may terminate the director’s appointment at any time upon one months’ notice. The director’s appointment of Howard Stanton may be terminated by either party giving three months’ notice and the director’s appointment of Ilik Rozanski may be terminated by either party giving six months’ notice.

31 December 2007 25 March 2008

Howard Stanton 5,000 20,000

Ilik Rozanski 5,000 5,000

Asaf Bartfeld - -

Elisha Flax 3,500 3,500

Yossi Friedman 2,500 2,500

Paul Harvey - 5,000

JonathanScottWarren 2,700 2,700

Armin Zucker - -

ResultsThe consolidated income statement shows a profit after tax, attributable to DGRE shareholders for the year of £70.7 million (2006: £117.1 million). Because of the major reorganisation implemented at the time of the IPO in April 2007, a direct comparison of 2007 with 2006 is not meaningful.

DividendsThe directors propose a final dividend of seven pence per share which, together with the interim dividend of four pence per share paid on 1 October 2007, will make a total dividend for the year 2007 of 11 pence per ordinary share.

All directors having been appointed since the last annual general meeting and being eligible, offer themselves, for election in the coming general meeting. Biographies of all directors are given below:

Howard Stanton – non-executive director and chairman

Mr. Stanton is aged 65 and was appointed as a non-executive director and chairman of the board of the Company on 15 March 2007. He currently holds a number of directorships, including being a director and non-executive chairman at Anglo Scottish Properties plc, a non-executive director of O Twelve Estates Limited, an AIM-listed Guernsey-based property group, a senior non-executive director of Stylo plc, an AIM-listed retailer, andchairmanofRockJointVenturesLimited, a newly formed property Company. He was previously executive chairman of Allied London Properties plc, a property Company that was listed on the Main Market of the London Stock Exchange. Mr. Stanton is a certified accountant, and when in practice, specialised in taxation, particularly property taxation.

Ilik Rozanski – president, chief executive officer and director

Mr. Rozanski is aged 48 and was appointed as a director of the Company on 15 March 2007. Mr. Rozanski has been the president and CEO of Delek Belron International and the CEO of Delek Real Estate for the past six years and the CEO of Dankner Investments for the past three years. Mr. Rozanski serves as

director of a number of Delek Group’s subsidiaries and affiliates. Mr. Rozanski holds degrees in business administration and economics from Northwood University in Boston and Rupin College in Israel, respectively.

Asaf Bartfeld – non-executive director

Mr. Bartfeld is aged 56 and was appointed as a non-executive director of the Company on 15 March 2007. In addition to his role at the Company, Mr. Bartfeld is the president and CEO of the Delek Group and serves as the chairman of the board of Delek Real Estate and as a director of a number of its subsidiaries and affiliates. Mr. Bartfeld holds a BA degree in economics and social sciences from Tel Aviv University.

Elisha Flax – non-executive director

Mr. Flax is aged 46 and was appointed as a non-executive director of the Company on 15 March 2007. He currently engages in various real estate entrepreneurial activities, including the recent restructuring and re-organisation of a UK real estate Company, and was previously employed as a solicitor at the London offices of Chadbourne & Parke and Akin, Gump, Strauss, Hauer & Feld and general counsel at Plane Station Limited, a subsidiary of Wiggins Group plc. Mr. Flax holds an LLB degree from Keio University in Tokyo, Japan,andisqualifiedasasolicitorin England and Wales.

Directors’ report

Directors’ report

25 26

Directors’ report

Directors’ report

Armin Zucker – non-executive director

Mr. Zucker is aged 52 and was appointed as a non-executive director of the Company on 15 March 2007. He is currently also a partner with the law firm Meyer Lustenberger in Switzerland, specialising in corporate law and M&A, media law, labour law and real estate and rental law and holdsdegreesinlaw(IUC.JURandDR.IUR) from the University of Zürich. Mr. Zucker is a member of the board of directors of several Swiss companies, including companies active in the areas of finance, technology and consumer goods and the chairman of the association of commercial tenants in Zürich.

Paul Harvey – non-executive director

Mr. Paul Harvey is aged 36 and was appointed as a non-executive director of the Company on 20 August 2007. HeisaJerseyresidentandqualifiedchartered surveyor, specialising in commercial investment, agency, valuation, rent review/professional work and property management. Mr. Harvey has experience of working in both public and private UK property–related organisations based in London for over ten years. He is currently a directorwithinJerseybasedpropertyconsultancy Barnes Daniels and Partners. Previously, Mr. Harvey was an associate director at Savills Property Consultants, and before that he was an associate director at DTZ based within the statutory valuation department.

JonathanScottWarren1 – non-executive director Mr.JonathanScottWarrenisaged 55 and was appointed as a non-executive director of the Company on11July2007.HeisaJerseyresident chartered accountant, andwasapartnerofaJersey-basedfirm of chartered accountants for over 20 years. He is a member of the society of trust and estate practitioners and is the founder and directorofaJerseytrustCompany,Corniche Trust Company Ltd, which isregulatedbytheJerseyFinancialServices Commission.

Yossi Friedman – executive director

Mr. Yossi Friedman is aged 44 and is currently chief finance officer (CFO) and European head of DGRE. He has served as CFO at Delek Real Estate, Delek Belron International and Dankner Investments since March 2001. Mr. Friedman was appointed as a director of the Company on 15July2007.PriortojoiningtheDelek Group, Mr. Friedman was business manager in the real estate department of Bank Leumi.

1 ItisnotedthatJonathanScottWarrenisconsideredas an independent non-executive director, although he is an associate in the Company that acts as Company Secretary.

25 26

Substantial interestsAt 25 March 2008 the following interests of three percent or more of the issued ordinary share capital had been notified to the Company:

Board responsibilitiesThe board currently comprises eight directors, all of whom are non-executive with the exception of Ilik Rozanski, the chief executive and Yossi Friedman, the chief financial officer. Elisha Flax is the senior independent non-executive director.

The Company is committed to holding at least six board meetings a year. Since admission on AIM in April 2007, the board has met 12 times in the period to 31 December 2007. The non-executive directors of the Company have not felt the need to meet separately from the executive directors.

All members of the board are expected to attend each meeting, although it is accepted that non-attendance is unavoidable in certain circumstances. The table below sets out the number of board meetings attended by each director, out of the total number of meetings held since his appointment.

Holder Number of shares %

Delek Belron International Ltd (partly on behalf of its wholly owned subsidiaries)

216,070,613 81.50

Delek Real Estate Ltd 9,363,500 3.53

27 28

Directors’ report

Directors’ report

27 28

Directors’ report

Directors’ report

Corporate governanceThe Company is not required to comply with the combined code, as its shares are traded on AIM. Nonetheless, the board recognises that it is in the best interests of the Company and its shareholders to comply with the principles of corporate governance contained in the combined code to support high standards of corporate governance.

Accordingly, we set out below a summary of how the principles of the combined code have been applied by the board since admission to AIM in April 2007.

Meetings attended

Howard Stanton 7/12

Ilik Rozanski 7/12

Asaf Bartfeld 3/12

Elisha Flax 9/12

Yossi Friedman 3/9

Paul Harvey 6/9

JonathanScottWarren 8/9

Armin Zucker 10/12

Board composition and independence

Of the eight directors, five non-executive directors are considered to be independent, which the board considers to be satisfactory. Elisha Flax is the senior independent director.

Directors’ remunerationThe remuneration paid to each director is as set out under note 17d to the financial statements and was paid in accordance with the terms agreed at the time of admission on AIM or when subsequently appointed. Ilik Rozanski and Yossi Friedman are paid in accordance with terms which were determined at the time of admission on AIM.

Remuneration committeeThe remuneration committee, comprising two non-executive directors, met twice in the period to 31 December 2007, making no change to the remuneration of any directors or officers of the Company in that period.

However, at its meeting held on 13 November 2007, it was agreed to increase the remuneration of the non-executive directors to £40,000 per annumwitheffectfrom1January2008. At a board meeting held on 24January2008,itwasdecidedtoincrease the remuneration of the chairman to £110,000 per annum from 1January2008.Thechairmanwasabsent from that part of the meeting when his own remuneration arrangements were considered.

There were no changes recommended by the remuneration committee to the remuneration of the two executive directors.

Director Determination of board Note

Howard Stanton Independent No SA3.1 Criteria apply

Ilik Rozanski Not independent Represents a significant shareholder

Asaf Bartfeld Not independent Represents a significant shareholder

Elisha Flax Independent No SA3.1 Criteria apply

Yossi Friedman Not independent Represents a significant shareholder

Paul Harvey Independent No SA3.1 Criteria apply

JonathanScottWarren Independent No SA3.1 Criteria apply

Armin Zucker Independent No SA3.1 Criteria apply

Directors’ report

Directors’ report

29 30

Directors’ report

Directors’ report

Nominations committeeNo formal meetings were deemed necessary in the nine months from admission to AIM until 31 December 2007. However, the full board received recommended proposals to appoint Yossi Friedman, Paul Harvey and JonathanScottWarrentotheboard.Such proposals were unanimously approved by the board.

Audit committeeThe audit committee comprises three non-executive directors who met three times in the period to 31 December 2007, to consider the interim results forthehalf-yearto30June2007andthe quarterly results for the periods to 31 March 2007 and 30 September 2007 respectively. The audit committee was on each occasion able to recommend to the board the acceptance of the financial statements as presented, after which the review by the auditors was signed.

Investment committeeThe investment committee formed at the time of admission on AIM comprises Ilik Rozanski, Asaf Bartfield, Elisha Flax and was joined by Paul Harvey on his appointment as a director.

The investment committee met four times in the period to 31 December 2007, acting in accordance with its delegated authority.

AuditorsErnst & Young LLP were appointed auditors during the year (following the resignation of Harold Everett Wreford Accountants) and will retire at the forthcoming AGM. E&Y has expressed their willingness to act as auditors of the Company and a resolution for their reappointment will be proposed at the forthcoming annual general meeting.

Litigation:The Jelmoli Arbitration

Empario Holdings GmbH (the “Swiss Company”) is held by foreign subsidiaries controlled by (1) the Company through foreign subsidiaries, (2) Delek Belron International Ltd (“Delek Belron”) through foreign subsidiaries, and (3) Blenheim Properties Ltd. (“Blenheim”), through foreign subsidiaries.

The indirect holdings of the Company and of Delek Belron in the share capital of the Swiss Company are as follows: The Company: 33.3% through foreign subsidiaries controlled by it, and Delek Belron: 16.7% through foreign subsidiaries controlled by it. The remaining 50% of the share capital of the Swiss Company is held indirectly by Blenheim through foreign subsidiaries controlled by it.

29 30

On31July2007,theSwissCompanysigned an agreement (the “Agreement”) for the purchase of shares of certain companies which own the real estate portfolio of JelmoliHoldingAG(“Jelmoli”).

The consideration for the transaction which was the subject matter of the Agreement (the “Transaction”) was an amount of CHF 3.365 billion (£1.46 billion), subject to various price adjustments as stipulated in the Agreement.

On 25 October 2007 the Company announced that the Transaction would not be consummated due to macroeconomic and other changes. There were other grounds for the non-consummation of the Transaction, however, at the date of the abovementioned announcement, the Company was prevented, and is still prevented at the time of this report, from disclosing additional details and information, inter alia, due to certain commitments to preserve confidentiality and due to the existence of the arbitration proceedings as detailed herein below.

InthefirsthalfofJanuary2008, the Swiss Company received an official notification from the Zurich ChamberofCommercethatJelmoliinitiated arbitration proceedings against the Swiss Company and against its indirect shareholders, i.e. the Company, Delek Belron, and Blenheim, by way of a notice ofarbitration.Inthisnotice,Jelmoliseems to request the Arbitration Tribunal to enforce upon all the respondents (jointly and severally) the specific performance of the Agreement, whilst at the same time seemingly reserving the right to switch at any time to a claim for damages against all the respondents (jointly and severally), the damages being no less than CHF 275 million (due to certain commitments to preserve confidentiality and due to the arbitration proceedings the Company is prevented from giving the details of its initial response to all such claims).

On 13 February 2008 the Swiss Company submitted its initial response to the notice of arbitration. So did the Company, Delek Belron, and Blenheim.

Directors’ report

Directors’ report

31 32

Directors’ report

Directors’ report

In their initial response the Company, Delek Belron, and Blenheim stated, inter alia, and as a preliminary point that the Arbitration Tribunal has no jurisdiction over them, and that there is no legal ground to join them as “non signatory parties” to the arbitration. In the Swiss Company’s initial response the Swiss Company rejectedtheclaimsmadebyJelmoliand filed a counter claim against Jelmolifortherefundofthedownpayment in the amount of CHF 10 millionpaidtoJelmolibytheSwissCompany in accordance with the terms of the Agreement.

In the financial statements of the Company for the year 2007, the Company included a provision in the amount of CHF 3.3 million (£1.43 million). This amount reflects the Company’s assessment of the Company’s share in the shareholder’s loan granted to the Swiss Company and which was utilised by the Swiss Company to pay the down payment toJelmoli.Inaddition,theCompanywrote off in the financial statements of the Company for the year 2007, an amount of approximately £1.382 million which were granted by the Company to the Swiss Company as shareholder loans.

