Dear Shareholders, What we did in 2017 This year, we continued the realization of the business plan we outlined at the beginning of 2016, namely, simplifying the company structure, increasing our private real estate portfolio as a percentage of our total portfolio, and lowering the company’s leverage. North America In March 2017, the merger between Equity One and Regency Centers was completed, forming the largest shopping center company in the United States. Upon completion of the merger, we sold, for the first time, shares of a public A brief summary of our year-end results company that we founded, achieving a levered IRR of approximately 21%* over our 25-year investment. Additionally, we sold shares of First Gazit-Globe had an excellent year in 2017. Our Capital Realty, our Canadian business which we FFO per share rose by approximately 19%, to grew and improved over 17 years, achieving a NIS 3.58, compared to NIS 3.02 per share in levered IRR of approximately 20%*. 2016. Meanwhile, the equity per share as of the end of 2017 totalled approximately NIS 51.4 per In June, we founded Gazit Horizons, which share, compared to NIS 41.7 per share at the end serves as our private investment arm in the U.S. of 2016, an increase of approximately NIS 1.8 We recruited a U.S. regional team of Equity One billion (22%), despite the ongoing appreciation of alumni who have deep experience in the markets the shekel vis-à-vis other currencies in which we in which we are active. Since then, we have have investments. At the same time, we lowered purchased three properties, one each in New our leverage level (expanded solo) to York, Miami and Boston, for a total investment of approximately 53.4% compared to 62% in 2016. approximately NIS 450 million. We intend to The net rent from same properties in NIS rose by continue growing this portfolio to achieve a scope approximately 3.4%, while our occupancy rate of approximately $2 billion-$3 billion of remained high, rising from 95.5% at the end of investments within 3-5 years. 2016 to 96.1% this year. The net income attributable to equity holders of the Company At the beginning of 2018, and after the U.S. tax totalled approximately NIS 493 million per share, reforms went into effect lowering corporate tax and after neutralizing the impact of capital rates from 35% to 21%, we sold approximately reserves from translation of foreign operations 4.4 million shares of Regency Centers, for reclassified due to deconsolidation, approximately $258 million of proceeds; as of the approximately NIS 2,533 million. date of this letter, we hold approximately 8.2% of Regency Centers’ shares. We also achieved an additional profit of approximately $48 million from the equity derivatives positions we entered into * IRR calculation is based on management analysis of Gazit Globe’s levered return on its investment in local currency. on a basket of shares of real estate companies Moreover, it has additional approved (unrelated to Regency Centers) in the U.S. These development rights of approximately 200,000 share sales were meant to serve two aims: sq.m. The deal is worth almost NIS 1 billion, half lowering the company’s leverage, and financing of which was funded from free cash flow at Gazit investments in North America. Brasil and cash from the disposition of Extra Itaim. Upon completion of the transaction, Gazit Brasil will become one of the three leading real estate players in Sao Paulo. We are continuing to improve our portfolio in Brazil, including expansion of existing properties, acquisitions of adjacent properties that are complementary to existing properties, and replacement of tenants. As the Brazilian economy recovers, this investment will serve as another major growth engine for the Group. 401 East 60th St., Manhattan New York, Brazil This year, we doubled our NOI to approximately NIS 130 million in Brazil, where our focus is on the city of Sao Paulo, the business capital of South America – a growing metropolis with 22 million residents. Active real estate management activities led to a year-over-year increase of Shopping Light, Sao Paulo, Brazil approximately 9.2% in same property NOI. Steps taken included replacing a large number of Israel tenants (in some cases as many as 100% of them) and the completion of the construction of We are continuing with the expansion of our Morumbi Town shopping center, which led to a property portfolio in Gush Dan (the Tel Aviv significant increase in overall NOI from our metropolitan area). This year, we continued with portfolio. For example, at Top Center, a property the development of G City in Rishon Lezion. The located on Paulista Boulevard, Sao Paulo’s main western part of the property completed a massive thoroughfare, we increased NOI at acquisition by renovation that was highlighted by the successful approximately 70%, while the yield grew from