555 TENTH AVENUE LLC & 555 TENTH AVENUE II LLC COMBINED FINANCIAL STATEMENTS DECEMBER 31, 2015 (AUDITED)

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1 COMBINED FINANCIAL STATEMENTS DECEMBER 31, 2015 (AUDITED)

2 COMBINED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2015 U.S. DOLLARS IN THOUSANDS INDEX Page Auditors' Report 2 Combined Statements of Financial Position 3 Combined Statements of Comprehensive Income 4 Combined Statements of Changes in Equity 5 Combined Statements of Cash Flows 6 Notes to Combined Financial Statements

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5 Combined statements of comprehensive income Note For the year ended December 31, 2015 For the period from inception dates*) to December 31, 2014 Revaluation of investment property 4 104,030 - Other income Operating income 104,173 - Finance income 7 - Finance expense 7 (5,367) - Profit for the year 98,813 - Total comprehensive income 98,813 - *) Inception dates for 555 Tenth Avenue LLC and 555 Tenth Avenue II LLC are April 4, 2014 and June 11, 2014, respectively. The accompanying notes are an integral part of these combined financial statements

6 Combined statements of changes in equity Share capital and paid-in capital Retained earnings Total equity Balance at inception dates *) Total comprehensive income Capital contributions, net 55,831 97, ,198 Balance at December 31, ,831 97, ,198 Total comprehensive income - 98,813 98,813 Capital contributions, net 93,279-93,279 Balance at December 31, , , ,290 *) Inception dates for 555 Tenth Avenue LLC and 555 Tenth Avenue II LLC are April 4, 2014 and June 11, 2014, respectively. The accompanying notes are an integral part of these combined financial statements

7 Combined statements of cash flows For the year ended December 31,2015 For the period from inception dates*) to December 31, 2014 Cash flows from operating activities: Profit for the year 98,813 - Adjustments to reconcile profit to net cash used in operating activities: Revaluation of investment property (104,030) - Finance income (7) - Finance expense 5,367 - (98,670) - Changes in operating assets and liabilities: Increase in prepaid expenses and other assets (512) - Decrease in accounts payable and accrued liabilities (3,724) - (4,236) - Net cash used in operating activities (4,093) - Cash flows from investing activities: Capital expenditures (174,373) - Change in restricted cash, net (61,782) - Interest received 7 - Net cash used in investing activities (236,148) - Cash flows from financing activities: Capital contributions, net 93,279 - Proceeds from loans from financial institutions and others 185,000 - Repayment of loans from financial institutions and others (25,000) - Interest paid (11,954) - Net cash provided by financing activities 241,325 - Increase in cash 1,084 - Cash, beginning of the year - - Cash, end of the year 1,084 - Non-cash activities: Capital expenditures 27,435 - *) Inception dates for 555 Tenth Avenue LLC and 555 Tenth Avenue II LLC are April 4, 2014 and June 11, 2014, respectively. The accompanying notes are an integral part of these combined financial statements