On the basis of legal opinions obtained by the Company from leading Swiss law firms, the Company believes that at this stage of the arbitration proceedings there is no need for the Company to make any further provisions.

Payments to creditorsAmounts due to suppliers and service providers are settled promptly within defined payment terms, except in cases of dispute.

Internal controls and financial reportingThe board monitors the performance of the group’s service providers with particular reference to the management of the Company’s assets.

The board is responsible for establishing and maintaining control systems to provide accurate and reasonable assurances against material loss or misstatement, including the prevention and detection of fraud. The board clearly defines the responsibilities and duties of the group’s property managers, its agents and advisors under contractual terms.

The Company does not presently have an internal audit department as most of the group’s property management functions are delegated to independent third parties, whose systems are carefully controlled as above.

31 32

Directors’ responsibilitiesThe directors are responsible for preparing the financial statements for each financial period to ensure they give a true and fair view of the state of affairs of the group as at 31 December 2007 and also of the profit and cash flows for the year then ended, and to ensure that they are in accordance with applicable laws.

In preparing those financial statements the directors are required to:

• selectsuitableaccountingpoliciesand then apply them consistently

• makejudgementsandestimatesthat are reasonable and prudent

• statewhetherapplicableaccounting standards have been followed subject to any material departures disclosed and explained in the financial statements; and

• preparethefinancialstatementson a going concern basis unless it is inappropriate to presume that the Company will continue in business.

The directors confirm that the financial statements comply with the above requirements.

The directors are also responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and to enable themselves to ensure that the financial statements comply with theCompanies(Jersey)Law,1991, as amended. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

On behalf of the boardW.S.W. Secretaries Limited27 March 2008

33 34

Directors’ report

33 34

We have audited the group financial statements of Delek Global Real Estate Limited for the year ended 31 December 2007 which comprise the Consolidated Balance Sheet, Consolidated Income Statement, Consolidated Statement of Changes in Equity, Consolidated Cash Flow Statement and the related notes 1 to 24. These group financial statements have been prepared under the accounting policies set out therein.

This report is made solely to the Company’s members, as a body, in accordance with Article 110 of the Companies(Jersey)Law1991.OurauditworkhasbeenundertakensothatwemightstatetotheCompany’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditorsThe directors’ responsibilities for preparing the Annual Report and the group financial statements in accordancewithapplicableJerseylawandInternationalFinancialReportingStandards(IFRSs)asadoptedby the European Union are set out in the Statement of Directors’ Responsibilities.

Our responsibility is to audit the group financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland).

We report to you our opinion as to whether the group financial statements give a true and fair view and whether the group financial statements have been properly prepared in accordance with the Companies (Jersey)Law1991.WealsoreporttoyouwhetherinouropiniontheinformationgivenintheDirectors'Report is consistent with the financial statements.

In addition we report to you if, in our opinion, we have not received all the information and explanations we require for our audit.

We read other information contained in the Annual Report and consider whether it is consistent with the audited group financial statements. The other information comprises only the Directors’ Report, the Chairman’s Statement, and the Operating and Financial Review. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the group financial statements. Our responsibilities do not extend to any other information.

Independent Auditor’s report To the members of the Delek Global Real Estate Limited

35

Basis of audit opinionWe conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the group financial statements. It also includes an assessment of the significant estimates and judgments made by the directors in the preparation of the group financial statements, and of whether the accounting policies are appropriate to the group’s circumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the group financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the group financial statements.

OpinionIn our opinion:

• thegroupfinancialstatementsgiveatrueandfairview,inaccordancewithIFRSsasadoptedbytheEuropean Union, of the state of the group’s affairs as at 31 December 2007 and of its profit for the year then ended;

• thegroupfinancialstatementshavebeenproperlypreparedinaccordancewiththeCompanies(Jersey)Law 1991; and

• theinformationgivenintheDirectors’ report is consistent with the group financial statements.

Ernst & Young LLP

Jersey

Date 28 March 2008

1. The maintenance and integrity of the Delek Global Real Estate Limited web site is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the web site.

2. LegislationinJerseygoverningthepreparationanddisseminationoffinancialstatementsmaydifferfrom legislation in other jurisdictions.

Auditor’s report

36

Consolidated Financial Statements as of 31 December 2007 in British Pounds

Financial statement and notes - Consolidated Balance Sheet 37-38- Consolidated Income Statement 39- Consolidated Statement of Changes in Equity 40- Consolidated Cash Flow Statement 41-44- Notes to the Consolidated Financial Statements 45-94

Index

Consolidated Balance Sheet


British Pounds in thousands

British Poundsin thousands

31 December

Note 2007 2006

ASSETS

NON-CURRENT ASSETS:

Investment properties 3 2,187,401 383,259

Investment in associates 4 77,544 203,345

Non-current receivables 5 81,863 16,547

Unrealised Gain on Derivative Financial Instruments 20 4,539 225

Available-for-sale investments 6 62,859 26,338

Intangible assets 7 89,099 2,457

Deferred tax asset 14e 319 -

Total non-current assets 2,503,624 632,171

CURRENT ASSETS:

Accounts receivable 8 14,673 19,782

Bank deposits - 80

Cash and cash equivalents 9 83,290 8,311

Total current assets 97,963 28,173

Total assets 2,601,587 660,344

The accompanying notes are an integral part of the consolidated financial statements.

37





31 December

Note 2007 2006

EQUITY AND LIABILITIES:

Equity attributable to equity holders of the parent:

Share capital 10 132,558 -

Share premium 150,823 -

Additional paid-in capital 5,978 5,704

Retained earnings 281,516 221,385

Foreign currency translation reserve 21,669 (2,601)

Hedging reserve 2,071 608

Other reserves 10,779 11,658

605,394 236,754

Minority interests 75,226 9,314

Total equity 680,620 246,068

NON-CURRENT LIABILITIES:

Loans from banks 11 1,398,455 244,462

Loan from parent Company 17 - 99,980

Loans from associates and related parties 17 13,287 24,720

Loans from minority shareholders 12 22,005 1,415

Unrealised Loss on Derivative Financial Instruments 20 95,458 -

Liability in respect of bank agreement 13 44,736 -

Deferred tax liability 14e 216,489 28,106

1,790,430 398,683

CURRENT LIABILITIES:

Current portion of loans from banks 11 74,546 2,541

Amounts payable to parent Company and related parties 17 3,416 2,226

Current tax payable - 992

Accounts payable 15 52,575 9,834

130,537 15,593

Total liabilities 1,920,967 414,276

Total equity and liabilities 2,601,587 660,344

Net asset value per share (in British Pounds) £2.28


27th March 2008

Date of approval of the financial statements

Howard Stanton JonathanScottWarren

38

Year ended 31 December

Note 2007 2006

REVENUES:

Rental income 112,258 32,005

Share of net after-tax profits of associates 4a 11,952 98,381

Dividend from available for sale investments 6 5,469 935

Other 352 -

Total revenues 130,031 131,321

Movement in net unrealized gain on revaluation of investment properties and movement in the liability in respect of the bank agreement

3 87,153 29,352

Net gain on disposals of investment properties and investments in associates 324 -

Total revenues and other income 217,508 160,673

ExPENSES:

Operating 16a 17,363 11,002

General and administrative 16b 6,237 2,802

Other 16c 12,466 -

Finance, net: 16d

Finance expenses 82,483 18,277

Finance income (8,168) (2,132)

110,381 29,949

Profit before taxation 107,127 130,724

Taxation 14c 11,160 10,639

Profit for the year 95,967 120,085

ATTRIBUTABLE TO:

Equity holders of the parent 70,736 117,133

Minority interest 25,231 2,952

95,967 120,085

Earnings per share (in British Pounds):

Basic and diluted profit for the period attributable to ordinary equity holders of the parent 0.30 0.80

Weighted average number of Ordinary shares for basic and diluted earnings per share 22 234,968,729 146,294,263


Consolidated Income Statement


39 40

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-

--

-(5

,832

)-

-(5

,832

)-

(5,8

32)

(5,8

32)

-

Net

gai

n on

ava

ilabl

e-fo

r-sal

e in

vest

men

t-

--

--

-11

,658

11,6

58-

11,6

5811

,658

-

Net

pro

fit-

--

117,

133

--

-11

7,13

32,

952

120,

085

117,

133

2,95

2

123,

567

2,95

2

Bal

ance

as

of 3

1 D

ecem

ber

2006

--

5,70

422

1,38

5(2

,601

)60

811

,658

236,

754

9,31

424

6,06

8

Net

unr

ealiz

ed g

ains

on

hedg

ing

inst

rum

ents

-

--

--

(*) 1

,463

-1,

463

206

1,66

91,

463

206

Issu

e of

sha

res

in c

onsi

dera

tion

for

conv

ersi

on o

f lo

ans

and

acqu

isiti

on o

f in

vest

men

t (s

ee N

ote

10c)

104,

911

78,1

33-

--

--

183,

044

38,8

6822

1,91

2-

-

Issu

e of

sha

res,

net

of

expe

nses

(see

Not

e 10

b)27

,647

72,6

90-

--

--

100,

337

-10

0,33

7-

-

Sha

re-b

ased

com

pens

atio

n (N

ote

17)

--

274

--

--

274

-27

4-

-

Fore

ign

curr

ency

tra

nsla

tion

adju

stm

ents

-

--

-24

,270

--

24,2

701,

607

25,8

7724

,270

1,60

7

Div

iden

ds d

istr

ibut

ed (N

ote

10e)

--

-(1

0,60

5)-

--

(10,

605)

-(1

0,60

5)-

-

Net

(los

s) o

n av

aila

ble-

for-s

ale

inve

stm

ents

(s

ee N

ote

6)-

--

--

-(8

79)

(879

)-

(879

)(8

79)

-

Net

pro

fit-

--

70,7

36-

--

70,7

3625

,231

95,9

6770

,736

25,2

31

95,5

9027

,044

Bal

ance

as

of 3

1 D

ecem

ber

2007

132,

558

150,

823

5,97

828

1,51

621

,669

2,07

110

,779

605,

394

75,2

2668

0,62

0

(*) N

et o

f de

ferr

ed t

axes

of

£324

(200

6 –

£58)

.

The

acco

mpa

nyin

g no

tes

are

an in

tegr

al p

art

of t

he c

onso

lidat

ed f

inan

cial

sta

tem

ents

.

Con

solid

ated

S

tate

men

t of

Cha

nges

in

Equ

ity

Brit

ish

Pou

nds

in t

hous

ands

39 40


2007 2006

CASH FLOWS FROM OPERATING ACTIVITIES:

Net profit 95,967 120,085

Adjustments to reconcile net profit to net cash used in operating activities (a) (67,488) (106,531)

Net cash provided by operating activities 28,479 13,554

CASH FLOWS FROM INVESTING ACTIVITIES:

Proceeds from disposal of investment properties, net 11,120 -

Proceeds from disposal of investments in associates 916 5,993

Investment in new business combination (c) 19,423 -

Investment in newly consolidated subsidiaries (b) - (8,532)

Investment in investment properties (310,470) (3,296)

Investment in associates (943) (6,318)

Available-for-sale investments (17,265) -

Granting of loans to associates (7,520) (26,005)

Collection of loans from associates 7,004 15,329

Granting of loans - (9,114)

Loans to minority interest in subsidiary (4,327) -

Other assets (687) (1,888)

Advance payment (53) (9,450)

Collection of advance payment - 4,024

Invest in Financial instruments (153) -

Decrease (increase) in restricted deposits (1,774) 1,684

Decrease (increase) in bank deposits, net 80 1,566

Net cash provided by (used in) investing activities (304,649) (36,007)

Consolidated Cash Flow Statement




41 42


2007 2006

CASH FLOWS FROM FINANCING ACTIVITIES:

Short-term credit from banks, net 9 -

Receipt of long-term loans from banks 277,128 10,976

Repayment of long-term loans from banks (15,629) (10,899)

Receipt (repayment) of loans from related parties, net - 8,224

Receipt of loans from associates - 11,533

Repayment of long-term loans from others, net (807) -

Dividend paid to minority interest in subsidiaries - -

Dividends payable to equity holders (10,605) -

Share issuance, net of expenses 100,337 -

Net cash provided by (used in) financing activities 350,433 19,834

Increase (decrease) in cash and cash equivalents 74,263 (2,619)

Net foreign exchange differences 716 (159)

Cash and cash equivalents as of beginning of year 8,311 11,089

Cash and cash equivalents as of end of year 83,290 8,311






41 42


2007 2006

a. Adjustments to reconcile net profit to net cash used in operating activities:

Income and expenses not involving operating cash flows:

Amortization of other assets 320 240

Loss on disposals of investment associates 325 -

Share of profits of associates, net (*) (9,817) (98,381)

Fair value adjustments investment properties (87,153) (29,352)

Charges in fair value of financial instruments 16,294 -

Amortization of expenses from raising loans 1,159 -

Accrued interest on long-term loans from parent - 6,295

Share-based compensation 274 1,452

Deferred taxes, net 9,357 10,448

Other - 88

(69,241) (109,210)

Changes in operating assets and liabilities:

Increase in long-term receivables (13,157) (722)

(Increase) decrease in accounts receivable 370 (681)

Increase (decrease) in accounts payable 14,540 4,082

1,753 2,679

(67,488) (106,531)

(*) Dividends received 2,135 -






43 44


2007 2006

b. Investment in newly consolidated subsidiaries

Working capital (excluding cash and cash equivalents) (380) 1,992

Investment properties, net (540,176) (102,890)

Investment in associate 42,209 -

Financial instruments and other assets (2,318) -

Loans from banks 371,040 90,957

Loans from minority shareholders 41,480 1,409

Deferred tax liability 26,271 -

Minority interest 32,199 -

Share capital and premium 29,675 -

- (8,532)

c. Investment in new business combination:

The assets and liabilities upon date of the business combination:

Working capital (excluding cash and cash equivalents) 23,487 -

Investments properties, net (763,523) -

Loans from banks 544,748 -

Loans from minority shareholders 8,440 -

Investment in associate 61,279 -

Long-term receivables (56,477) -

Liability in respect of bank agreement 17,770 -

Derivative financial instruments 78,287 -

Other assets – intangible assets (95,254) -

Deferred tax liability 145,953 -

Minority interest 2,928 -

Share capital and premium 51,785 -

19,423 -

d. Supplemental disclosure of cash flows:

Cash paid during the year for:

Interest 60,501 18,382

Dividend 10,605 -

Income taxes - 22

Cash received during the year for:

Interest 494 664

Dividend 5,469 -






43 44

Notes to the consolidated financial statements








NOTE 1:- GENERAL

a. Delek Global Real Estate Limited (the Company) (formerly: Oxenford Holdings Limited), through its subsidiaries (together – the Group) and associates, invests in income – producing real estate properties in the United Kingdom (U.K.), Canada, Germany, Sweden, Switzerland and Finland. For further details seeNote21.TheCompanywasincorporatedinJerseyin1999andisamajority-ownedsubsidiaryofDelek Belron International Ltd. (DBI), an Israeli public Company. The ultimate parent Company is Delek Group Ltd., a Company incorporated in Israel whose shares are traded on the Tel-Aviv Stock Exchange.

In April 2007, the Company issued 50,000,000 Ordinary shares of £0.50 each and all of its Ordinary shares were admitted for trading on the Alternative Investment Market (AIM), a market operated by the London Stock Exchange, in consideration of £100,000 (see Note 10).

b. Acquisition of investments from DBI and consolidated financial statements. Prior to the placement of Ordinary shares of the Company and the admission of the Company’s

shares to trading on AIM, as described in Note 10, the Company acquired several investments in real estate companies that were controlled by DBI (the Acquisition). In consideration for the Acquisition, the Company issued Ordinary shares to DBI.

Since the Company acquired these investments from its controlling shareholder, the Acquisition is not a business combination within the scope of International Financial Reporting Standard 3. The Company is accounting for the Acquisition under the pooling of interests method of accounting. Accordingly, the Company has prepared consolidated financial statements to reflect the Acquisition as if it had occurredatthebeginningoftheearliestperiodpresented(1January2006).Thus,theconsolidatedfinancial statements comprise the consolidated financial position, results of operations and cash flows of the Company and of the companies acquired from DBI.

NOTE 2:- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2.1 Basis of preparation The consolidated financial statements have been prepared on a historical cost basis, except for

investment properties, derivative financial instruments and available-for-sale investments that have been measured at fair value. The carrying values of recognised assets and liabilities that are hedged items in fair value hedges, and are otherwise carried at cost, are adjusted to record changes in the fair values attributable to the risks that are being hedged. The consolidated financial statements are presented in British Pounds and all values are rounded to the nearest thousand (£000) except when otherwise indicated and per share values.

45 46









NOTE 2:- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.) Statement of compliance The consolidated financial statements of Delek Global Real Estate Limited have been prepared in

accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union.

These standards include: 1. International Financial Reporting Standards (“IFRS”).

2. International Accounting Standards (“IAS”).

3. International Financial Reporting Interpretation Committee (“IFRIC”) and Standing Interpretation Committee (“SIC”).

Basis of consolidation The consolidated financial statements comprise the financial statement of the Company and its

subsidiaries. The subsidiaries are entities over which the Company has the power to govern their financial and operating policies and generally have a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are taken into account when assessing whether the Company controls another entity. The financial statements of the subsidiaries are prepared for the same reporting dates as the parent Company, using consistent accounting policies. All intra-group balances and transactions are eliminated in full.

Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases.

As set out in Note 1b, the consolidated financial statements includes the financial position, results of operations and cash flows of the companies of DBI that DGRE has obtained control of as part of the IPO.

Otherwise, the purchase method of accounting is used to account for the acquisition of subsidiaries that are considered to be businesses when the transaction can be identified as a business combination. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition

On acquisition, the identifiable assets, liabilities and contingent liabilities of a subsidiary are measured at their fair values at the date of acquisition. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is recognized as goodwill. Any excess of the fair values of the identifiable net assets acquired over the cost of acquisition (i.e. discount on acquisition) is credited to profit and loss in the period of acquisition.

Upon acquisition of a subsidiary, the interest of minority shareholders is initially recognised at the minority’s proportion of the fair value of the identifiable assets, liabilities and contingent liabilities recognised. Minority interest does not include a portion of any goodwill recognised in the acquisition. Subsequently, any profits or losses applicable to the minority shareholders are attributed to the minority interests in the income statement and equity.

Acquisitions of subsidiaries which own properties that are not a business as defined by IFRS 3 are accounted for as an acquisition of individual assets and liabilities at their relative fair values where the actual purchase consideration is allocated to the separable assets and liabilities acquired.

45 46









NOTE 2:- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.) 2.2 Changes in accounting policy and disclosures This is the first year of consolidated financial statements being prepared by Delek Global Real Estate

Limited. The Group has adopted the following new and amended IFRS and IFRIC interpretations during the year. Adoption of these revised standards and interpretations did not have any effect on the financial performance or position of the Group. They did however give rise to additional disclosures, including in some cases, revisions to accounting policies.

IFRS 7 Financial Instruments: Disclosures

IAS 1 Amendment – Presentation of Financial Statements

IFRIC 8 Scope of IFRS 2

IFRIC 9 Reassessment of Embedded Derivatives

IFRIC 10 Interim Financial Reporting and Impairment

The Group has also early adopted the following IFRS and IFRIC interpretations. Adoption of these standards and interpretations did not have any effect on the financial performance or position of the Group. They did however give rise to additional disclosures, including revisions to accounting policies.

IFRIC 11 IFRS 2 – Group and Treasury Share Transactions The principal effects of these changes are as follows:

IFRS 7 Financial Instruments: Disclosures This standard requires disclosures that enable users of the financial statements to evaluate the significance

of the Group’s financial instruments and the nature and extent of risks arising from those financial instruments. The new disclosures are included throughout the financial statements. While there has been no effect on the financial position or results, comparative information has been revised where needed.

IAS 1 Presentation of Financial Statements This amendment requires the Group to make new disclosures to enable users of the financial statements

to evaluate the Group’s objectives, policies and processes for managing capital. These new disclosures are shown in Note 20e.

IFRIC 11 IFRS 2 – Group and Treasury Share Transactions TheGrouphaselectedtoadoptIFRICInterpretation11asof1January2007,insofarasitappliesto

consolidated financial statements. This interpretation requires arrangements whereby an employee is granted rights to an entity’s equity instruments to be accounted for as an equity-settled scheme, even if the entity buys the instruments from another party, or the shareholders provide the equity instruments needed.

Judgments The preparation of the group’s financial statements requires management to make judgments,

estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the reporting date. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the asset or liability affected in the future.

47 48









NOTE 2:- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.) In the process of applying the Group’s accounting policies, management has made the following

judgments, apart from those involving estimations, which has the most significant effect on the amounts recognised in the financial statements:

Operating lease commitments – Group as Lessor The Group has entered into commercial property leases on its investment property portfolio. The Group

has determined, based on an evaluation of the terms and conditions of the arrangements, that it retains all the significant risks and rewards of ownership of these properties and so accounts for the contracts as operating leases.

Estimates and assumptions The key assumptions concerning the future and other key sources of estimation uncertainty at the

balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

Investment properties As described in note 3, the directors use significant judgment in determining the fair value of investment properties where there is an absence of an active market for similar property in the same location and condition and subject to similar lease and other contracts. The directors have engaged accredited independent valuers to determine fair value based on comparable arm’s length transactions, where they exist, together with discounted cash flow projections. The fair value of investment properties at 31 December 2007 is £2,187,401 (2006: £383,259). Details of the key factors considered in the valuations are provided in note 3.

Impairment of non-financial assets The Group assesses whether there are any indicators of impairment for all non-financial assets at each

reporting date. Goodwill and other indefinite life intangibles are tested for impairment annually and at other times when such indicators exist. Other non-financial assets are tested for impairment when there are indicators that the carrying amounts may not be recoverable.

When value in use calculations are undertaken, management must estimate the expected future cash flows from the asset or cash-generating unit and choose a suitable discount rate in order to calculate the present value of those cash flows.

Impairment of available-for-sale financial assets The Group classifies certain assets as available-for-sale and recognises movements in their fair value

in equity. When the fair value declines, management makes assumptions about the decline in value to determine whether it is an impairment that should be recognised in profit or loss. At 31 December 2007 no impairment losses have been recognised for available-for-sale assets (2006: £NIL).

Deferred tax assets Deferred tax assets are recognised for all unused tax losses to the extent that it is probable that taxable

profit will be available against which the losses can be utilised. Significant management judgment is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits together with future tax planning strategies. The Further details are contained in Note 14.

47 48









NOTE 2:- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.)

2.3 a. Foreign currency translation: The consolidated financial statements are presented in British Pounds, which is the Group’s

functional and presentation currency. Each entity in the group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Transactions in foreign currencies are initially recorded at the functional currency rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the balance sheet date. All differences are taken to profit or loss. Non monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign operation and translated at the closing rate.

The assets and liabilities of foreign operations are translated into British Pounds at the rate of exchange ruling at the balance sheet date and their income statements are translated at the weighted average exchange rates for the year. The exchange differences arising on the translation are taken directly to a separate component of equity. On disposal of a foreign entity, the deferred cumulative amount recognised in equity relating to that particular foreign operation is recognised in profit or loss.

b. Investment property: Property held for long term rental, for capital appreciation or both is classified as investment property.

Investment property is measured initially at its cost, comprising its purchase price and all directly attributable costs (including transaction costs). Subsequent costs are included in the property’s carrying amount only when it is probable that future economic benefits associated with the item will flow to the Group and the cost can be measured reliably. The carrying amount of investment property excludes the costs of day-to-day servicing. After initial recognition, the investment property is stated at fair value as determined by independent property appraisers, which reflects market conditions at the balance sheet date. Gains or losses arising from changes in the fair values of investment properties are included in the income statement in the period which they arise. Investment properties are not depreciated.

The last valuation for investment properties was carried out at 31 December 2007. All investment properties have been valued individually, not as a portfolio.

Investment properties are derecognized when either they have been disposed or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gains or losses on the retirement or disposal of an investment property are recognized in the income statement in the year of retirement or disposal.

c. Investment in associates: The Group’s interest in associates is accounted for under the equity method of accounting. An associate is

an entity in which the Group has significant influence and which is neither a subsidiary nor a joint venture.

Under the equity method, the investment in the associate is carried in the balance sheet at cost plus post-acquisition changes in the Group’s share of net assets of the associate. Goodwill relating to an associate is included in the carrying amount of the investment and is not amortised.49 50










After application of the equity method, the Group determines whether it is necessary to recognise any impairment loss with respect to the Group’s net investment in the associate. The statement of income reflects the share of the results of operations of the associate. Where there has been a change recognised directly in the equity of the associate, the Group recognizes its share of any changes and discloses this, when applicable, in the statement of changes in equity.

The reporting dates of the associate and the Group are identical and the associates’ accounting policies conform to those used by the Group for like transactions and events in similar circumstances.

d. Investments and other financial assets: Financial assets in the scope of IAS 39 are classified as either financial assets at fair value through

profit or loss, loans and receivables, or available-for-sale financial assets, as appropriate. When financial assets are recognized initially, they are measured at fair value, plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs. The Group determines the classification of its financial assets after initial recognition and, where allowed and appropriate, re-evaluates this designation at each financial year-end.

Financial assets at fair value through profit or loss: Financial assets classified as held for trading are included in the category “financial assets at fair

value through profit or loss”. Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term. Derivatives are also classified as held for trading unless they are designated as effective hedging instruments. Gains or losses on investments held for trading are recognised in income.

Loans and receivables: Loans and receivables are non-derivative financial assets with fixed or determinable payments that

are not quoted in an active market. Such assets are carried at amortized cost using the effective interest method. Gains and losses are recognised in income when the loans and receivables are derecognized or impaired, as well as through the amortisation process.

Available for sale financial assets: Available-for-sale financial assets are those non-derivative financial assets that are designated as available-

for-sale or are not classified in any of the preceding categories. After initial recognition available-for-sale financial assets are measured at fair value with gains or losses being recognised as a separate component of equity until the investment is derecognized or until the investment is determined to be impaired at which time the cumulative gain or loss previously reported in equity is included in the income statement.

