UNITED
STATESSECURITIES AND EXCHANGE COMMISSIONWashington, DC 20549



FORM 20-F



☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934



or



☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For the fiscal year ended December 31,
2016



or



☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



or



☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



Commission
file number: 001-35378



GAZIT-GLOBE
LTD.

(Exact name of registrant as specified in its charter)



Israel

(Jurisdiction of incorporation or organization)



1 Hashalom Rd.

Tel-Aviv
67892, Israel

(972)(3) 694-8000

(Address of principal executive offices)



Adi Jemini,

Chief Financial Officer

Tel: (972)(3) 694-8000

Email: ajemini@gazitgroup.com



1
Hashalom Rd. Tel-Aviv 67892, Israel

(Name, telephone, email and/or facsimile number and address of company contact person)



Securities
registered or to be registered pursuant to Section 12(b) of the Act:



|Title
        of each class                       |  | Name
        of each exchange on which registered
|------------------------------------------------- |  | -------------------------------------------------
|Ordinary
    Shares, par value NIS 1.00 per share |  | New
    York Stock Exchange                      



Securities
registered or to be registered pursuant to Section 12(g) of the Act: None



Securities for which there is a reporting obligation
pursuant to Section 15(d) of the Act: None










Indicate
the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period
covered by the annual report: 195,550,414 Ordinary Shares, par value NIS 1.00 per share (excluding Treasury Shares).



Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☒ Yes ☐ No



If
this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934. ☐ Yes ☒ No











Indicate
by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No



Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). N/A



Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or an emerging
growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging
growth company” in Rule 12b-2 of the Exchange Act (check one).



Large
Accelerated Filer ☒     Accelerated Filer ☐     Non-Accelerated Filer ☐     Emerging Growth Company ☐



If
an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the
registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards†provided pursuant to Section 13(a) of the Exchange Act. ☐










†
The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards
Board to its Accounting Standards Codification after April 5, 2012.



Indicate
by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:



| | U.S.
    GAAP  ☐ | International
    Financial Reporting Standards as issued by the International Accounting 
    Standards Board   ☒ | Other  ☐
| | ---------------- | ------------------------------------------------------------------------------------------------------------------ | --------



If
“Other” has been checked in response to the previous question, indicate by check mark which financial statement item
the registrant has elected to follow: Item 17 ☐ Item 18 ☐



If
this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act): ☐ Yes ☒ No


















GAZIT-GLOBE
LTD.










FORM
20-F



ANNUAL
REPORT FOR THE FISCAL YEAR ENDED DECEMBER 31, 2016










TABLE
OF CONTENTS



|Introduction
    and Use of Certain Terms | ii           
|----------------------------------------- | -------------
|Forward-Looking
    Statements            | iv           
|                                          | Item
    1.  
|                                          | Item
    2.  
|                                          | Item
    3.  
|                                          | Item
    4.  
|                                          | Item
    4A. 
|                                          | Item
    5.  
|                                          | Item
    6.  
|                                          | Item
    7.  
|                                          | Item
    8.  
|                                          | Item
    9.  
|                                          | Item
    10. 
|                                          | Item
    11. 
|                                          | Item
    12. 
|PART
    II                               |              
|                                          | Item
    13. 
|                                          | Item
    14. 
|                                          | Item
    15. 
|                                          | Item
    16. 
|                                          | Item
    16A.
|                                          | Item
    16B.
|                                          | Item
    16C.
|                                          | Item
    16D.
|                                          | Item
    16E.
|                                          | Item
    16F.
|                                          | Item
    16G.
|                                          | Item
    16H.
|PART
    III                              |              
|                                          | Item
    17. 
|                                          | Item
    18. 
|                                          | Item
    19. 
|Signatures                                |              



i







Introduction
and Use of Certain Terms



Unless
otherwise indicated, all references to (i) “we,” “us,” or “our,” are to Gazit-Globe Ltd. and,
where applicable, its investees, and (ii) “Gazit-Globe” or the “Company” are to Gazit-Globe Ltd., not
including any of its investees.