8 NOTE 1:- GENERAL INFORMATION 555 Tenth Avenue LLC and 555 Tenth Avenue II LLC (the Combined Entities ) were formed as limited liability companies in 2014 under the laws of the State of Delaware. The Combined Entities operate in the United States and are primarily involved in developing and constructing residential and retail condominium units for rent. The Combined Entities are under common control, jointly and collectively hold the investment property discussed in Note 4 and are co-borrowers under the loan discussed in Note 7. The Combined Entities are owned 100% by Extell 4110 LLC. On December 31, 2014, Extell 4110 LLC contributed the following assets and liabilities to the Combined Entities: Investment property 235,464 Prepaid expenses and other assets 488 Restricted cash 4,279 Finance lease (45,464) Accounts payable and accrued liabilities (16,619) Loans from financial institutions and others (24,950) Net assets contributed 153,198 It should be noted a portion of Extell 4110 LLC s Equity is provided through the Employment Based Fifth Preference Immigrant Visa Program ( EB-5 Program ). The U.S. Congress established the EB-5 Program in 1990 in order to attract new investment capital into the country and to create new jobs for U.S. workers. Pursuant to the EB-5 Program, foreign nationals who invest their capital in job-creating businesses and projects in the United States, (the EB-5 Investors ) may qualify to become unconditional legal permanent residents of the United States. Definitions: In these financial statements: The Combined Entities Tenth Avenue LLC and 555 Tenth Avenue II LLC Related parties - As defined in IAS 24. Dollar - U.S. dollar. NOTE 2:- BASIS OF PREPARATION The following accounting policies have been applied consistently in the financial statements for all periods presented, unless otherwise stated. a. Basis of preparation: The combined financial statements are prepared in accordance with International Financial Reporting Standards (IFRS). The basis of preparation and accounting policies used in preparing the combined financial statements for the year ended December 31, 2015 and the period ended December 31, 2014 are set out below. These accounting policies have been consistently applied to the periods presented unless otherwise stated. The combined financial statements have been prepared on a cost basis except for investment properties which are presented at fair value through profit and loss. The combined financial statements are presented in United States Dollars (USD) and all values are rounded to the nearest - 7 -

9 NOTE 2:- BASIS OF PREPARATION (Cont.) thousands, except when otherwise indicated. b. The operating cycle: The operating cycle of the Combined Entities is one year. c. Combined financial statements: The combined financial statements are comprised of the financial statements 555 Tenth Avenue LLC and 555 Tenth Avenue II LLC which are under the common control of Extell 4110 LLC. d. Functional currency, presentation currency and foreign currency: The functional and presentation currency of the financial statements is the US dollar. The Combined Entities determine the functional currency of each Combined Entity, including companies accounted for at equity. e. Cash equivalents: Cash equivalents are considered as highly liquid investments, including unrestricted short-term bank deposits with an original maturity of three months or less from the date of investment. f. Short-term deposits and restricted cash: Short-term deposits and restricted cash are deposits with an original maturity of more than three months from the date of investment and when the Combined Entities have restrictions on the uses of their cash and which do not meet the definition of cash equivalents. g. Investment property: Investment property is property (land or a building or both) held by the owner (lessor under an operating lease) or by the lessee under a finance lease to earn rentals or for capital appreciation or both rather than for use in the production or supply of goods or services, for administrative purposes or for sale in the ordinary course of business. Investment property is derecognized on disposal or when the investment property ceases to be used and no future economic benefits are expected from its disposal. Investment property is measured initially at cost, including costs directly attributable to the acquisition. After initial recognition, investment property is measured at fair value which reflects market conditions at the reporting date. Gains or losses arising from changes in the fair value of investment property are included in profit or loss when they arise. Investment property is not systematically amortized. Investment property under construction for future use as investment property is also measured at fair value, as above, if fair value can be reliably measured. If fair value cannot be reliably measured, due to the nature and risks of the project, then it is measured at cost less impairment losses, if any, until the earlier of the date when the fair value can be reliably measured or the date when construction is complete. In determining the fair value of investment property, the Combined Entities rely on annual valuations performed by external independent valuation specialists with the appropriate knowledge and experience. On the quarterly basis, management assesses the fair value of the investment property by considering changes in market conditions, capital expenditures, as well as the resulting impact of current and future rental income