The fair value of investments that are actively traded in organized financial markets is determined by reference to quoted market bid prices at the close of business on the balance sheet date. For investments where there is no active market, fair value is determined using valuation techniques. Such techniques include using recent arm’s length market transactions; reference to the current market value of another instrument, which is substantially the same; discounted cash flow analysis and option pricing models.

Management has engaged independent valuers to calculate the fair value of the investment properties, loans and hedging instruments held by the Hilton and Marriott investment vehicles. The Group’s share of the net fair value of the investment properties, loans and hedging instrument of the investment vehicles is recorded as the fair value of the available for sale securities. The movement in the fair value of the available for sale investments is recorded as a fair value adjustment in the Statement of changes in equity.

49 50










e. Intangible assets: 1. Incentives to lessees

The cost of incentives provided by the Group to lessees in order to enter into leasing agreements, are capitalized and recognized as a reduction of rental income over the lease term on a straight-line basis.

2. Goodwill The excess of the cost of acquisition over the fair values of the identifiable net assets acquired is recognized as goodwill.

The Group assesses whether there are any indicators that goodwill is impaired at each reporting date. Goodwill is tested for impairment, annually and when circumstances indicate that the carrying value may be impaired. Impairment is determined for goodwill by assessing the recoverable amount of the cash-generating units, to which the goodwill relates. Where the recoverable amount of the cash-generating units is less than their carrying amount an impairment loss is recognised. Impairment losses relating to goodwill cannot be reversed in future periods. The Group performs its annual impairment test of goodwill as at 31 December.

However, goodwill linked to deferred tax liabilities is only considered for impairment when deferred tax rate changes.

f. Trade receivables: Trade receivables are recognized and carried at original invoice amount less an allowance for any

uncollectible amounts. Provision is made when there is objective evidence that the Group will not be able to collect the debts. Bad debts are written off when identified.

g. Cash and cash equivalents: Cash and cash equivalents consist of deposits in banks and short-term investments (primarily time

deposits and certificates of deposit) with original maturities of three months or less.

h. Leases: Leases where the Group is the lessor and retains substantially all the risks and benefits of

ownership of the asset are classified as operating leases.

Finance leases, which transfer to the Group as lessee substantially all of the risks and benefits of ownership of the leased item, are capitalized at the inception of the lease, at the fair value of the leased property.

i. Interest-bearing loans and borrowings:

All loans and borrowings are initially recognized at the fair value of the consideration received less directly attributable transaction costs. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortized cost using the effective interest method.

For all financial instruments measured at amortised cost, interest income or expense is recorded at the effective interest rate. Interest income and expense arising from financial instruments recorded at fair value through profit or loss are recorded in the income statement on an accruals basis.

51 52










j. Revenue recognition: Revenue is recognized to the extent that it is probable that the economic benefits will flow to the

Group and the revenue can be reliably measured.

Rental income arising on investment properties, including scheduled rent increases, are accounted for on a straight-line basis over the lease term.

The cost of incentives provided by the Group to lessees in order to enter into leasing agreements, are recognized as a reduction of rental income over the lease term on a straight-line basis.

Dividend income from available-for-sale investments is recognized when the Company receives the dividend.

k. Taxation: Current tax: Current tax assets and liabilities for the current and prior periods are measured at the amount

expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance sheet date.

Deferred tax: Deferred income tax is provided using the liability method on temporary differences at the balance

sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognized for all taxable temporary differences, except:

• wherethedeferredtaxliabilityarisesfromtheinitialrecognitionofgoodwillorofanassetorliability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

• inrespectoftaxabletemporarydifferencesassociatedwithinvestmentsinsubsidiaries,associates and interests in joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognised for all deductible temporary differences, carry-forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax credits and unused tax losses can be recognised except:

• wherethedeferredtaxassetrelatingtothedeductibletemporarydifferencearisesfromtheinitialrecognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

• inrespectofdeductibletemporarydifferencesassociatedwithinvestmentsinsubsidiaries,associates and interests in joint ventures, deferred tax assets are recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be recognised.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be recognized. Unrecognised deferred income tax assets are reassessed at each balance sheet date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.51 52










Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is recognised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.

Income tax relating to items recognised directly in equity is recognized in equity and not in the income statement.

Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

l. Derivative financial instruments and hedging: The Group uses derivative financial instruments such as interest rate swaps to hedge its risks

associated with interest rate fluctuations. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative.

Any gains or losses arising from changes in fair value on derivatives that do not qualify for hedge accounting are taken directly to profit or loss.

For financial instruments not listed in an active market, the fair value is determined by using appropriate valuation techniques. Valuation techniques include net present value techniques, comparison to similar instruments for which market observable prices exist, options pricing models and other relevant valuation models.

For the purpose of hedge accounting, hedges are classified as cash flow hedges when hedging exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability or a forecast transaction.

At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which the Group wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the hedging instrument’s effectiveness in offsetting the exposure to changes in the cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated.

The effective portion of the gain or loss on the hedging instrument is recognised directly in equity, while the ineffective portion is recognised in profit or loss. Amounts taken to equity are transferred to the income statement when the hedged transaction affects profit or loss, such as when hedged financial income or financial expense is recognised.

m. Share-based payment transactions:

Employees (including senior executives) and others providing services to the Group receive remuneration in the form of share–based payment transactions, whereby employees render services as consideration for equity instruments (“equity settled transactions”) and share options, which are to be settled only in cash (“cash-settled transactions”).53 54










Equity-settled transactions: The cost of equity-settled transactions with employees is measured by reference to the fair value at

the date on which they are granted.

The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (‘the vesting date’). The cumulative expense recognized for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest. The income statement charge or credit for a period represents the movement in cumulative expense recognised as at the beginning and end of that period.

No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other performance conditions are satisfied.

Cash-settled transactions: The cost of cash-settled transactions is measured initially at fair value at the grant date taking into

account the terms and conditions upon which the instruments were granted. This fair value is expensed over the period until vesting with recognition of a corresponding liability. The liability is remeasured at each balance sheet date up to and including the settlement date with changes in fair value recognised in profit or loss.

n. Provisions: Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a

past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Group expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in profit or loss net of any reimbursement. If the effect of the time value of money is material, provisions are discounted using a current pre tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.

o. Estimation uncertainty: The preparation of financial statements in accordance with IFRS requires estimates and

assumptions by the Company’s management that affect the reported amounts of assets and liabilities. In particular, the assumptions used in the revaluation of investment properties and available-for-sale investments to fair value are inherently subjective due to the individual nature of each property and investment. As a result, such revaluations are subject to uncertainty and actual results could differ from the estimates.

p. Offsetting:

Offsetting in the balance sheet occurs when it reflects the substance of the transaction or other event, detracts from the ability of users both to understand the transactions, other events and conditions that have occurred and to assess the entity’s future cash flows.53 54










q. Future changes in accounting policies:

Standards issued but not yet effective

IAS 23 Borrowing Costs A revised IAS 23 Borrowing costs was issued in March 2007, and becomes effective for financial years

beginningonorafter1January2009.Thestandardhasbeenrevisedtorequirecapitalisationofborrowing costs when such costs relate to a qualifying asset. A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale. In accordance with the transitional requirements in the Standard, the Group will adopt this as a prospective change.

Accordingly, borrowing costs will be capitalised on qualifying assets with a commencement date after1January2009.Nochangeswillbemadeforborrowingcostsincurredtothisdatethathave been expensed.

The Company believes that the adoption of the revised standard is not expected to have a material effect on its financial position, results of operations and cash flows.

IAS 1 (Revised), “Presentation of Financial Statements”: IAS 1 (Revised) requires entities to present a separate statement of comprehensive income disclosing,

other than the net income as stated in the income statement, all the items carried in the reported period directly to equity that do not derive from transactions with the shareholders in their capacity as shareholders (other comprehensive income) such as foreign currency translation adjustments of foreign operations, reclassification of fair value to available-for-sale financial assets, adjustments to revaluation reserve of fixed assets and such, while properly allocated between the Company and the minority interests.

Alternatively, the items of other comprehensive income may be disclosed along with the items of the income statement in one single statement entitled statement of comprehensive income. Only the items carried to equity deriving from transactions with the shareholders in their capacity as shareholders (such as capital issuances, dividend distribution etc.) will be disclosed in the statement of changes in equity as will the summary line carried forward from the statement of comprehensive income, while properly allocated between the Company and the minority interests.

IAS1(Revised)iseffectiveforannualfinancialstatementsforperiodscommencingonJanuary1,2009 with early adoption permitted.

The effect of the adoption of IAS 1 (Revised) will require the Company to disclose the above items in the financial statements.

IFRS 8 Operating Segments This standard was issued in November 2006 and is effective for annual periods beginning on or after

1January2009.IFRS8requiresentitiestodisclosesegmentinformationbasedontheinformationreviewed by the entity’s chief operating decision maker. The Group has determined that the operating segments disclosed in IFRS 8 will be the same as the business segments disclosed under IAS 14. The impact of this standard on the other segment disclosures is still to be determined. As this is a disclosure standard, it will have no impact on the financial position or financial performance of the Group when implemented in 2009.

55 56









Investment properties are stated at fair value, which has been determined based on valuations performed by GVA Grimley Ltd, DTZ Debenham Tie Leung and ALTUS Group Ltd. GVA Grimley Ltd and DTZ Debenham Tie Leung Ltd are external valuers for the UK and European portfolios and the valuation of each property was on the basis of market value (which equals the fair value) in accordance with RICS Valuation Standards, sixth edition and the International Valuation Standards. ALTUS Group Limited are external valuers of the Canadian portfolio and their valuation follows the generally accepted Standards of Professional Practice (CUSPAP) and code of Ethics of the Ordre des evaluateurs agrees du Quebec and the Appraisal Institute of Canada. These firms are accredited independent valuers and industry specialists in valuing these types of investment properties. The effective date of the valuations was 31 December 2007. The fair value represents the amount at which the assets could be exchanged between a knowledgeable, willing buyer and a knowledgeable, willing seller in an arm’s length transaction at the date of valuation, in accordance with locally recognized valuation standards.

In determining the fair value of the investment properties, the valuers took into account comparable arm’s length market transactions for similar properties as well as discounted cash flow (DCF) projections, due to the very specific characteristics of several of the properties within the portfolio, such as the current tenant and lease agreement and the location and infrastructure of the buildings, as well as certain market conditions which existed at the valuation date, such as reduced liquidity available to purchasers coupled with an increase in the cost of financing, a scarcity of comparables in certain countries, and an overall lack of market place activity, which significantly increased the subjectivity of the valuation process. The DCF projections take into account estimated net future cash flows based on existing lease contracts and using discount rates that reflect current market assessments of the uncertainty in the amount and timing of the cash flows. As of 31 December 2007, the discount rate ranged from 6.75% – 8.75% (as of 31 December 2006, 7% – 8%).

NOTE 3:- INVESTMENT PROPERTIES

31 December

2007 2006

Opening balance 383,259 273,418

Additions from newly consolidated subsidiaries and new business combinations 1,303,699 102,890

Additions 321,670 3,296

Disposals (10,054) -

Foreign currency translation adjustments 74,708 (25,697)

Net fair value adjustment 114,119 29,352

Closing balance 2,187,401 383,259

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NOTE 4:- INVESTMENTS IN ASSOCIATES

31 December

2007 2006

a. Summary financial information of the Group’s investments in associates:

Share of the associates’ balance sheets:

Current assets 9,235 48,796

Non-current assets 263,753 878,332

Current liabilities (8,064) (60,138)

Non-current liabilities (211,348) (715,871)

Net assets 53,576 151,119

Long-term loans (1) 23,968 52,226

77,544 203,345

Share of the associate’s revenues and profit:

Revenues (excluding fair value adjustments) 27,594 53,989

Profit (2) 11,952 98,381

NOTE 3:- INVESTMENT PROPERTIES (Cont.)

Car parks subject to compulsory purchase orderDuring the year, three car parks owned by Bishopsgate Parking Limited (“BPL”), a Company within the Linchfield Group, were subject to Compulsory Purchase Order. Head of terms have been signed between the Council and a contractor, whereby the contractor will construct a new shopping centre together with new car park and BPL will be granted new lease to mirror the lease terms of the existing three car parks. The rent previously payable by NCP will continue to be paid by the contractor and will be subject to 3% per annum compound increases. For technical reasons the new lease between the contractor and BLP has not yet been signed. If, in the unlikely event, the lease is not signed BPL will be entitled to full Statutory Compensation which is likely to be same or higher value than the current valuation included in the financial statements at 31 December 2007. On this basis the properties are currently included in the Investment properties.

Liens – see Note 19. Lease commitments – see Note 18.