Except
where the context otherwise requires, references in this annual report to:



| | ● | “Adjusted
                                         EPRA Earnings” means EPRA Earnings, as adjusted for:
| | - | -------------------------------------------------------------------------------------------------------



| | ○ | Consumer
                                         Price Index (or “CPI”);
| | - | -------------------------------------------------------------------------



| | ○ | depreciation
                                         and amortization;
| | - | -----------------------------------------------------------------------



| | ○ | expenses
                                         arising from the termination of engagements with senior Group officers;
| | - | -------------------------------------------------------------------------------------------------------------------------



| | ○ | expenses
                                         and income from extraordinary legal proceeding not related to the reporting periods (including
                                         provision for legal proceedings);
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ○ | income
                                         and expenses from operations not related to income producing property (including the
                                         results of Luzon Group through January 2016) and the cost of debt with respect thereto;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ○ | non-recurring
                                         expenses with respect to reorganization; and
| | - | ---------------------------------------------------------------------------------------------------



| | ○ | internal
                                         leasing costs (mainly salary) incurred in the leasing of properties.
| | - | ----------------------------------------------------------------------------------------------------------------------



| | ● | “Average
                                         annualized base rent” refers to the average minimum rent due under the terms of
                                         applicable leases on an annualized basis.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | “Community
                                         shopping center” means a center that offers general merchandise or convenience-oriented
                                         offerings with gross leasable area (or “GLA”) between 100,000 and 350,000
                                         square feet, between 15 and 40 stores and two or more anchors, which are typically discount
                                         stores, supermarkets, drugstores, and large-specialty discount stores, based on the definition
                                         published by the International Council of Shopping Centers.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | “Consolidated”
                                         refers to the Company and entities that are consolidated in the Company’s financial
                                         statements.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | “EPRA
                                         Earnings” means the net income (loss) attributable to the equity holders of a company
                                         with certain adjustments for non-operating items, which are affected by the fair value
                                         revaluation of assets and liabilities, primarily adjustments to the fair value of investment
                                         property, investment property under development, land and other investments, various
                                         capital gains and losses, gain (loss) from early redemption of liabilities and financial
                                         derivatives, gains from bargain purchase, the impairment of goodwill, changes in the
                                         fair value recognized with respect to financial instruments (including derivatives),
                                         deferred taxes and current taxes with respect to disposal of properties, our share in
                                         investees and acquisition costs recognized in profit and loss, as well as non-controlling
                                         interests’ share with respect to the above items.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | “Equity-accounted
                                         investees” means investments presented on an equity method basis, which are not
                                         consolidated in the Company’s financial statements.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | “GLA”
                                         means gross leasable area.
| | - | -------------------------------------------------------------------------



| | ● | “Group”
                                         means the Company, its subsidiaries, its equity-accounted investees and jointly-controlled
                                         entities.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | “Investees”
                                         means subsidiaries, jointly-controlled entities, equity-accounted investees and, after
                                         March 1, 2017, Regency.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | “Jointly-controlled
                                         entities” means joint ventures and joint operations in which the Company or its
                                         subsidiaries are engaged, which currently include First Capital’s joint venture
                                         with Main and Main Developments LP, Citycon’s joint venture with the Canada Pension
                                         Plan Investment Board (“CPPIB”) in the Kista Galleria Shopping Center located
                                         in Stockholm, Sweden and Atrium’s joint venture with the Otto family in the Arkády
                                         Pankrác Shopping Center located in Prague, the Czech Republic.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | “Neighborhood
                                         shopping center” means a center that is designed to provide convenience shopping
                                         for the day-to-day needs of consumers in its immediate neighborhood with GLA between
                                         30,000 and 150,000 square feet and between five and 20 stores and is typically anchored
                                         by one or more supermarkets, based on the definition published by the International Council
                                         of Shopping Centers.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | “NOI”
                                         means net operating income.
| | - | --------------------------------------------------------------------------



| | ● | “Norstar”
                                         means Norstar Holdings Inc. (TASE: NSTR), formerly known as Gazit Inc., which owned 50.6%
                                         of our issued ordinary shares as of April 10, 2017.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





ii







| | ● | “Regency”
                                         means Regency Centers Corporation (NYSE: REG), into which Equity One was merged in March
                                         2017.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | “Reporting
                                         date” or “balance sheet date” means December 31, 2016.
| | - | ----------------------------------------------------------------------------------------------------------



| | ● | “Same
                                         property NOI” means the change in net operating income for properties that were
                                         owned for the entirety of both the current and prior reporting periods (excluding expanded
                                         and redeveloped properties and the impact of currency exchange rates).
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