10 NOTE 2:- BASIS OF PREPARATION (Cont.) h. Leases: The criteria for classifying leases as finance or operating leases depend on the substance of the agreements and are made at the inception of the lease in accordance with the following principles as set out in IAS 17. The Combined Entities as lessee: Finance leases: Finance leases transfer substantially all the risks and benefits incidental to ownership of the leased asset to the Combined Entities. At the commencement of the lease term, the leased assets are measured at the lower of the fair value of the leased asset or the present value of the minimum lease payments. The leased asset is subsequently measured based on IAS 40. The Combined Entities as lessor: Operating leases: Lease agreements where the Combined Entities do not transfer substantially all the risks and benefits incidental to ownership of the leased asset are classified as operating leases. Rental income is recognized in profit or loss on a straight-line basis over the lease term. Initial direct costs incurred with respect to the lease agreement are added to the carrying amount of the leased asset and recognized as an expense over the lease term on the same basis as the rental income. Contingent rent is recognized as income in the statement of profit or loss when the Combined Entities are entitled to receive such income. i. Impairment of non-financial assets: The Combined Entities evaluate the need to record an impairment of non-financial assets whenever events or changes in circumstances indicate that the carrying amount is not recoverable. If the carrying amount of non-financial assets exceeds their recoverable amount, the assets are reduced to their recoverable amount. The recoverable amount is the higher of fair value less costs of sale and value in use. In measuring value in use, the expected future cash flows are discounted using a pre-tax discount rate that reflects the risks specific to the asset. j. Financial instruments: 1. Financial assets: Financial assets within the scope of IAS 39 are initially recognized at fair value plus directly attributable transaction costs, except for financial assets measured at fair value through profit or loss in and transaction costs are recorded in profit or loss. After initial recognition, the accounting treatment of financial assets is based on their classification as follows: a) Financial assets at fair value through profit or loss: This category includes financial assets held for trading and financial assets designated upon initial recognition as at fair value through profit or loss

11 NOTE 2:- BASIS OF PREPARATION (Cont.) The Combined Entities assess the existence of an embedded derivative and whether it is required to be separated from a host contract when the Combined Entities first become party to the contract. Reassessment of the need to separate an embedded derivative only occurs if there is a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required. Derivatives, including embedded derivatives separated from the host contract, are classified as held for trading unless they are designated as effective hedging instruments. In the event of a financial instrument that contains one or more embedded derivatives, the entire combined instrument is designated as a financial asset at fair value through profit or loss only upon initial recognition. b) Loans and receivables: 2. Financial liabilities: Loans and receivables are investments with fixed or determinable payments that are not quoted in an active market. After initial recognition, loans are measured based on their terms at amortized cost less directly attributable transaction costs using the effective interest method, and less any impairment losses. Financial liabilities are initially recognized at fair value. Loans and other liabilities measured at amortized cost are presented net of directly attributable transaction costs. After initial recognition, the accounting treatment of financial liabilities is based on their classification as follows: a) Financial liabilities at amortized cost: After initial recognition, loans and other liabilities are measured based on their terms at cost less directly attributable transaction costs using the effective interest method. b) Financial guarantee contracts: Financial guarantee contracts are initially recognized at fair value, taking into account transaction costs that are directly attributable to the issue of the guarantee. After initial recognition, the liability is measured at the higher of the amount initially recognized (less, if appropriate, cumulative amortization over the period of the guarantee) and the estimate of any obligation to be recorded at the reporting date in accordance with IAS Offsetting financial instruments: Financial assets and financial liabilities are offset and the net amount is presented in the statement of financial position if there is a legally enforceable right to set off the recognized amounts and there is an intention either to settle on a net basis or to realize the asset and settle the liability simultaneously