57 58

(1) The loans do not bear interest. (2) Loans of £5,222 bear interest at an annual average rate of 6.33% (2006: 9%), and loan of

£1,693 does not bear interest. (3) Loan was interest bearing at 10%

The repayment dates of all the loans have not yet been determined.

c. Acquisition of additional holdings in associates: 1. InJanuary2007,BlenheimPropertiesGroup(“BPG”),whichholdsassociatesthatownrealestate

properties and are also held by the Company, exercised a Put option granted to it by the Company in December 2006 and obligated the Company to acquire more holdings in its associates. Consequently, the Company’s stake in certain associates increased by 2% – 2.6% (see Note 23). In consideration for the acquisition of said holdings, the Company paid a total of approximately £10,500, part of which was paid by offsetting a loan (of £9,114) extended to a related Company of BPG in December 2006 (see Note 8) and the balance was paid in cash.

Pursuant to a memorandum of understandings signed on 5 December 2006 with BPG, in April 2007, the Company acquired from BPG additional holdings in the associates in consideration of the issuance of shares to BPG (see Note 10), representing 4.9% of the Company’s share capital and in consideration for cash. The total cost of the acquisition of the Company’s additional holdings in the associates (includingtheacquisitioncarriedoutinJanuary2007)amountedto£90,000.

Following said acquisition, the Group became the controlling shareholder in most of the associates, thereby, as of the second quarter of 2007, the Company consolidated the assets and liabilities of the associates in which it has gained control (see also (c2) below).

(1) As for the terms of the loans – see b below.

(2) Includes:

31 December

2007 2006 Fair value adjustments, net: 6,443 85,555

b. Loans:

In British Pounds (1) 2,828 13,764

In Canadian Dollars (1) 6,234 7,929

In Swiss Francs (1) 7,991 13,711

In Euro (2) 6,915 16,126

In Swedish Krona (3) - 696

23,968 52,226





57 58

NOTE 4:- INVESTMENTS IN ASSOCIATES (Cont.)









NOTE 4:- INVESTMENTS IN ASSOCIATES (Cont.)

As at 31 December 2007 not all of the transfers of the shares acquired from BPG have been registered in the Group’s name due to lengthy administrative processes, but they are held on trust by the seller until they are registered in the Company’s name. Some of the transfers are contingent on the consent of third parties, but as the management considers this consent highly probable these transfers have been recognized in the financial statements as having been effected.

In March 2007, the Company granted BPG a Put option upon whose exercise the Company will be required to acquire BPG’s entire holdings in certain associates, including associates included in the above mentioned memorandum of understandings. The options were in effect until 1 October 2007 for a price reflecting the value of the associates’ real estate properties net of certain liabilities on the date of exercise. In April 2007, BPG exercised a put option in relation to one of the associates (for a consideration of £4,576) and, therefore, as of the second quarter of 2007, the Company consolidated the assets and liabilities of the associates. On 1 October, 2007 the option expired.

2. Acquisition of Linchfield Limited – business combination: On 17 November 2003, a transaction was completed between a 40% owned investee (Linchfield)

and Royal Bank of Scotland according to which the investee acquired the entire rights in a U.K. Company (Powerfocal Limited) that owns parking lots throughout the U.K., in consideration (including related expenses) of £56,000. The investment was mainly financed by shareholders’ loans. The Company’s share in the investment amounts to £22,000 and was effected by shareholders’ loans. The U.K. Company owned on the date of the acquisition 138 parking lots valued at £642,420 and had outstanding loans to the Royal Bank of Scotland of £543,000. The loans are for 15 years and bear annual interest rate of 6.7%-8.5%. For part of the loans the interest actually paid in the first ten years is only 6.1% per year and the remaining unpaid interest is added to the principal of the loans. Most of the principal is to be repaid upon final maturity in 2017. The parking lots are leased over various terms with leases in place for some carparks to 2037 to National Car Park Limited, which is one of the largest parking lot operating companies in the U.K., for annual lease fees (on cash basis) of approximately £41,000 (in 2007). One half of the lease fees increase every year by 3% and the other half increases by the increase of the CPI in the U.K., which increase has been fixed by a swap transaction to about 2.4% per year.

InJanuary2006,theCompanypurchasedanadditional2.4%ofthesharesofLinchfieldinconsideration of approximately £3 million, such that following the acquisition, the Company held 42.4% of Linchfield.

As part of the transaction described in (1) above, the Company acquired additional shares of Linchfield Limited (“Linchfield”), an unlisted Company based in Gibraltar. Linchfield owns a portfolio of 130 (including 3 properties under Compulsory Purchase Order (See note 3))(31 December 2006 – 131) car parks located throughout the United Kingdom, of which all are leased to National Car Parks Limited (“NCP”) (after the acquisition of the additional shares, the Company has 59% of the ownership and control of Linchfield), however currently only 2.4% of the shares transferred have been registered in the Company’s name for the same reason as described in Note 4c 1. The acquisition has been accounted for using the purchase method of accounting. The consolidated financial statements include the results of Linchfield for the nine-month period from the date of control attainment. The fair value of the identifiable assets, liabilities and contingent liabilities of Linchfield as at the date of acquisition were:

59 60









ACQUISITION OF ADDITIONAL HOLDINGS IN ASSOCIATES Fair value recognized on control

Investment properties 763,523

Long-term receivables 56,477

Trade receivables 1,190

Cash 19,182

840,372

Loans from bank 544,748

Loans from minority shareholders 8,440

Deferred tax liability 145,953

Derivative financial instrument *) 78,287

Liability in respect of bank agreement 17,770Trade payables 24,677

819,875

Net assets 20,497

Less – Company’s share in shareholders’ loans (13,413)

7,084

Additional shares acquired 16.6%

1,176

Goodwill arising on acquisition 47,030

Total acquisition cost 48,206

Total goodwill

Goodwill arising on original acquisition 48,166

Goodwill arising on current acquisition (as above) 47,030

95,196

59 60

NOTE 4:- ACQUISITION OF ADDITIONAL HOLDINGS IN ASSOCIATES









NOTE 4:- ACQUISITION OF ADDITIONAL HOLDINGS IN ASSOCIATES

(Cont.)

From the date of acquisition, Linchfield has contributed £50,870 to the profit after tax of the Group. If the combination had taken place at the beginning of the year, the profit after tax for the Group would have been £103,519 and total revenues from rental income would have been £126,688.

The goodwill principally arises from the deferred tax liabilities being recorded gross in the financial statements in accordance with IAS 12 but in management’s view the fair value of the deferred tax liability is significantly lower.

*) Derivative financial instruments: Linchfield has entered into an Interest Rate Swap (IRS) agreement with the Royal Bank of Scotland under which it pays a fixed rate of interest and receives interest at a rate linked to three month Libor on all of its loans from banks.

Linchfield has also entered into a Limited Price Index (LPI) swap under which it pays amounts linked to the movements in the annual LPI and receives fixed amounts. The LPI is the Retail Price Index (RPI) with a cap at 5% and a floor at 1.5%. The LPI swap is in connection with lease agreements with rental income which is linked to the RPI.

These derivatives do not qualify as hedges under IFRS and consequently, all changes in their fair values are recorded directly in the income statement. In the period from acquisition until 31 December 2007, the Group recorded finance expense of £16,277 due to the changes in the fair value of those derivatives.

Estimated fair value as of 31 December 2007:

IRS – negative fair value 54,675

LPI – negative fair value 39,889

Total 94,564

d. List of the main associates – see Note 23.

61 62









NOTE 5:- NON-CURRENT RECEIVABLES

Composition:

1) This comprises scheduled rental income including contractual rent increases and other minimum fees receivable over the term of leases of various properties in Canada and the United Kingdom (mostly in regard to the car park leases).

2) As a result of excess cash arising from a refinancing, a subsidiary distributed the excess cash as loans pro-rata to the shareholders of the subsidiary. The loans bear no interest and a repayment date has not yet been determined.

3) The balance represents cash held in account charged to the bank as a condition of the mortgage at the time of acquisition of an investment property in Switzerland. The deposit will remain with the bank until the property is re-let.

4) As of 31 December 2006, the balance represents advance payment by the Company for the purpose of investment in the Marriott Portfolio, which occurred on 30 March 2007 (see Note 6(2)).

31 December

2007 2006

Rental income receivable (1) 73,974 5,358

Loans to minority shareholders (2) 6,015 1,739

Restricted deposits (3) 1,774 -

Advance payment (4) - 9,450

Other 100 -

81,863 16,547

61 62









NOTE 6:- AVAILABLE FOR SALE INVESTMENTS

The investments have been revalued as described in Note 2b). External valuation of the properties has been determined based on valuations performed by GVA Grimley Ltd.

1) In December 2005, a subsidiary of the Company completed the indirect acquisition of 17% of the participatingunitsinafund(“theFund”)registeredinJersey.Concurrently,theFundcompletedtheacquisition of 16 hotels in the U.K. (“the hotels”), managed by the Hilton Group. The cost of the acquisition of the hotels by the Fund amounted to approximately £417,000, including transaction costs.

In order to finance the acquisition of the hotels, the Fund received a non-recourse bank loan amounting to approximately £331,000. The loan is for a period of 10 years and bears interest at an annual rate of 5.8%. The remaining cost of the acquisition, amounting to approximately £87,000, was financed by the unit holders in the Fund pro rata.

The Group’s cost of investment in the Fund amounted to £14,680. The fair value of this investment amounts to £24,509 as of 31 December 2007. The decrease in the fair value in 2007 of £1,829 (2006 – increase of £11,658) was recorded in the statement of changes in equity. The fair value of the investment was determined based on comparable arm’s length market transaction in respect of the hotels and discontinued expected cash flows at market rates in respect of borrowings.

In the year ended 31 December 2007, the Company received a dividend of £1,190 (2006 – £935) which is included in dividend from available for sale investments in the income statement.

2) On 30 March 2007, the Group and other investors completed the acquisition of rights representing the entire share capital of foreign companies that own 47 hotels located across England, Scotland and Wales (“the Marriott Hotels”), which are managed by the Marriott chain under a management agreement for a period of 30 years with an option for Marriott to renew the agreement by 10 additional years.

As of balance sheet date, the Company’s share of the Marriott portfolio is 17%.

The Marriott Hotels were acquired from the Royal Bank of Scotland (“RBS”) for a total consideration of approximately £1.06 billion. The investors were required to place approximately £0.22 billion in shareholders’ equity to complete the transaction. The remaining cost of the acquisition was financed by a non–recourse loan extended by RBS totaling approximately £0.85 billion for a period of about seven years with fixed interest of 6.16%.

During 2007, 5 hotels had been sold. In the year ended 31 December, 2007, the Company received a dividend of £4,277 from this investment, which is included in dividend from available for sale investments in the income statement.

31 December

2007 2006

The Hilton Hotels (1) 24,509 26,338

The Marriott Hotels (2) 38,350 -

62,859 26,338

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NOTE 7:- INTANGIBLE ASSETS

Intangible assets comprise the cost of incentives provided to lessees in order to enter into leasing agreements and goodwill arising from the acquisition of Linchfield (see Note 4).

Incentives to lessees Goodwill Total

Cost:

At1January2006 1,641 - 1,641

Additions 1,888 - 1,888

Disposals (90) - (90)

Foreign currency translation adjustments (339) - (339)

At 31 December 2006 3,100 - 3,100

Additions 17 - 17

Addition from newly consolidated subsidiaries 864 95,196 96,060

Impairment of goodwill - (9,446) (9,446)

Foreign currency translation adjustments 484 - 484

At 31 December 2007 4,465 85,750 90,215

Accumulated amortization:

At1January2006 478 - 478

Amortization 240 - 240

Foreign currency translation adjustments (75) - (75)

At 31 December 2006 643 - 643

Amortization 359 - 359

Foreign currency translation adjustment 114 - 114

At 31 December 2007 1,116 - 1,116

Net book value:

At 31 December 2007 3,349 85,750 89,099

At 31 December 2006 2,457 - 2,457

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NOTE 6:- AVAILABLE FOR SALE INVESTMENTS (Cont.)

The fair value of this investment amount to £38,350 as of 31 December 2007. The change in the fair value during 2007 amounting £950 was recorded in the statement of changes in equity. The fair value of the investment was determined based on comparable arm’s length market transaction in respect of the hotels and discontinued expected cash flows at market rates in respect of borrowings.









NOTE 8:- ACCOUNTS RECEIVABLE

1) Deposits provided by Group companies as collateral for performance regarding the properties. The deposits bear no interest and are held by trustees.

2) See Note 17b.

3) The receivables do not bear interest.

4) In December 2006, the Company provided a loan to another shareholder of various associates in the amountof£9,114.Theloanwasforaperiodofonemonth.InJanuary2007,thebalanceoftheloanwasoffset against the cost of additional shares of associates acquired from the shareholder – see Note 4(c).