As
of December 31, 2016 our principal subsidiaries were:



| | ● | “Atrium”
                                         means Atrium European Real Estate Limited (VSE/EURONEXT:ATRS), consolidated as of January
                                         2015, which owns and operates shopping centers in Central and Eastern Europe.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | “Citycon”
                                         means Citycon Oyj. (NASDAQ OMX HELSINKI:CTY1S), which owns and operates shopping centers
                                         in Northern Europe.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | “Dori
                                         Construction” means U. Dori Construction Ltd. and its subsidiaries.
| | - | ------------------------------------------------------------------------------------------------------------------



| | ● | “Luzon
                                         Group” means Amos Luzon Development and Energy Group Ltd. (TASE:LUZN) (formerly
                                         U. Dori Group Ltd. (TASE: DORI)) and its subsidiaries, which controls Dori Construction
                                         and Dori Construction’s subsidiaries and related companies. Gazit Development held
                                         approximately 84.9% of Luzon Group until January 2016, when it sold its entire stake.
                                         Consequently, commencing in the first quarter of 2016, Luzon Group’s operations
                                         are no longer consolidated as an operating segment in our financial statements and are
                                         presented in our audited consolidated financial statements included elsewhere in this
                                         annual report as discontinued operations. For additional details refer to Note 9(g) to
                                         our audited consolidated financial statements included elsewhere in this annual report.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | “Equity
                                         One” means Equity One, Inc., which owns and operates shopping centers in the United
                                         States. Effective as of March 1, 2017, Equity One completed its merger with and into
                                         Regency (the “Regency Merger”), and is presented in our audited consolidated
                                         financial statements included elsewhere in this annual report as a discontinued operation.
                                         Regency will not be consolidated into our financial statements in 2017 and instead we
                                         will present the investment as an available-for-sale financial asset.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | “First
                                         Capital” means First Capital Realty Inc. (TSX:FCR) which owns and operates shopping
                                         centers in Canada. As a result of our sale of common shares of First Capital in March
                                         2017, we deconsolidated First Capital from our financial statements and present the investment
                                         on an equity method basis as of March 2017.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | “Gazit
                                         Brasil” means Gazit Brasil Ltda. and Fundo De Investimento Multimercado Norstar
                                         Credito Privado which owns and operates shopping centers in Brazil.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | “Gazit
                                         Development” means Gazit-Globe Israel (Development) Ltd., which owns properties
                                         in Israel and Eastern Europe, which wholly-owns Gazit Development (Bulgaria) and held
                                         84.9% of Luzon Group until January 2016.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | “Gazit
                                         Germany” means Gazit Germany Beteiligungs GmbH & Co. KG which owns and operates
                                         shopping centers in Germany.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | “ProMed”
                                         means ProMed Properties Inc., which owned and operated medical office buildings in the
                                         United States until August 2015.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Presentation
of Financial Information



Our
audited consolidated financial statements included elsewhere in this annual report have been prepared in accordance with International
Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”).



Unless
otherwise noted, all monetary amounts are in New Israeli Shekel (or “NIS”), and for the convenience of the reader
certain NIS amounts have been translated into U.S. dollars at the rate of NIS 3.845 = U.S.$ 1.00, based on the daily representative
rate of exchange between the NIS and the U.S. dollar reported by the Bank of Israel on December 31, 2016. References herein to
(i) “NIS” mean the legal currency of Israel, (ii) “U.S.$,” “$,” “U.S. dollar”
or “dollar” mean the legal currency of the United States, (iii) “Euro,” “EUR” or “€”
mean the currency of the participating member states in the third stage of the Economic and Monetary Union of the Treaty establishing
the European community, (iv) “Canadian dollar” or “C$” mean the legal currency of Canada, and (v) “BRL”
mean the legal currency of Brazil.



We
also refer in various places within this annual report to non-IFRS measures, including NOI, Adjusted EBITDA, EPRA Earnings, Adjusted
EPRA Earnings, EPRA NAV and EPRA NNNAV. For definitions and reconciliations of NOI, Adjusted EBITDA, EPRA Earnings, Adjusted EPRA
Earnings, EPRA NAV and EPRA NNNAV and statements disclosing the reasons why our management believes that their presentation provides
useful information to investors and, to the extent material, any additional purposes for which our management uses them, see “Item
5—Operating and Financial Review and Prospects”. The presentation of these non-IFRS measures is not meant to be considered
in isolation or as a substitute for our consolidated financial results prepared in accordance with IFRS as issued by the IASB.