12 NOTE 2:- BASIS OF PREPARATION (Cont.) The right of set-off must be legally enforceable not only during the ordinary course of business of the parties to the contract but also in the event of bankruptcy or insolvency of one of the parties. In order for the right of set-off to be currently available, it must not be contingent on a future event, there may not be periods during which the right is not available, or there may not be any events that will cause the right to expire. 4. De-recognition of financial instruments: a) Financial assets: A financial asset is derecognized when the contractual rights to the cash flows from the financial asset expire or the Combined Entities have transferred their contractual rights to receive cash flows from the financial asset or assume an obligation to pay the cash flows in full without material delay to a third party. b) Financial liabilities: A financial liability is derecognized when it is extinguished, that is when the obligation is discharged or cancelled or expires. A financial liability is extinguished when the debtor (the Combined Entities) discharges the liability by paying in cash, other financial assets, goods or services; or is legally released from the liability. 5. Impairment of financial assets: The Combined Entities assess whether there is any objective evidence of impairment of a financial asset or groupof financial assets at the end of each reporting period as follows: Financial assets carried at amortized cost: Objective evidence of impairment exists when one or more events that have occurred after initial recognition of the asset have a negative impact on the estimated future cash flows. The amount of the loss recorded in profit or loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not yet been incurred) discounted at the financial asset's original effective interest rate k. Fair value measurement: Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Combined Entities use valuation techniques that are appropriate in the circumstances and for which sufficient data is available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs. All assets and liabilities measured at fair value or for which fair value is disclosed are categorized into levels within the fair value hierarchy based on the lowest level input that is significant to the entire fair value measurement:

13 NOTE 2:- BASIS OF PREPARATION (Cont.) Level 1 Level 2 Level 3 - quoted prices (unadjusted) in active markets for identical assets or liabilities. - inputs other than quoted prices included within Level 1 that are observable either directly or indirectly. - inputs that are not based on observable market data (valuation techniques which use inputs that are not based on observable market data). l. Revenue recognition: Revenues are recognized in profit or loss when the revenues can be measured reliably, it is probable that the economic benefits associated with the transaction will flow to the Combined Entities and the transaction costs incurred or to be incurred can be measured reliably. Revenues are measured at the fair value of the consideration less any trade discounts, volume rebates and returns. The following are the specific revenue recognition criteria which must be met before revenue is recognized: Rental income: Rental income arising from operating leases on investment properties is accounted for on a straight-line basis over the lease term. Operating lease terms for the Combined Entities investment residential properties are generally one year or less. Rental income attributable to residential leases is recorded when due from tenants and is recognized monthly as it is earned, which is not materially different than on a straight-line basis. Lease terms for the Combined Entities commercial investment properties generally range from three to ten years. The Combined Entities accrue contingent rents as revenue (such as rentals based on sales of a lessee) only when the thresholds have been achieved. Certain lease agreements provide index rental increases which are recognized on a straight-line basis. Certain lease agreements also provide for the reimbursement of real estate taxes, water, electricity and common area maintenance costs paid by tenants. The reimbursements are recorded as recoveries revenue. m. Borrowing costs: The Combined Entities capitalize borrowing costs that are attributable to the acquisition, construction or production of qualifying assets which necessarily take a substantial period of time to get ready for their intended use or sale. The capitalization of borrowing costs commences when expenditures for the asset are incurred, the activities to prepare the asset are in progress and borrowing costs are incurred and ceases when substantially all the activities to prepare the qualifying asset for its intended use or sale are complete. The amount of borrowing costs capitalized in the reporting period includes specific borrowing costs and general borrowing costs based on a weighted capitalization rate. n. Selling and marketing expenses: The Combined Entities expense advertising costs as incurred. o. Provisions: A provision in accordance with IAS 37 is recognized when the Combined Entities have 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