31 December

2007 2006

Tenants 4,186 1,148

Deposits (1) 6,805 6,082

Due from related parties (2) 292 8

Other shareholders in associates (3) 613 1,164

Short-term loan (4) - 9,114

Prepaid expenses 639 1,789

Receivable due to financial instruments 821 -

Other 1,317 477

14,673 19,782

65 66









NOTE 9:- CASH AND CASH EQUIVALENTS

NOTE 10:- SHARE CAPITAL

31 December

2007 2006

In British Pounds 60,865 1,714

In Euros 18,254 4,784

In Canadian Dollars 2,224 1,721

In Swiss Francs 1,903 -

Other 44 92

83,290 8,311

31 December 2007 31 December 2006

Authorised Issued and fully paid

Authorised Issued and fully paid

Number of Shares

Composition

Ordinary shares of £0.50 par value each 500,000,000 265,115,168 10,000 *) 4

*) In March 2007, the issued share capital (2 Ordinary shares of £1 par value each) was split into 4 Ordinary shares of £0.5 par value each.

b. In April 2007, in connection with the admission of its Ordinary shares to trading on the AIM, the Company issued 50,000,000 Ordinary shares of £0.50 par value each in consideration of £2 per share. The total proceeds from the offering amounted to £100,000. Of said issuance, the parent Company (DBI) purchased 6,250,000 Ordinary shares.

In May 2007, the underwriters for the offering exercised an over-allotment option granted to them in connection with the public offering according to which, the Company issued to the underwriters 5,294,555 Ordinary shares at the public offering price of £2 per share.

TheCompany'stotalexpensesinconnectionwiththeaboveissuancesamountedtoapproximately £10,000, and has been deducted from the share premium account.

65 66

a.









NOTE 10:- SHARE CAPITAL (Cont.)

c. Immediately prior to the public offering, the parent Company converted shareholders’ loans totaling approximately £101,590 to equity. In addition, and as described in Note 4c(1) above, concurrent with the IPO, the Company acquired several investments in real estate companies that were controlled by DBI. In return the Company issued to DBI 197,089,399 Ordinary shares.

In addition, immediately prior to the offering, the Company issued 12,731,210 Ordinary shares to Blenheim Properties Group (“BPG”) as part of the Company’s payment for the acquisition from BPG ofadditionalinterestsinassociates(seeNote4).On8July,2007,BPGexercisedaputoptionthatwas granted to BPG by DBI prior to the IPO. As a result, all of BPG’s shares (12,731,210) were sold to DBI at the share market price as at the date of exercise.

d. Dividend policy:

The Company’s aim is to pay an annual dividend of up to 75% of the Distributable Profit Pool. There can be no guarantee as to the amount of any dividend payable by the Company. The Company may reinvest the proceeds from any disposals of assets if the Board of Directors considers this appropriate and suitable opportunities arise.

e. On 21 August 2007, the Company has declared an interim dividend of 4 pence per Ordinary share. The total dividend amounted to £10,605 and was distributed on 1 October 2007 (see Statement of Changes in Equity). The Company will propose a dividend of 7 pence per share to be ratified at the AGM.

67 68









Weighted average interest rate (1)%

31 December

2007 2006 2007 2006

a. Composition:

In British Pounds 6.4% 6.7% 656,265 56,455

In Canadian Dollars 6.1% 6.3% 130,846 99,152

In Euros 5.2% 5.1% 538,592 91,396

In Swiss Francs 3.6% - 135,711 -

In Swedish Krona 5.6% - 11,587 -

1,473,001 247,003

Less – current maturities 74,546 2,541

1,398,455 244,462

31 December

2007 2006

b. Repayment dates subsequent to balance sheet date:

First year – current maturities 74,546 2,541

Second year 77,436 59,400

Third year 83,220 2,829

Fourth year 178,074 13,349

Fifth year 137,183 96,347

Sixth year and thereafter 922,542 72,537

1,473,001 247,003

NOTE 11:- LOANS FROM BANKS

1) Fixed interest rate as of 31 December 2006 and 2007.

2) The fair value of the loans as of 31 December 2007 is approximately £1,565,000 (31 December 2006 – £255,560). The fair value has been calculated by discounting the expected future cash flows at market interest rates.

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NOTE 12:- LOANS FROM MINORITY SHAREHOLDERS

The loans were received from minority shareholders of subsidiaries, with no fixed maturities. Loans equivalent to £11,754 are non-interest bearing and loans equivalent to £10,251 are interest bearing at interest rates ranging between 6% and 10%.

NOTE 13:- LIABILITY IN RESPECT OF BANK AGREEMENT

Linchfield, a subsidiary, has an agreement with a bank to pay the bank certain fees upon the sale of investment properties. The fee is determined as a percentage of the “gain” resulting from the sale, as defined in the agreement. The liability was recorded in Linchfield’s accounts based on the estimated fair value of the aforementioned obligation

NOTE 14:- INCOME TAxES

a. Tax laws applicable to the Company and its subsidiaries:

Net rental income from real estate properties located in the U.K., which properties are owned by foreign companies, is taxed at a rate of 22%. Sales of such real estate properties are exempt from capital gains tax.

Net rental income from for the portfolio of car parks located throughout the U.K. (see Note 4c(2)) is subject to income tax at a rate of 30%. For a reduction in tax rate, see Note 14b.

Rental properties in Canada are held in trusts for the benefit of the Company. Net rental income of those trusts is subject to income tax at a rate of between 39% and 46%, according to the property’s physical location and location of the registered trust. Sales of such real estate properties are subject to capital gains tax at rates between 19.5% – 23%.

Net rental income from real estate properties located in Germany and Finland is taxed at the rate of 26.375% and 26%, respectively. Sales of such real estate properties are subject to capital gains tax at the same rates.

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NOTE 14:- INCOME TAxES (Cont.)

b. Reduction in tax rate:

During the year, the U.K. and the German corporation tax rate was changed commencing from 2008. The corporation tax rate in the U.K. will be 28% instead of 30% and in Germany it will be 15.825% instead of 26.375%.

Consequently, the Group has reduced the deferred tax liability in 2007 by £14,572 to reflect the new effective tax rate which will apply when the unrealised gains are crystalised.

c. Taxes on income and capital gains included in the income statement:

d. Consolidated statement of changes in equity:

During 2007 tax expense of £324 (2006 – £58) from cash flow hedges was reported directly in equity.

e. Deferred taxes:

The deferred tax balances below are reflected in the consolidated balance sheet as deferred tax asset £319 and deferred tax liability of £216,489.

Following is the composition of deferred tax liabilities (assets):


2007 2006

Current taxes 1,741 191

Prior year taxes (218) -

Release of deferred tax liability (Note 14 b) (14,572) -

Deferred taxes 24,209 10,448

11,160 10,639

31 December

2007 2006

Investment properties 234,546 26,837

Rental income receivable 2,476 1,990

Other assets-cost of incentives 2,196 1,114

Losses carried forward (3,527) (2,085)

Financial instruments (25,986) -

Other 6,465 250

216,170 28,106

69 70










Deferred taxes are calculated according to a tax rate of 22% – 28% (2006 – 22% – 30%) in the U.K., 43% in Canada, 15.825% (2006 – 26.375%) in Germany and 26% in Finland and are presented in the consolidated balance sheet as non-current assets and liabilities.

Following is the change in deferred taxes:

(*) Relates principally to temporary differences in respect of revaluations of investment properties to fair value.

f. Final assessments:

Most of the subsidiaries have received tax assessments which are deemed to be final through to the following tax years:

UK – 2006, Canada – 2004, Sweden – 2002, Germany and Finland none of the tax assessments are final yet as the assets were only acquired in recent years.

g. Losses for tax purposes carried forward to future years:

Carry forward tax losses amounted to approximately £14,104 at 31 December 2007 (2006: £13,000). The losses can be carried forward indefinitely.

Deferred income tax assets (DTA) are recognized for carry forward tax losses to the extent that the realization of the related tax benefit through future taxable profits is probable.

h. Effective tax:

The difference between the tax calculated on the income before tax according to the regular tax rate and the amount of the tax included in consolidated the financial statements is reconciled as follows:

31 December

2007 2006

Balance as of beginning of year 28,106 20,216

Additions from newly consolidated subsidiaries 172,224 -

Amounts charged to:

Tax expense (*) 9,637 10,448

Cumulative translation differences 5,879 (2,616)

Net unrealized gains on hedging instruments 324 58

Balance as of end of year 216,170 28,106

71 72










2007 2006

Income before taxes 107,127 130,724

Less – share of net profits of associates (11,952) (98,381)

95,175 32,343

Theoretical tax according to statutory tax rate in the U.K. (22%) 20,938 7,115

Increase (decrease) in tax for:

Losses in respect of which deferred taxes were not recorded (271) 687

Deferred taxes in respect of share of profits of associates held by trustees (55) 860

Exempt revenues (2,266) -

Prior taxes (218) -

Differences in tax rates (6,766) 2,309

Other (202) (332)

11,160 10,639

71 72










(1) Mainly interest on loans.

(2) Accrued expenses relating acquisition of assets in Germany on December 21, 2007.

NOTE 15:- ACCOUNTS PAYABLE


2007 2006

Suppliers 2,133 -

Accrued expenses (1) 6,184 6,106

Interest received in advance 15,079 1,723

Rental income received in advance 13,805 1,496

Accrued acquisition costs (2) 11,199 -

Government authorities 3,795 -

Affiliated companies 380 -

Other - 509

52,575 9,834


2007 2006

a. Operating expenses:

Rent 1,971 881

Property taxes 5,504 4,648

Energy 1,847 1,807

Repairs and maintenance 6,570 2,217

Professional fee 311 -

Salaries and related expenses 843 736

Other 317 713

17,363 11,002

NOTE 16: SUPPLEMENTARY INFORMATION TO THE

INCOME STATEMENT

73 74










2007 2006

b. General and administrative expenses:

Management fees 785 729

Professional fees 3,822 562

Share-based compensation (*) 274 1,452

Salaries and related expenses 1,154 -

Other 202 59

(*) See Note 17 a 3. 6,237 2,802

c. Other expenses:

Impairment of goodwill 9,446 -

Cancellation fee (see Note 19) 2,815 -

Other 205 -

12,466 -

d. Finance expenses and income:

Expenses:

Interest on bank loans 61,504 11,894

Interest to parent - 6,295

Interest to minority 567 -

Finance cost amortisation 1,268 88

Financial instruments 18,470 -

Other 674 -

82,483 18,277

Income:

Interest 5,912 1,641

Exchange gain 734 491

Financial instruments 1,439 -

Other 83 -

8,168 2,132

73 74

NOTE 16:- SUPPLEMENTARY INFORMATION TO THE

INCOME STATEMENT (Cont.)









NOTE 17:- BALANCES AND TRANSACTIONS WITH

RELATED PARTIES

a. Transactions with related parties:

1. All properties in Canada are managed by a Company (Societe de Gestion Cogir S.E.N.C.) which is owned (50%) by the controlling shareholder of the Group. the management agreement for all assets except Bell Tower were entered into between 2001 and 2006, were for a period between one to two years and are renewable for additional period unless canceled by one of the parties. ThemanagementagreementforBellTowerwasenteredintoinJuly2007andisforperiodoffive years. All transactions were on arms length basis.

2. A Company (El-Ad Group (Canada) Inc.) owned by the controlling shareholder of the Group leases offices in Canada from a subsidiary of the Company. The leases are for periods of up to five years, with automatic renewal options and are on arms length basis – see c below.

3. Share – based payment:

Inmeetingsheldon25January2006and16February2006,theboardofdirectorsandthe shareholders, respectively, of the parent Company of DBI, Delek Real Estate Ltd. (“DRE”), approved an agreement between DBI and RG Naor Management Services Ltd. (“Naor”).

Naor is wholly-owned by the son-in-law of the Company’s controlling shareholder. Pursuant to the agreement, Naor was granted 416,818 share appreciation rights (“SARS”) whereby Naor will become entitled to an annual cash payment by DBI over a period of five years commencing from 1June2006,basedontheincreaseinthemarketpriceofDRE’ssharesoverthepricesspecified in the agreement. The agreement specifies a price for each of the five years and these prices are subject to adjustments under certain circumstances. The SARS are granted on condition that Naor continues providing consulting services in respect of real estate activities of the Group over the five-year period.

The SARS are exercisable from the date of vesting and until 31 December 2010. The fair value of the SARS granted to Naor is calculated each period based on the Black-Scholes option pricing model. The weighted average fair value of the SARS at the date of grant was £1.18 per share of DRE and was estimated based on the following data and assumptions regarding the shares of DRE: Share price – £3.44; exercise price – £3.01; expected volatility – 25.9%; risk-free interest rate – 5.54%; expected dividends (protected dividends) – 0%; and expected average life of 3.64 years. The fair value of the “SARS” as of 31 December 2007, was £3,205 and was estimated based on the following data and assumption regarding the shares of DRE: share price – £2.57; exercise price – £2.94; expected volatility – 39%; risk-free interest rate – 5.25%; expected dividends (protected dividends) – 0%; and expected average life of 3.64 years (all figures relating to the SARS are converted from NIS)

As the services are provided by Naor in respect of the Company’s activities, the Company records an expense in the income statement equal to the fair value of the SARS until the liability is settled by DBI with a corresponding increase recognized in equity as a contribution from DBI. During 2007, the Company recorded an expense of £274 (2006 – £1,452) in the income statement.

75 76









NOTE 17:- BALANCES AND TRANSACTIONS WITH

RELATED PARTIES (Cont.)