iii







Forward-Looking
Statements



We
make forward-looking statements in this annual report that are subject to risks and uncertainties. These forward-looking statements
include, but are not limited to, information about possible or assumed future results of our business, financial condition, results
of operations, liquidity, plans and objectives. In some cases, you can identify forward-looking statements by terminology such
as “believe,” “may,” “could,” “estimate,” “continue,” “anticipate,”
“intend,” “should,” “plan,” “expect,” “predict,” “potential,”
or the negative of these terms or other similar expressions. The forward-looking statements contained in this annual report reflect
our views as of the date of this annual report about future events and are subject to risks, uncertainties, assumptions and changes
in circumstances that may cause events or our actual activities or results to differ significantly from those expressed in any
forward-looking statement. Although we believe that the expectations reflected in the forward-looking statements are reasonable,
we cannot guaranty future events, results, actions, levels of activity, performance or achievements. You are cautioned not to
place undue reliance on these forward-looking statements. Some of the risks, uncertainties and other important factors that could
cause results to differ, or that otherwise could have an impact on us include, but are not limited to, the following:



| | ● | the
                                         economic performance and value of our shopping centers depend on many factors, each of
                                         which could have an adverse impact on our cash flows and operating results;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | economic
                                         conditions may make it difficult to maintain or increase occupancy rates and rents and
                                         a deterioration in economic conditions in one or more of our key regions could adversely
                                         impact our results of operations;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | we
                                         seek to expand through acquisitions of additional real estate assets, including other
                                         businesses. Such expansion may not yield the returns expected, may result in disruptions
                                         to our business, may strain management resources and may result in dilution to our shareholders
                                         or dilution of our interests in our subsidiaries and other investees;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | we
                                         are particularly dependent upon large tenants that serve as anchors in our shopping centers
                                         and decisions made by these tenants or adverse developments in their businesses could
                                         have a negative impact on our financial condition;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | online
                                         sales can have an adverse impact on our tenants and our business;
| | - | -----------------------------------------------------------------------------------------------------------------



| | ● | we
                                         have substantial debt obligations which may negatively affect our results of operations
                                         and financial position and put us at a competitive disadvantage;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | volatility
                                         in the credit markets may affect our ability to obtain or re-finance our indebtedness
                                         at a reasonable cost;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | the
                                         inability of any of our investees to satisfy their liquidity requirements may materially
                                         and adversely impact our results of operations;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | commencement
                                         of operations in new geographic markets and asset classes involves risks and may result
                                         in us investing significant resources without realizing a return and may adversely impact
                                         our future growth;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | if
                                         we are unable to obtain adequate capital, we may have to limit our operations substantially;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------



| | ● | future
                                         terrorist acts and shooting incidents could harm the demand for, and the value of, our
                                         properties;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | many
                                         of our real estate costs are fixed, even if income from our properties decreases;
| | - | -------------------------------------------------------------------------------------------------------------------------------



| | ● | our
                                         results of operations may be adversely affected by fluctuations in currency exchange
                                         rates and we may not have adequately hedged against them;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | we
                                         are subject to a disproportionate impact on our properties due to concentration in certain
                                         areas;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | certain
                                         emerging markets in which we have properties are subject to greater risks than more developed
                                         markets, including significant legal, economic and political risks; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | the
                                         other risks and uncertainties described under “Item 3—Key Information—Risk
                                         Factors” and elsewhere in this annual report.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Readers
are urged to read this annual report and carefully consider the risks, uncertainties and other factors that affect our business.
The information contained in this annual report is subject to change without notice, and we are not obligated to publicly update
or revise forward-looking statements. Readers should review future reports filed by us with the Securities Exchange Commission
(“SEC”).



Statistical
Data



This
annual report also includes statistical data regarding the commercial real estate rental industry. We generated some of this data
internally, and some was obtained from independent industry publications and reports what we believe to be reliable sources. We
have not independently verified this data nor sought the consent of any organizations to refer to their reports in this annual
report.



iv







|ITEM
    1. | IDENTITY
    OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
|----------- | ---------------------------------------------------------



Not
applicable.



|ITEM
    2. | OFFER
    STATISTICS AND EXPECTED TIMETABLE
|----------- | -------------------------------------------



Not
applicable.



|ITEM
    3. | KEY
INFORMATION
|----------- | ---------------



| | A. | Selected
                                         Financial Data
| | -- | ----------------------------------------------------------------



The
following tables set forth our selected consolidated financial data. You should read the following selected consolidated financial
data in conjunction with “Item 5—Operating and Financial Review and Prospects” and our audited consolidated
financial statements and related notes included elsewhere in this annual report. Historical results are not necessarily indicative
of the results that may be expected in the future. Our financial statements have been prepared in accordance with International
Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB.