14 NOTE 2:- BASIS OF PREPARATION (Cont.) p. Taxes Following are the types of provisions included in the financial statements: Legal claims: A provision for claims is recognized when the Combined Entities have a present legal or constructive obligation as a result of a past event, it is more likely than not that an outflow of resources embodying economic benefits will be required by the Combined Entities to settle the obligation and a reliable estimate can be made of the amount of the obligation. According to the relevant US tax laws, the Combined Entities are considered "pass through" Entities. Accordingly, no provision has been made for federal and state income taxes or income tax benefits in the accompanying financial statements as taxable income and losses are reported in the tax return of the shareholders. NOTE 3:- SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS USED IN THE PREPARATION OF THE FINANCIAL STATEMENTS AND DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTION Significant accounting judgments, estimates and assumptions used in the preparation of the financial statements: In the process of applying the significant accounting policies, the Combined Entities have made the following judgments which have the most significant effect on the amounts recognized in the financial statements: a. Judgments: - Classification of leases: In order to determine whether to classify a lease as a finance lease or an operating lease, the Combined Entities evaluate whether the lease transfers substantially all the risks and benefits incidental to ownership of the asset. In this respect, the Combined Entities evaluate such criteria as the existence of a bargain purchase option, the lease term in relation to the economic life of the asset and the present value of the minimum lease payments in relation to the fair value of the asset. - Rental income: Certain lease agreements provide for the reimbursement of real estate taxes, water, electricity and common area maintenance costs paid by tenants. If the Combined Entities determine that they act as an agent and not a principal, the Combined Entities account for such leases on the net basis. b. Estimates and assumptions: The preparation of the financial statements requires management to make estimates and assumptions that have an effect on the application of the accounting policies and on the reported amounts of assets, liabilities, revenues and expenses

15 NOTE 3:- SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS USED IN THE PREPARATION OF THE FINANCIAL STATEMENTS AND DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTION (CONT) The key assumptions made in the financial statements concerning uncertainties at the reporting date and the critical estimates computed by the Combined Entities that may result in a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below: - Investment property: Investment property that can be reliably measured is presented at fair value at the reporting date. Changes in its fair value are recognized in profit or loss. Fair value is determined generally by external independent valuation specialists using valuation techniques and assumptions as to estimates of projected future cash flows from the property and estimate of the suitable discount rate for these cash flows. When possible, fair value is determined based on recent real estate transactions with similar characteristics and location of the valued property. c. Disclosure of new standards in the period prior to their adoption: 1. IFRS 15, "Revenue from Contracts with Customers": a) In May 2014, the IASB issued IFRS 15 ("IFRS 15"). IFRS 15 replaces IAS 18, "Revenue", IAS 11, "Construction Contracts", IFRIC 13, "Customer Loyalty Programs", IFRIC 15, "Agreements for the Construction of Real Estate", IFRIC 18, "Transfers of Assets from Customers" and SIC-31, "Revenue - Barter Transactions Involving Advertising Services". The IFRS 15 introduces a five-step model that will apply to revenue earned from contracts with customers. IFRS 15 is to be applied retrospectively for annual periods beginning on or after January 1, Early adoption is permitted. The Combined Entities are evaluating the possible impact of IFRS 15 but are presently unable to assess its effect, if any, on the financial statements. 2. IFRS 9, "Financial Instruments": a) In July 2014, the IASB issued the final and complete version of IFRS 9, "Financial Instruments" ("IFRS 9"), which replaces IAS 39, "Financial Instruments: Recognition and Measurement". According to IFRS 9, all financial should be measured at fair value upon initial recognition. In subsequent periods, debt instruments should be measured at amortized cost only if both of the following conditions are met: - the asset is held within a business model whose objective is to hold assets in order to collect the contractual cash flows

16 NOTE 3:- SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS USED IN THE PREPARATION OF THE FINANCIAL STATEMENTS AND DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTION (CONT.) - the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. Subsequent measurement of all other debt instruments and financial assets should be at fair value. Financial assets that are equity instruments should be measured in subsequent periods at fair value and the changes recognized in profit or loss or in other comprehensive income (loss). According to IFRS 9, the provisions of IAS 39 will continue to apply to derecognition and to financial liabilities for which the fair value option has not been elected. IFRS 9 also prescribes new hedge accounting requirements. IFRS 9 is to be applied for annual periods beginning on January 1, Early adoption is permitted. The Combined Entities are evaluating the possible impact of the amendments to IFRS 9 but are presently unable to assess their effect, if any, on the financial statements. 3. Amendments to IAS 7, "Statement of Cash Flows", regarding additional disclosures of financial liabilities: a) In January 2016, the IASB issued amendments to IAS 7, "Statement of Cash Flows", ("the amendments") which require additional disclosures regarding financial liabilities. The amendments require disclosure of the changes between the opening balance and the closing balance of financial liabilities, including changes from cash flows, changes arising from obtaining or losing control of subsidiaries, the effect of changes in foreign exchange rates and changes in fair value. The amendments are effective for annual periods beginning on or after January 1, Comparative information for periods prior to the effective date of the amendments is not required. Early application is permitted. The Combined Entities will include the necessary disclosures in the financial statements when applicable