Phantom option plan:

The Phantom Option Plan as outlined in the Admission Document was not effected

4. Regarding acquisition of investments from DBI – see Note 1b.

31 December

2007 2006

b. Balances:

Current assets – accounts receivable (1) 292 8

Loans made to associates (2) 23,968 52,226

Loans from associates (3) 13,287 24,720

Current liabilities – accounts payable (4) 380 -

Current liabilities – amounts payable to parent Company and related parties (1) 3,416 2,226

Long-term loans from DBI (5) - 99,980

31 December

2007 2006

In New Israeli Shekels - 22,397

In British Pounds - 25,526

In Canadian Dollars - 51,592

In Euro - 465

- 99,980

DBI has agreed on Admission of the Company to AIM to capitalize all of the outstanding intra-group loans made by it to the Company and as agreed DBI converted all of its outstanding loans to the Company to equity – see Note 10c.

As disclosed in Note 1b and Note 4, the Company aquired holdings in companies which are now subsidiaries of the group from DBI. For the list of all companies see Note 23.

75 76

1) The balances are with DB I and subsidiaries of DBI and they do not bear interest.

2) Regarding loan terms – see Note 4.

3) The balances do not bear interest and repayment dates have not yet been determined.

4) The balances are with associates (see Note 4 b)

5) Currency of loans from DBI:









NOTE 17:- BALANCES AND TRANSACTIONS WITH RELATED

PARTIES (Cont.)


2007 2006

c. Transactions:

Rental income (see 17a(2) above) 59 46

Management fees (see 17a(1) above) 583 245

Share-based compensation (see 17a(3)) 274 1,452

Finance expenses - 6,295

d. Till the admission, the Company had no employees and the Company received administrative and other services from the parent Company of DBI, for which no fees were charged to the Company. In 2007, the Company has entered into service agreements, effective from Admission, with the Chief Executive Officer (“CEO”), Chief Financial Officer and Chief Operating Officer of the Company. The CEO annual salary is £200, plus a discretionary bonus.

Non-executive directors

On the admission the Company had four non executive directors which increased during the year to six. The non executive directors were entitled to a fee of £3 per meeting with a minimum of £25 per annum each.From1January2008theywillreceiveanannualfixedfeeof£40each.

The Chairman received remuneration during the year of £85 per annum, which will increase to £110 per annumfrom1stJanuary2008

77 78









NOTE 18:- COMMITMENTS

Within one year 1,347

After one year but not more than five years 21,450

More than five years 112,593

135,390

a. Lease agreements in England:

The Group owns real estate comprising office properties in the U.K. that are leased under long-term lease agreements. Most of the lease agreements include the following principal conditions:

1. The lease agreements are FRI (Full Repair and Insurance) agreements which obligate the tenants to implement repairs and periodic renovations of the exterior and the interior of the property during the term of the lease.

2. Rent review every five years according to which the rent is adjusted to the higher of the annual rent at the date of the rent review or the rental fees according to prevailing market conditions (as determined by an authorized appraiser).

3. The tenant is obligated to pay, in addition to the rent, property taxes, insurance, water, electricity and maintenance expenses.

b. Lease agreements in Canada, Germany, Switzerland and Finland: The Group owns real estate comprising office properties, commercial areas and residential properties.

The lease agreements for the office and commercial properties are for various periods of up to 20 years (mainly 7 to 15 years).

The lease agreements for the residential properties in Canada are for periods of one year. The rental fees are government-controlled. Rental fees may be increased to market prices upon the entry of a new tenant.

c. Operating lease – Group as lessor:

Future minimum rentals receivable under non-cancellable operating leases as at 31 December 2007 are as follows:

d. Finance lease – Group as lessee:

The Group is the lessee of some investment properties under finance leases within its portfolio with a fair value as at 31 December 2007 totaling £766,777 (2006: £123,054).

77 78









NOTE 19:- LIENS AND CONTINGENT LIABILITIES

LiensLiabilities to banks are secured by fixed first priority liens on income-producing real estate properties, on rental income derived therefrom and on bank accounts, and floating charges on all other assets and rights of subsidiaries and associates.

Contingent liabilities

The Jelmoli Arbitration:Empario Holdings GmbH (the “Swiss Company”) is held by foreign subsidiaries controlled by (1) the Company through foreign subsidiaries, (2) Delek Belron International Ltd (“Delek Belron”) through foreign subsidiaries, and (3) Blenheim Properties Ltd. (“Blenheim”), through foreign subsidiaries.

The indirect holdings of the Company and of Delek Belron in the share capital of the Swiss Company are as follows: The Company: 33.3% through foreign subsidiaries controlled by it, and Delek Belron: 16.7% through foreign subsidiaries controlled by it. The remaining 50% of the share capital of the Swiss Company is held indirectly by Blenheim through foreign subsidiaries controlled by it.

On31July2007,theSwissCompanysignedanagreement(the“Agreement”) for the purchase of shares ofcertaincompanieswhichowntherealestateportfolioofJelmoliHoldingAG(“Jelmoli”).

The consideration for the transaction which was the subject matter of the Agreement (the “Transaction”) was an amount of CHF 3.365 billion (GBP 1.46billion), subject to various price adjustments as stipulated in the Agreement.

On 25 October 2007 the Company announced that the Transaction would not be consummated due to macroeconomic and other changes. There were other grounds for the non-consummation of the transaction, however, at the date of the above mentioned announcement, the Company was prevented, and is still prevented at the time of this report, from disclosing additional details and information, inter alia, due to certain commitments to preserve confidentiality and due to the existence of the arbitration proceedings as detailed herein below.

Following are details of the secured liabilities as of 31 December 2007:

Loans from banks (including short-term credit) £1,473,001

79 80









Contingent liabilities

The Jelmoli Arbitration: (Cont.)InthefirsthalfofJanuary2008,theSwissCompanyreceivedanofficialnotificationfromtheZurichChamberofCommercethatJelmoliinitiatedarbitrationproceedingsagainsttheSwissCompanyandagainst its indirect shareholders, i.e. the Company, Delek Belron, and Blenheim, by way of a notice of arbitration.Inthisnotice,JelmoliseemstorequesttheArbitrationTribunaltoenforceuponalltherespondents (jointly and severally) the specific performance of the Agreement, whilst at the same time seemingly reserving the right to switch at any time to a claim for damages against all the respondents (jointly and severally), the damages being no less than CHF 275 million (due to certain commitments to preserve confidentiality and due to the arbitration proceedings the Company is prevented from giving the details of its initial response to all such claims).

On 13 February 2008 the Swiss Company submitted its initial response to the notice of arbitration. So did the Company, Delek Belron, and Blenheim.

In their initial response the Company, Delek Belron, and Blenheim stated, inter alia, and as a preliminary point that the Arbitration Tribunal has no jurisdiction over them, and that there is no legal ground to join them as “non signatory parties” to the arbitration. In the Swiss Company’s initial response the Swiss CompanyrejectedtheclaimsmadebyJelmoliandfiledacounterclaimagainstJelmolifortherefundofthedownpaymentintheamountofCHF10millionpaidtoJelmolibytheSwissCompanyinaccordancewith the terms of the Agreement.

In the financial statements of the Company for the year 2007, the Company included a provision in the amount of CHF 3.3 million (GBP 1,433). This amount reflects the Company’s assessment of the Company’s share in the shareholder’s loan granted to the Swiss Company and which was utilized by the Swiss Company topaythedownpaymenttoJelmoli.Inaddition,theCompanywroteoffinthefinancialstatementsoftheCompany for the year 2007, an amount of approximately GBP 1,382 which were granted by the Company to the Swiss Company as shareholder loans.

On the basis of legal opinions obtained by the Company from leading Swiss Law Firms, the Company believes that at this stage of the arbitration proceedings there is no need for the Company to make any further provisions.

NOTE 19:- LIENS AND CONTINGENT LIABILITIES (Cont.)

79 80









The Group’s principal financial liabilities, other than derivatives, comprise bank loans, trade payables and loans given by related parties. The main purpose of these financial liabilities is to raise finance for the Group’s acquisitions of assets and investments in associates. The Group has various financial assets such as cash and cash equivalents, bank deposits, receivables, available-for-sale investments and loans to related parties.

The Group also enters into derivative transactions, primarily interest rate swaps. The purpose is to manage the interest rate and currency risks arising from the Group’s operations and its sources of finance.

The main risks arising from the Group’s financial instruments are interest rate risk, liquidity risk, foreign currency risk and credit risk. The Management reviews and agrees policies for managing each of these risks which are summarised below.

NOTE 20:- FINANCIAL INSTRUMENTS

a. Interest rate risk: The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s medium and long-term debt obligations which are borrowed either at variable or fixed rates of interest. These loans are denominated in British Pounds, Euro, Swiss Francs, Canadian Dollars and Swedish Krona.

The Group’s policy is to hedge a high proportion of its variable rate borrowings at fixed rates of interest. To achieve this, the Group enters into interest rate swap contracts, in which the Group agrees to exchange its variable rate obligations for fixed rate obligations.

The hedge statistics set out below refer to the interest rate protection undertaken in subsidiaries of the Group without adjustment to reflect the Group’s holding in those subsidiaries.

At 31 December 2007, after taking into account the effect of interest rate swaps, 97% (2006 – 100%) of the Group’s borrowings were at fixed rates of interest. A further 3% (2006 – zero) of the variable rate obligations were protected by the purchase of interest rate caps which have the effect of establishing a maximum rate of finance.

At 31 December 2007, the Group had interest rate swap agreements in place with a notional amount of £1,011 million equivalent (2006 – £92 million equivalent), whereby it pays fixed annual rates of interest (before margin) averaging 4.96% (2006 – 3.93%) and receives a variable rate equal to three month Euribor or the relevant Libor according to the currency of the liability.

These swaps are defined as cash flow hedges and the fair values are determined by discounting the future cash flows using the bid point of the relevant yield curves prevailing on 31st December 2007. The fair values are disclosed below.

The swaps are held for hedging purposes and provide full protection against the effects of rising short term interest rates. However, it is recognised that, of the total, swaps aggregating £563 million equivalent (2006 – £nil equivalent), at an average rate of 5.61%, do not meet the stringent requirements to establish hedge effectiveness for accounting purposes under IAS 39. All other Swaps are effective for accounting purposes.

81 82









NOTE 20:- FINANCIAL INSTRUMENTS (Cont.)

The Group’s interest rate profile as at 31st December 2007 is summarised below:

The Group’s interest rate profile as at 31st December 2006 is summarised below:

* the loan has been extended for two years

£millions £millions

Up to 1 year (*) 77.0 3.3 0.0 3.3 1.1 72.6

1-2 years 59.5 4.0 0.0 4.0 48.8 6.6

2 to 5 years 529.0 301.2 0.0 301.2 0.0 227.8

Over 5 years 808.1 139.4 563.3 702.7 0.0 105.3

Total 1,473.5 448.0 563.3 1,011.2 49.9 412.3

Average rate 4.64% 4.15% 5.61% 4.96% 2.16% 4.16%

Fair value (51.0) 3.0 (54.7) (51.7) 0.7 0.0

50 basis point change 51.9 9.6 34.9 44.5 0.4 7.1

DerivativesTotal Fixed Rate Loans

InterestRate SwapsEffective£millions

InterestRate SwapsIneffective£millions

InterestRate SwapsTotal£millions

InterestRate Caps £millions

£millions £millions

Up to 1 year 2.8 0.0 0.0 0.0 0.0 2.8

1-2 years 59.5 0.4 0.0 0.4 0.0 59.2

2 to 5 years 113.1 73.2 0.0 73.2 0.0 39.9

Over 5 years 73.5 18.6 0.0 18.6 0.0 54.9

Total 248.9 92.2 0.0 92.2 0.0 156.8

Average rate 4.47% 3.93% 0.00% 3.93% 0.00% 4.78%

Fair value (5.5) 0.2 0.0 0.2 0.0 (5.7)

50 basis point change 5.6 2.2 0.0 2.2 0.0 3.5

DerivativesTotal Fixed Rate Loans

InterestRate SwapsEffective£millions

InterestRate SwapsIneffective£millions

InterestRate SwapsTotal£millions

InterestRateCaps £millions

81 82









Changes in the fair value of those swaps that are effective for accounting purposes are taken to equity whereas changes in the fair value of those which are ineffective for accounting purposes are taken to earnings as are changes in the fair value of option contracts.

The fair values of the interest rate swaps aggregate a negative £51.7 million equivalent (2006 – positive £0.2 million equivalent). Of this a positive £3.0 million equivalent is attributable to equity reserves (2006 – positive £0.2 million equivalent) and a negative £54.7 million equivalent (2006 – £nil) to earnings. Had medium to long term interest rates been 50 basis points higher or lower these figures would have been changed by £9.6 million equivalent (2006 – £2.2 million equivalent) in the case of equity reserves and £34.9 million equivalent (2006 – £Nil) in the case of earnings.

As described in Note 4 c in April 2007 the Company acquired additional holdings in associates and within these companies were Swaps having a notional value aggregating £649.8 million. The fair value of the swaps acquired aggregated a negative £37.8 million equivalent of which a negative £40.1 million equivalent was not regarded as being effective for accounting purposes. Within these companies were also fixed rate loans aggregating £211.9 million.