The selected consolidated statement of income data set forth below for each of the years ended December 31,
2014, 2015, and 2016 and the selected consolidated balance sheet data set forth below as of December 31, 2015 and 2016 are derived
from our audited consolidated financial statements appearing in this annual report. For these periods, Equity One and Luzon Group
are presented in the consolidated statements of income data under discontinued operations, giving effect to the Regency Merger
in March 2017 and Gazit Development’s sale of its entire holding in Luzon Group in January 2016. Following the Regency Merger,
Equity One is presented in the consolidated statements of financial position as of December 31, 2016 under assets and liabilities
classified as held for sale. See Note 9(d) to our audited consolidated financial statements included elsewhere in this annual report.
The selected consolidated statement of income data for each of the years ended December 31, 2012 and 2013, and the selected consolidated
balance sheet data as of December 31, 2012, 2013 and 2014, are derived from our audited consolidated financial statements that
are not included in this annual report. The selected consolidated statements of income data for each of the years ended December
31, 2012 and 2013 have been reclassified to present Equity One and Luzon Group as discontinued operations, and such reclassification
has not been audited.



The
selected consolidated financial data set forth below should be read in conjunction with “Item 5—Operating and Financial
Review and Prospects” and our audited consolidated financial statements and notes to those statements for the years ended
December 31, 2014, 2015 and 2016 included elsewhere in this annual report. Historical results are not necessarily indicative of
future results. The following tables also contain translations of NIS amounts into U.S. dollars for amounts presented as of and
for the year ended December 31, 2016. These translations are solely for the convenience of the reader and were calculated at the
rate of NIS 3.845 = U.S.$ 1.00, the daily representative rate of exchange between the NIS and the U.S. dollar reported by the
Bank of Israel on December 31, 2016. You should not assume that, on that or on any other date, one could have converted these
amounts of NIS into dollars at that or any other exchange rate.



1









|                                                                                                 |  | Year Ended December 31, |       
|------------------------------------------------------------------------------------------------ |  | ----------------------- | ------
|                                                                                                 |  | 2012                    |       
|(In millions except for per share data)                                                          |  | NIS                     |       
|Statement of Income Data:                                                                        |  |                         |       
|Rental income                                                                                    |  |                         | 3,988 
|Property operating expenses                                                                      |  |                         | 1,363 
|Net operating rental income                                                                      |  |                         | 2,625 
|Revenues from sale of buildings (1)                                                              |  |                         | -     
|Cost of buildings sold (1)                                                                       |  |                         | -     
|Gross profit (loss) from sale of buildings, land and construction work performed                 |  |                         | -     
|Total gross profit                                                                               |  |                         | 2,625 
|Fair value gain (loss) on investment property and investment property under development, net (2) |  |                         | 1,400 
|General and administrative expenses                                                              |  |                         | (456  
|Other income                                                                                     |  |                         | 157   
|Other expenses                                                                                   |  |                         | (30   
|Company’s share in earnings of equity-accounted investees, net                                   |  |                         | 238   
|Operating income                                                                                 |  |                         | 3,934 
|Finance expenses                                                                                 |  |                         | (1,760
|Finance income                                                                                   |  |                         | 82    
|Income before taxes on income                                                                    |  |                         | 2,256 
|Taxes on income                                                                                  |  |                         | 476   
|Net income from continuing operations                                                            |  |                         | 1,780 
|Income from discontinued operations                                                              |  |                         | 633   
|Net income                                                                                       |  |                         | 2,413 
|Net income attributable to:                                                                      |  |                         |       
|Equity holders of the Company                                                                    |  |                         | 901   
|Non-controlling interests                                                                        |  |                         | 1,512 
|                                                                                                 |  |                         | 2,413 
|Basic net earnings (loss) per share from continuing operations                                   |  |                         | 4.72  
|Basic net earnings per share from discontinued operations                                        |  |                         | 0.74  
|Basic net earnings per share                                                                     |  |                         | 5.46  
|Diluted net earnings (loss) per share from continuing operations                                 |  |                         | 4.51  
|Diluted net earnings per share from discontinued operations                                      |  |                         | 0.74  
|Diluted net earnings per share                                                                   |  |                         | 5.25  