17 NOTE 4:- INVESTMENT PROPERTY a. Investment property consists of a mixed-use rental property under construction. The property will consist of 598 residential units, 20% of which will be designated as affordable housing, 93,000 square feet of community facility space and 6,400 square feet of retail space b. Movement: December 31, Opening balance 235,464 - Acquisitions 30, ,464 *) Capital expenditures 157,940 - Revaluation of investment property 104,030 - *) Contributed by Extell 4110 LLC. 527, ,464 c. Investment property is stated at fair value which has been determined based on valuations performed by Cushman & Wakefield, Inc., an independent external valuation expert who holds a recognized and relevant professional qualification and which has experience in the location and category of the property being valued. The fair value was determined with reference to recent real estate transactions for similar properties in the same location as the property owned by the Combined Entities and based on the expected future cash flows from the property. In assessing cash flows, their risk is taken into account by using a an investment yield that reflects the property s underlying risks supported by the standard yield in the real estate market and by including adjustments for the specific characteristics of the property and the level of future income therefrom. The fair value of investment property under construction is either determined on the basis of the residual or the discounted cash flow (DCF) methods, as deemed appropriate by the valuation expert. The estimated fair value is based on the expected future income from the completed project using yields adjusted for the appropriate risks which are relevant to the construction process, including construction costs and rent or sale prices that are higher than the current yields of similar completed property. The remaining expected cost of completion plus development profit are deducted from the estimated future income in order to determine the market value. The fair value measurement is classified as level 3 in the fair value hierarchy. d. The following main inputs have been used: Significant assumptions (on the basis of weighted averages) used in the valuations are presented below: December 31, Value of ground lease ($) / buildable square footage Discount rate of the ground lease payment 6% 6% As for commitment relating to lease of investment property see note

18 NOTE 4:- INVESTMENT PROPERTY (Cont.) e. The table below presents the sensitivity of the valuation to changes in the most significant assumptions underlying the valuation of investment properties. December 31, Increase of 10% in the value per buildable square foot 27,000 30,000 Decrease of 10% in the value of per buildable square foot (27,000) (20,000) Increase in discount rate applied to ground lease payments of 25 bps (4,000) (3,000) Decrease in discount rate applied to ground lease payments of 25 bps 4,000 4,000 NOTE 5:- PREPAID EXPENSES AND OTHER ASSETS The components of prepaid expenses and other assets are as follows: December 31, Advances paid to suppliers 1, Other Total 1, NOTE 6:- RESTRICTED CASH Composition: December 31, Construction reserve 61,365 - Insurance reserve 4,687 4,279 Other 9 - Presentation: 66,061 4,279 Non-Current 61,365 - Current 4,696 4,279 66,061 4,