opening of Decathlon’s first flagship store in approximately 6.5% to 9% today. Israel. At the same time, we are in the midst of building additional commercial space that, upon In addition, we sold one of our investment completion, will make G City an approximately properties, Extra Itaim, for approximately 350 80,000 sq.m. shopping center with an additional million Real and achieved a profit of approximately 50,000 sq.m of retail and office approximately 140 million Real, resulting in an development rights. G City is focused on leisure annual unlevered IRR of approximately 25%. and entertainment, with an emphasis on Near the end of the year, we signed an providing necessity-based shopping and services agreement to purchase one of the most for the densely populated area that surrounds it. significant properties in the Sao Paulo Near the end of the year, Gazit Israel signed an metropolitan area. The Internacional shopping agreement to acquire a property under center, with GLA of approximately 77,000 sq.m., construction at Kokhav Hatzafon for is located on the highway to the airport, which approximately NIS 105 million, which will carries about 850,000 vehicles per day. With complement our urban property portfolio in Tel 800,000 residents who live within a 5-kilometer Aviv, along with G Tzameret and G Tel Baruch – radius of the property, the center draws in 30 all of which are located in densely populated million visitors a year and generates an annual neighbourhoods with very strong demographics. turnover of approximately 1 billion Real. G City, Rishon Lezion, Israel Northern Europe We sold 14 properties in secondary cities in Finland and Norway, for approximately 325 million Euro, and invested in the purchase of an Iso-Omena, Espoo, Helsinki, Finland office building adjacent to a property under our ownership in Bergen, Norway, and in projects in Denmark and in Mölndal Galleria in Gothenburg, Central Europe Sweden, both of which are anticipated to open in 2018. In addition, in Lippulaiva in Espoo, one of This year, we sold our portfolio in Hungary and the wealthiest and fastest-growing areas in the invested in expansion of the existing property Helsinki metropolis, we invested in the complete portfolio in Warsaw, in which we will invest redevelopment (demolition and reconstruction) of approximately 300 million Euro by the end of the property as part of a new metro station 2021. We are adding approximately 60,000 sq.m. complex in the heart of a residential area. The of GLA at three properties: Targowek will grow by development, at a cost of approximately 310 approximately 8,600 sq.m. when the million Euro, is expected to be completed in 2020. development is completed at the end of 2018; In April this year, we completed the development Reduta will expand by approximately 5,600 of our flagship property in Northern Europe, Iso sq.m., with additions including a cinema, a fitness Omena, which is also located in Espoo, where we center and a food court; and Atrium Promenada, have approximately 101,000 sq.m of GLA, with the company’s flagship property, is set to be an occupancy rate of approximately 97% and enlarged by approximately 44,000 sq.m., of approximately 15 million visitors per year. In which 7,600 sq.m. were completed this year and November, the new metro station at Iso Omena included the opening of an innovative Carrefour was opened, with a line leading to Helsinki city- and TK Maxx. We will continue with these center, among other places; since then, the activities in 2018 and we expect to exit from number of visitors has increased by over 30%, as additional territories. total turnover climbed by approximately 40% and the turnover of existing tenants grew by more than 12%. Atrium Promenada, Warsaw, Poland form a self-feeding loop that leads to sustained Our Strategy and Execution growth. At the same time, we will continue to adjust our tenant mix in order to integrate a range Increasing our “Private Collection” of real estate of uses that are ecommerce-resistant, such as directly held through our private subsidiaries and dining, leisure activities, health and personal focusing on the direct acquisition of commercial services and fitness centers, in addition to properties that have high barriers to entry and are supermarkets and other necessity-based located in densely populated areas of central shopping, which we believe will continue to attract cities worldwide – urban hubs where people work, daily customers far into the future. live and play – are central tenets of our long-term strategy. Indeed, as of the end of this year, We are seeing that the income-producing real approximately 69% of the Gazit-Globe asset estate industry has ceased being a “spread portfolio is concentrated in 14 such cities, investment” and is becoming a business for all including Stockholm, Warsaw, Prague, Helsinki, purposes.