|                                                     |  | Year Ended December 31, |        
|---------------------------------------------------- |  | ----------------------- | -------
|                                                     |  | 2012                    |        
|(In thousands)                                       |  |                         |        
|Weighted average number of shares used to calculate: |  |                         |        
|Basic earnings per share                             |  |                         | 164,912
|Diluted earnings per share                           |  |                         | 165,016










| | (1) | Revenues from sale of buildings consist of revenue from First Capital.
| | --- | ----------------------------------------------------------------------



| | (2) | Pursuant
                                         to IAS 40 “Investment Property”, gains or losses arising from change in fair
                                         value of our investment property and our investment property under development where
                                         fair value can be reliably measured are recognized in our income statement at the end
                                         of each period.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





2







|                                                                                  |  | Year Ended December 31, |       
|--------------------------------------------------------------------------------- |  | ----------------------- | ------
|                                                                                  |  | 2012                    |       
|(In millions)                                                                     |  | NIS                     |       
|Selected Balance Sheet Data:                                                      |  |                         |       
|Equity-accounted investees                                                        |  |                         | 4,713 
|Investment property                                                               |  |                         | 55,465
|Investment property under development                                             |  |                         | 2,806 
|Total assets                                                                      |  |                         | 71,034
|Long term interest-bearing liabilities from financial institutions and others (1) |  |                         | 19,433
|Long term debentures (2)                                                          |  |                         | 18,500
|Total liabilities                                                                 |  |                         | 48,737
|Equity attributable to equity holders of the Company                              |  |                         | 7,681 
|Non-controlling interests                                                         |  |                         | 14,616
|Total equity                                                                      |  |                         | 22,297








| | (1) | As
                                         of December 31, 2016, NIS 0.7 billion (U.S.$ 0.2 billion) of our interest-bearing liabilities
                                         from financial institutions and others (including current maturities) were unsecured
                                         and the remainder were secured.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | As
                                         of December 31, 2016, NIS 810 million (U.S.$ 211 million) aggregate principal amount
                                         of our debentures was secured and the remainder was unsecured.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                          |  | As of December 31, |       
|----------------------------------------- |  | ------------------ | ------
|                                          |  | 2012               |       
|                                          |  | NIS                |       
|Other Operating Data (1):                 |  |                    |       
|Number of Group operating properties      |  |                    | 622   
|Total Group GLA (in thousands of sq. ft.) |  |                    | 73,292
|Group occupancy (%)                       |  |                    | 95.0  










| | (1) | Includes
                                         jointly-controlled entities.
| | --- | ------------------------------------------------------------------------------



|                                        |  | Year Ended December 31, |      
|--------------------------------------- |  | ----------------------- | -----
|                                        |  | 2012                    |      
|(In millions except for per share data) |  | NIS                     |      
|Other Financial Data:                   |  |                         |      
|NOI (1)                                 |  |                         | 2,625
|Adjusted EBITDA (1)                     |  |                         | 3,257
|Dividends                               |  |                         | 264  
|Dividends per share                     |  |                         | 1.60 
|EPRA Earnings (1)(2)                    |  |                         | 327  
|Adjusted EPRA Earnings (1)(2)           |  |                         | 533  



|               |  | As of December 31, |       
|-------------- |  | ------------------ | ------
|               |  | 2012               |       
|(In millions)  |  | NIS                |       
|EPRA NAV (1)   |  |                    | 10,037
|EPRA NNNAV (1) |  |                    | 7,157 










| | (1) | NOI,
                                         Adjusted EBITDA, EPRA Earnings, Adjusted EPRA Earnings, EPRA NAV and EPRA NNNAV are non-IFRS
                                         measures, and should not be considered as indicators of our financial performance as
                                         alternatives to cash flow, as measures of liquidity or as being comparable to other similarly
                                         titled measures of other companies. Under IFRS, while there are line items that are customarily
                                         included in statements of operations prepared pursuant to IFRS, the display of such line
                                         items varies significantly by industry and company according to specific needs. Our NOI,
                                         Adjusted EBITDA, EPRA Earnings, Adjusted EPRA Earnings, EPRA NAV and EPRA NNNAV may not
                                         be comparable to similarly titled measures reported by other companies due to potential
                                         differences in the method of calculation. For definitions and reconciliations of NOI,
                                         Adjusted EBITDA, EPRA Earnings, Adjusted EPRA Earnings, EPRA NAV and EPRA NNNAV and statements
                                         disclosing the reasons why our management believes that their presentation provides useful
                                         information to investors and, to the extent material, any additional purposes for which
                                         our management uses them, see “Item 5—Operating and Financial Review and
                                         Prospects”.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