19 NOTE 7:- BORROWINGS The terms of the loans are as follows: Loans December 31, 2015 Current Borrowings Security Interest Rate Maturity Mortgage loan 65,000 Mortgage on investment property SIMFA 11/1/2049 Mortgage loan 120,000 Mortgage on investment property LIBOR 11/1/2049 Unamortized borrowing costs (9,133) 175,867 Loans December 31, 2014 Current Borrowings Security Interest Rate Maturity Mortgage loan 25,000 Mortgage on investment property LIBOR + 2.5% 3/2/2015 Unamortized borrowing costs (50) 24,450 The maturity *) of the carrying amounts of borrowings is as follows: December 31, Within one year - 24,950 Between 1 and 5 years - - Thereafter 175,867 - Total 175,867 24,950 The maturity *) of the principal and interest payments of the borrowings is as follows: December 31, Within one year 5,158 25,156 Between 1 and 2 years 5,158 - Between 2 and 3 years 5,158 - Between 3 and 4 years 5,158 - Between 4 and 5 years 5,158 - Thereafter 333,727 - Total 359,517 25,156 On March 26, 2015, the Combined Entities entered into an agreement with the New York State Housing Finance Authority (NYSHFA) whereby NYSHFA has committed to issue 325,000 of bonds to finance the construction of a mixed-use rental property located at 555 Tenth Avenue. The NYSHFA bonds require 20% of the units in the building to be affordable. The NYSHFA bonds will be issued in multiple series of which 260,000 will bear interest at LIBOR and 65,000 will bear interest based on the Security Industry and Financial Markets Association (SIMFA) Municipal Swap Index. All of the series will mature on November 1, 2049 and require payments of interest only through December 3, 2018 and principal payments thereafter through maturity. As of the reporting date, the Combined Entities have received 185,000 from the issuance of the NYSFHA bonds. On April 4, 2016, the Combined Entities received 140,000 from the issuance of the remaining NYSHFA bonds

20 NOTE 7:- BORROWINGS (cont.) In connection with the NYSHFA bonds, the Combined Entities also entered into a reimbursement agreement with a financial institution whereby the financial institution provided a credit enhancement in the form of a letter of credit that expires on March 26, The letter of credit bears a fee of 2.50% per annum on the amount of NYSHFA bonds issued and outstanding and is reduced to 1.90% upon stabilization. See Note 14 for fair value liens, guarantees and financial covenants. NOTE 8:- ACCOUNTS PAYABLE AND ACCRUED LIABILITIES December 31, Trade payables 8,554 6,795 Accrued expenses 18,401 9,767 Accrued interest Total 26,988 16,619 NOTE 9:- FINANCE LEASE The investment property under construction is ground leased by the Combined Entities for 99 years (96.5 years remaining). The finance lease obligation is payable as follows: December 31, 2015 December 31, 2014 Present value Future of minimum minimum lease lease payments payments Future minimum lease payments Present value of minimum lease payments Less than one year Second to fifth years 667 8, , After five years 380,112 47, ,312 45, ,245 47, ,245 45,464 Less: amount representing finance charges (341,277) - (343,781) - 47,968 47,968 45,464 45,464 The finance lease is effectively secured by the rights to the leased asset and will revert to the lessor in the event of default. The fair value of the finance lease is 58,000 and 56,000 for the years ended December 31, 2015 and 2014 respectively. This amount does not include any additional air rights acquired

21 NOTE 10:- RELATED PARTY TRANSACTIONS AND BALANCES The Combined Entities entered into the following related party transactions during 2015 which were measured at the exchange amounts: Name of related party December 31, 2015 Description of Service / Fee Terms Amount Due Amount Paid Tenth Avenue Developer LLC Developer Fee 3.5% of hard costs 6,996 6,996 NOTE 11:- COMMITMENTS AND CONTINGENCIES Litigation The Combined Entities from time to time are subject to routine claims and lawsuits in the ordinary course of business. In the opinion of management the ultimate disposition of these claims will not have a material adverse effect, if any on the Combined Entities. Guarantees A related party has guaranteed 55,000 of principal as well as interest, carrying costs and completion of construction under the reimbursement agreement. The principal guarantee will be reduced by 25,000 upon the execution of a lease with a third party for the community facility space and by 30,000 upon stabilization. NOTE 12:- FINANCIAL INSTRUMENTS Credit quality of financial assets Credit risk from balances with banks and financial institutions is immaterial. Financial risk management Financial risk factors The Combined Entities' activities expose them to various financial risks such as market risk (interest rate risk and price risk), credit risk and liquidity risk. The Combined Entities' comprehensive risk management plan focuses on activities that reduce to a minimum any possible adverse effects on the Combined Entities' financial performance. The accounting policy for these financial instruments is described in Note 2. The Combined Entities senior management oversees the management of these risks. Interest rate risk: The Combined Entities are exposed to the risk of changes in the market interest rates on loans with floating interest rates. The Combined Entities' policy is to manage the finance expenses relating to the interest by entering into interest rate caps and swaps as deemed prudent or as required by lenders. Credit risk: The Combined Entities have no significant concentrations of credit risk. The Combined Entities have a policy to ensure collection by only transacting with tenants with appropriate credit histories. The Combined Entities maintain cash, short-term deposits in various financial institutions. These financial institutions are located in the United States. The relative credit stability of the various financial institutions is evaluated on a regular basis. As of December 31, 2015, cash amounted to 1,084. All deposits are invested with high quality financial corporations in the United States