Fixed rate loans account for 28% (2006 – 63%) of the total and therefore represent a significant portion of the Group’s interest rate management. Changes in the fair value are a disclosure item and have no impact on the accounts of the Group


b. Foreign currency risks: The Group’s subsidiaries finance the acquisition of property assets in the currency in which the asset is denominated so that the Group’s exposure to changes in the British Pounds value of its assets is minimised. The information below only reflects the financial assets and liabilities and does not reflect non-financial assets and liabilities. As at 31st December 2007 the Group had liabilities denominated in the following foreign currencies:

31 December

2007 2006

Euro 538,592 91,396

Swiss Francs 135,711 -

Canadian Dollars 130,846 99,152

Swedish Krona 11,587 -

816,736 190,548

83 84










Group’s income from income-producing rental properties is denominated in the same currencies as the loans that are financing those properties.

Loans have been made by the Group to associate companies in foreign currencies as set out below:

The following table demonstrates the sensitivity to a 5.00% change in the British Pounds value the Canadian Dollar, Euro, Swedish Krona and Swiss Francs exchange rates, with all other variables held constant, of the Group’s profit before tax (due to changes in the fair value of monetary assets and liabilities) and the Group’s equity (due to changes in the fair value of net investment hedges).

31 December

2007 2006

Euro 6,915 16,126

Swiss Francs 7,991 13,711

Canadian Dollars 6,234 7,929

Swedish Krona - 696

21,140 38,462

Increase/decrease in currency rate

Effect on profitbefore tax

Effect on equity

Euro20072006

5.00%5.00%

--

£346£806

Swiss Franc20072006

5.00%5.00%

--

£400£686

Canadian Dollar20072006

5.00%5.00%

--

£313£396

Swedish Krona20072006

5.00%5.00%

--

£35-

83 84










c. Credit risk: Cash, cash equivalents and bank deposits are invested with banks in the U.K. and in other countries. The management believe that the financial institutions that hold the Company’s investments are financially sound and, accordingly, minimal credit risk exists with respect to these investments.

Derivative instruments held for hedging purposes have been undertaken with the financial institutions providing the debt finance. The directors believe that these financial institutions are financially sound, and, accordingly, minimal credit risk exists in respect of these contracts.

Receivables are due from diverse government and corporate tenants with strong credit ratings and low rates of turnover. Accordingly, the directors do not anticipate losses in respect of these receivables.

Loans to related parties are to companies that own investment properties leased to tenants with strong credit ratings and, accordingly, minimal credit risk exists with respect to these loans.

d. Liquidity risk: The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts, bank loans and loans from related parties.

The table below summarises the maturity profile of the Group’s financial liabilities at 31 December 2007 based on contractual undiscounted payments


Less than 3 months

3 to 12 months

1 to 5years

>5 years

Total

Interest bearing loans and borrowings 68,854 6,492 476,085 928,814 1,480,245

Other liabilities - 3,416 - 35,292 38,708

Trade and other payables 52,575 - - - 52,575

121,429 9,908 476,085 964,106 1,571,528


Less than 3 months

3 to 12 months

1 to 5years

>5 years

Total

Interest bearing loans and borrowings 636 1,907 171,925 72,536 247,003

Other liabilities - 102,206 - 26,135 128,341

Trade and other payables 9,834 992 - - 10,826

10,470 105,105 171,925 98,671 386,170

85 86










e. Capital management:

The primary objective of the Group’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximise shareholder value.

The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. Besides the Initial Public Offering, as described in Note 1a, no changes were made in the objectives, policies or processes during the years end 31 December 2007 and 2006.

f. Other risks:

At 31st December 2007 some of the Group’s rental income was linked to CPI and the Group has entered into derivative instruments known as Limited Price Index Swaps exchanging future inflation linked rental increases for fixed rental increases. As a consequence the Group is exposed to rising inflation in the United Kingdom. However the tenant rental payments are also linked to CPI and therefore there is no exposure.

At 31st December 2007 these contracts had a negative fair value of £39.9 million (2006 £nil). These contracts were acquired as a part of the BPG transaction described in note 4 c 1. when the legacy fair value was a negative £31.9 million equivalent. These contracts are not regarded as being hedge effective for accounting purposes and therefore changes in fair value are taken to earnings.

A change in the rate of inflation by plus or minus 50 basis points would affect earnings by £24.9 million (2006 – £Nil).

The Group monitors capital using a gearing ratio, which is net debt divided by total capital plus net debt. The Group has a policy of optimizing the capital structure of each asset and the property portfolio as a whole by rising non-recourse loans for acquisition of assets and for refinancing existing investments. The performance is monitored by using loan to value ratio, which is calculated as total balance on non- recourse loan divided by the fair value of the property. At 31 December 2007 the loan to value ratio of the Group was 68% (2006: 65%).

g. Price risks:

Most of the lease agreements for the commercial real estate assets have provisions for rent review or other rent adjustments and, therefore, the Group does not have material exposure to changes in market prices of rental fees. As of the balance sheet date, the lease agreements for the residential real estate assets, which are for a period of one year, constitute approximately 3% of the Group’s rental income.

85 86









NOTE 21:- SEGMENT INFORMATION

a. General

The Group’s subsidiaries and associates have investments in income-producing real estate properties in the United Kingdom, Canada, Germany, Switzerland and Scandinavia (Finland and Sweden). The substantial majority of rental income and fair value adjustments of the Group are derived from office properties. Management has determined that its predominant source of risks and returns is related to the geographical areas in which it operates and, accordingly, geographical segments are the Company’s primary segment reporting format.

The Company’s secondary segment is business segment which is split into office, retail, car parks, hotels and residential.

b. Geographical segments:


2007 2006

1. Revenues and other income:

UK (1) 127,973 78,907

Germany (2) 24,062 19,798

Switzerland (3) 9,409 8,916

Scandinavia (4) 19,987 9,467

Canada (5) 36,077 43,585

Total revenues and other income (6) 217,508 160,673

Includes fair value adjustments of rental properties:

(1) UK 62,804 63,324

(2) Germany 10,401 18,904

(3) Switzerland 5,044 9,270

(4) Scandinavia 8,642 6,343

(5) Canada 6,705 17,066

Total fair value adjustments of rental properties (*) 93,596 114,907

87 88










2007 2006

(*) Includes share of value adjustment of rental properties in associates:

UK (4,593) 54,024

Germany 6,662 18,904

Switzerland 3,765 9,270

Scandinavia - 1,390

Canada 609 1,967

6,443 85,555

(4) Includes share of profit associates:

(1) UK 3,022 63,206

(2) Germany 5,311 19,754

(3) Switzerland 1,927 8,916

(4) Scandinavia 78 3,336

(5) Canada 1,614 3,179

11,952 98,381

2. Segment results: Year ended 31 December

2007 2006

UK 63,460 73,179

Germany 10,867 19,724


Scandinavia 10,246 7,880

Canada 15,201 24,231

Unallocated results 2,331 (3,206)

Profit before income taxes 107,127 130,724

NOTE 21:- SEGMENT INFORMATION (Cont.)

87 88










2007 2006

3. Segment assets:

UK 1,313,966 245,364

Germany 543,369 66,095



Canada 283,443 216,943

Allocated assets (*) 2,547,174 646,475

Unallocated assets 54,413 13,869

2,601,587 660,344

(*) Includes investments in associates:

UK 40,617 119,387

Germany 13,149 42,507


Scandinavia - 5,994

Canada 10,138 10,968

77,544 203,345

4. Segment liabilities:

UK 747,385 73,349

Germany 436,412 21,192

Switzerland 139,390 -


Canada 134,084 133,047

1,604,875 303,021

Unallocated liabilities 316,092 111,255

1,920,967 414,276

89 90










89 90


2007 2006

5. Additions to long-lived assets:

UK 825,440 -

Germany 468,021 21,689

Switzerland 175,081 -


Canada 23,449 3,296

1,587,919 106,186


2007 2006

1. Revenues and other income:

Office 70,519 109,893

Retail 17,373 11,097

Car parks 122,216 31,483

Hotels 4,277 935

Residential 5,310 7,265

219,695 160,673

Unallocated liabilities (2,187) -

Total revenues and other income 217,508 160,673


c. business segments










2007 2006

2. Segment assets:

Office 936,196 493,017

Retail 480,072 20,672

Car parks 1,021,699 56,784

Hotels 62,859 26,338

Residential 44,486 36,576

Allocated assets 2,545,312 633,387

Unallocated results 56,275 26,957

2,601,587 660,344

3. Additions to long-lived assets:

Office 515,962 24,985

Retail 343,317 81,201

Car parks 728,640 -

Hotels - -

Residential - -

1,587,919 106,186

91 92










91 92

2007 2006

In thousands

Net profit attributable to ordinary equity holders of the parent for basic and dilution earnings 70,736 117,133

Weighted average number of ordinary shares (excluding treasury shares) for basic and dilution earnings per share 234,969 146,294*

Basic earnings per share amounts are calculated by dividing net profit for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year.

Diluted earnings per share amounts are calculated by dividing the net profit attributable to ordinary equity holders of the parent (after adjusting for interest on the convertible preference shares) by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares.

The following reflects the income and share data used in the basic and diluted earnings per share computations:

* Although the issued share capital in 2006 was four shares, as pooling of interest accounting has been applied this figure relates to issuance of shares to DBI.

There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of completion of these financial statements.

NOTE 22:- EARNINGS PER SHARE









NOTE 23:- LIST OF PRINCIPAL ASSOCIATES

Ownership

2007 2006

Admiralty Holding Ltd.(2) * 62.50% 47.50%

Tenride Limited(2)* 60.00% 40.00%

Quarry Town Limited (2)* 57.50% 21.25%

Bezina Limited(2) * 100.00% 45.00%

Gracewood Limited (2) * 85.00% 45.00%

Shalati Investments Limited 35.47% 35.47%

Padwick Properties Limited (3) - 45.00%

Old Forge Investments Limited 45.00% 45.00%

Rotherwood Properties Ltd (2) * 60.00% 40.00%

Monnaie Limited 45.00% 45.00%

Lochsley Properties Limited (2) 50.00% 40.00%

Linchfield Limited (1) (2)* 59.00% 42.40%

Major Belle Limited (1) 45.00% 45.00%

Shatto Holdings Limited (1) 45.00% 45.00%

Kristwood Properties Limited 49.00% 49.00%

BHM Stockholm Repslagaren (2)* 75.00% 45.00%

Paxos Holdings Sarl (2)* 60.00% 40.00%

Odofera Oy (2) * 72.50% 45.00%

Synergy Holdings Sarl (2) 50.00% 45.00%

Tredegar Holdings Ltd (2) 50.00% 40.00%

Trafalgar Property AG (2)* 85.00% 45.00%

Dubendorf Property AG (2)* 100.00% 45.00%

Tower Properties AG (2) 50.00% 40.00%

Broomstead Investments Limited (2)* 60.00% 40.00%

Farena Limited (2)* 60.00% 40.00%

Rosemore Limited (2)* 70.00% 40.00%

The Explorer Trust 45.00% 45.00%

The Expedition Trust * 51.00% 45.00%

Stiana Developments Sarl 50.00% -

1) Those companies were transferred from DBI to the Company as part of the restructuring in DBI – see Note 1b.

2) During 2007 the Group has acquired additional holdings in these companies from BPG resulting in some of them becoming subsidiaries – see Note 4 c. The ownership in the above represents the Group holding as at 31 December 2007.

* Subsidiaries as at 31 December 2007

(3) Company sold during the year.

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NOTE 24:- POST BALANCE SHEET EVENTS

After year end the Company has entered into credit facility agreement with FIBI for £10,000, with guarantee given by Delek Real Estate (“DRE”). The funds drawn by the Company under this facility will be subject to 0.25% fee payable to DRE. Currently the facility remains undrawn.

Additional information

Shareholder informationFinancial calendarAnnual General Meeting 2 May 2008Payment of Final Dividend on AGM Approval 6 May 2008

Share priceSince floatation of the Company on 5 April 2007 and until the end at 31 December 2007, the range of the closing mid-market prices of the Company’s ordinary shares were:

Price at 31 December 2007 103.5 penceLowest Price during the year 96.0 penceHighest price during the year 203.0 pence

Daily information on the Company’s share price can be obtained on the London Stock Exchange website (Company’s ticker DGRE.L)

Website – www.delekgre.com

Shareholders’ enquiries All administrative enquiries relating to shareholdings (for example notification of change of address, loss of share certificates, dividend payments) should be addressed to the Company’s registrar at:

Registrar Capita Registrars Tel: +44 (0) 20 8639 2471 Fax: +44 (0) 20 8639 2487

Secretary and registered office LaRuedeMielles,2ndfloor,MiellesHouse,St.Helier,JerseyJE23QDTel: +44-1534-785390 Fax: +44-1534-785399Company Registration Number: 73490

AdvisersMerrill Lynch International

Advisers and Nominated AdviserPanmure Gordon

PR AgencyPelham PR, London

Legal Advisers

Allen & Overy, London. Olswang, London

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Documents

Annual Report and Accounts · parking spaces. In respect of an underground car park at Finsbury Square, London, we are working with developers to convert part of the space into night