3







| | (2) | In
                                         European countries using IFRS, it is customary for companies with income-producing property
                                         to publish their EPRA Earnings. EPRA Earnings is a measure for presenting the operating
                                         results of a company that are attributable to its equity holders. We believe that these
                                         measures are consistent with a position paper discussing EPRA Earnings, which states
                                         EPRA Earnings is similar to NAREIT FFO. The measures are not exactly the same, as EPRA
                                         Earnings has its basis in IFRS while funds from operations, or “FFO,” is
                                         based on generally accepted accounting principles in the United States (“U.S. GAAP”).
                                         We believe that EPRA Earnings are similar in substance to FFO with adjustments primarily
                                         for the attribution of results under IFRS.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                  |  | Year Ended December 31, |       
|--------------------------------- |  | ----------------------- | ------
|                                  |  | 2012                    |       
|(In millions)                     |  | NIS                     |       
|Cash flows provided by (used in): |  |                         |       
|Operating activities              |  |                         | 1,368 
|Investing activities              |  |                         | (4,621
|Financing activities              |  |                         | 3,490 



Exchange
Rate Information



The
following table sets forth, for each period indicated, the low and high exchange rates for NIS expressed as NIS per U.S. dollar,
the exchange rate at the end of such periods and the average of such exchange rates during such periods, based on the daily representative
rate of exchange as published by the Bank of Israel. The exchange rates set forth below demonstrate trends in exchange rates,
but the actual exchange rates used throughout this annual report may vary.



|             |  | Year Ended December 31, |     
|------------ |  | ----------------------- | ----
|             |  | 2012                    |     
|High         |  |                         | 4.08
|Low          |  |                         | 3.70
|Period end   |  |                         | 3.73
|Average Rate |  |                         | 3.86



The
following table shows, for each of the months indicated, the high and low exchange rates between the NIS and the U.S. dollar,
expressed as NIS per U.S. dollar and based upon the daily representative rate of exchange as published by the Bank of Israel:





|              |  | High  |      |  | Low   | 
|------------- |  | ----- | ---- |  | ----- | 
|Month         |  | (NIS) |      |  | (NIS) | 
|October 2016  |  |       | 3.86 |  |       | 
|November 2016 |  |       | 3.88 |  |       | 
|December 2016 |  |       | 3.87 |  |       | 
|January 2017  |  |       | 3.86 |  |       | 
|February 2017 |  |       | 3.77 |  |       | 
|March 2017    |  |       | 3.69 |  |       | 



On
April 10, 2017, the daily representative rate of exchange between the NIS and U.S. dollar as published by the Bank of Israel was
NIS 3.649 to $1.00.



| | B. | Capitalization
                                         and Indebtedness
| | -- | ------------------------------------------------------------------------



Not
applicable.



| | C. | Reasons
                                         for the Offer and Use of Proceeds
| | -- | ----------------------------------------------------------------------------------



Not
applicable.





4







| | D. | Risk
                                         Factors
| | -- | -----------------------------------------------------



Our
business involves a high degree of risk. Please carefully consider the risks we describe below in addition to the other information
set forth elsewhere in this annual report and in our other filings with the SEC. These material risks could adversely affect our
business, financial condition and results of operations.



Risks
Related to Our Business and Operations



The
economic performance and value of our shopping centers depend on many factors, each of which could have an adverse impact on our
cash flows and operating results.



The
economic performance and value of our properties can be affected by many factors, including the following:



| | ● | Economic
                                         uncertainty or downturns in general, or in the areas where our properties are located;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------



| | ● | Local
                                         conditions, such as an oversupply of space, a reduction in demand for retail space or
                                         a change in local demographics;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | The
                                         attractiveness of our properties to tenants and competition from other available spaces;
| | - | -------------------------------------------------------------------------------------------------------------------------------------



| | ● | The
                                         adverse financial condition of some large retail companies and ongoing consolidation
                                         within the retail sector;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | The
                                         growth of super-centers and warehouse club retailers and their adverse effect on traditional
                                         grocery chains;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | Changes
                                         in the perception of retailers or shoppers regarding the safety, convenience and attractiveness
                                         of our shopping centers and changes in the overall climate of the retail industry;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | Our
                                         ability to provide adequate management services and to maintain our properties;
| | - | ----------------------------------------------------------------------------------------------------------------------------