22 NOTE 12:- FINANCIAL INSTRUMENTS (CONT.) Fair Value The fair value of cash, deposits, accounts payable and accrued liabilities approximates their carrying amounts due to their short term nature. The table below is a comparison between the carrying amount and fair value of the Combined Entities financial instruments that are presented in the financial statements not at fair value. Fair value was determined based on the present value of future cash flows discounted using current interest rates. Carrying amount Fair value December 31, December 31, Loans from financial institutions and others (1) 175,867 24, ,981 25,000 Total 175,867 24, ,981 25,000 (1)The fair value measurement is classified as level 2 in the fair value hierarchy. Sensitivity tests relating to changes in market factors December 31, Sensitivity test to changes in the interest rate: 10% increase (1,080) - 5% increase (541) - 10% decrease 1,087-5% decrease Liquidity risk The Combined Entities monitor their risk of a shortage of funds using monthly and daily budget tools. The Combined Entities' objective is to maintain a balance between continuity of funding and flexibility through the use of overdrafts and bank loans. The Combined Entities monitor the maturity of borrowings closely in order to ensure that all borrowings due within the next 12 months will either be refinanced or repaid. Market risk Price risk The Combined Entities are exposed to rental market risks. The Combined Entities are not exposed to the market risk with respect to financial instruments as it does not hold any equity securities

23 NOTE 12:- FINANCIAL INSTRUMENTS (CONT.) Cash flow and fair value interest rate risk Interest rate risk The Combined Entities interest rate risk arises from loans (Note 7) issued at variable rates. The Combined Entities policy is to manage the finance expense related to interest by entering into interest rate caps and swaps as deemed prudent or as required by lenders. In connection with the loans discussed in Note 7, in the event that LIBOR exceeds 3.00% for 30 consecutive days, the Combined Entities are required to purchase a series of rate caps with a maximum strike price of 3.50% with a total notional equal to 260,000. In the event that SIMFA exceeds 2.75% for 30 consecutive days the Combined Entities are required to purchase a series of rate caps for a maximum strike price of 3.25% with a total notional equal to 65,000. The Combined Entities cash flow and fair value interest rate risk is periodically monitored by the Combined Entities management. The Combined Entities analyze the effects of fluctuations in the prevailing levels of market interest rates on its financial position and cash flows. Interest costs may increase as a result of such changes. They may reduce or create losses in the event that unexpected movements arise. Various scenarios are simulated taking into consideration refinancing, renewal of existing positions, alternative financing and hedging. Based on these scenarios, the Combined Entities calculate the impact on profit and loss of a defined interest rate shift. The scenarios are run only for liabilities that represent the major interest-bearing positions. Accounts payable and accrued liabilities are interest-free and have settlement dates within one year. A 1.0% increase in prevailing interest rates would decrease profit by immaterial amounts for the years ended December 31, 2015 and 2014 respectively. Capital risk management The Combined Entities capital consists of borrowings and shareholder s equity. The Combined Entities manage capital to ensure it covers potential cost overruns and remains within its debt covenants. The Combined Entities monitor capital primarily using both a loan to value ratio and a debt service coverage ratio