| | ● | Increased
                                         operating costs, if these costs cannot be passed through to tenants;
| | - | -----------------------------------------------------------------------------------------------------------------------



| | ● | The
                                         expense of periodically renovating, repairing and re-letting spaces;
| | - | -----------------------------------------------------------------------------------------------------------------



| | ● | The
                                         impact of increased energy costs and/or extreme weather conditions on consumers and its
                                         consequential effect on the number of shopping visits to our properties;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | The
                                         consequences of any armed conflicts or terrorist attacks;
| | - | ------------------------------------------------------------------------------------------------------



| | ● | The
                                         consequences of changing consumer shopping habits due to increased trends in online shopping;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------



| | ● | The
                                         impact of currency fluctuations on our income-producing assets and financing sources;
                                         and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | The
                                         impact of legal, economic and political disruptions in the emerging markets in which
                                         we have properties, including Russia and Brazil.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



To
the extent that any of these conditions occurs or accelerates, it could adversely affect market rents for retail space, portfolio
occupancy, our ability to sell, acquire or develop properties, and cash available for distribution to shareholders.



Economic
conditions may make it difficult to maintain or increase occupancy rates and rents and a deterioration in economic conditions
in one or more of our key regions could adversely impact our results of operations.



In
2016, our rental income (assuming full consolidation of jointly-controlled entities and discontinued operations) was derived as
follows: 30.7% from Canada, 22.6% from the United States, 24.9% from Northern and Western Europe, 17.1% from Central and Eastern
Europe, 3.3% from Israel, and 1.5% from Brazil. Our operations in the United States were conducted through Equity One, which is
presented in our audited consolidated financial statements included elsewhere in this annual report as a discounted operation.
During the economic downturn of 2008-2009, general market conditions deteriorated in many of our markets, particularly the United
States and Central and Eastern Europe. Lack of financing and a decrease in consumer spending prevented retailers from expanding
their activities. As a consequence, occupancy rates declined in some of the regions in which we operate, most significantly in
the United States where the occupancy rates for our shopping centers decreased from 93.2% as of December 31, 2007 to 90.7% as
of December 31, 2010. In addition, we granted rent concessions to some tenants during this period. The economic downturn adversely
affected our net operating income and the value of our assets in all of the regions in which we operate. In addition, currencies
in many of our markets were devalued against the NIS during that period. Although general market conditions have improved since
2010, our ability to maintain or increase our occupancy rates and rent levels depends on continued improvements in global and
local economic conditions.



While
the economies in many of the cities within our markets have continued to gradually improve (with certain exceptions, including
Russia), macro-economic challenges, such as low consumer confidence, high unemployment and reduced consumer spending, have adversely
affected many retailers and continue to adversely affect the retail sales of many regional and local tenants in some of our markets
and our ability to re-lease vacated space at higher rents. Moreover, companies in some of our markets shifted to a more cautionary
mode with respect to leasing as a result of the prevailing economic climate and demand for retail space has declined generally,
reducing the market rental rates for our properties. As a result, in these markets we may not be able to re-lease vacated space
and, if we are able to re-lease vacated space, there is no assurance that rental rates will be equal to or in excess of current
rental rates. In addition, we may incur substantial costs in obtaining new tenants, including brokerage commissions paid by us
in connection with new leases or lease renewals, and the cost of making leasehold improvements. These events and factors could
adversely affect our rental income and overall results of operations.





5







While
most of our shopping centers are anchored by supermarkets, drugstores or other necessity-oriented retailers, which are less susceptible
to economic cycles, other tenants have been vulnerable to declining sales and reduced access to capital. Europe in particular
remains vulnerable to volatile financial and credit markets due to economic and political uncertainties, including the United
Kingdom’s decision to withdraw from the European Union, the ongoing refugee crisis, financial uncertainty in Greece and
a lack of confidence in the European Union’s banking system and Finland’s credit rating was downgraded by Fitch in
the first quarter of 2016. Additionally, Russia is suffering from significant economic and political turmoil. As a result, some
tenants have requested rent adjustments and abatements, while other tenants have not been able to continue in business at all.
Our ability to renew or replace these tenants at comparable rents could adversely impact occupancy rates and overall results of
operations.



We
seek to expand through acquisitions of additional real estate assets. Such expansion may not yield the returns expected, may result
in disruptions to our business, may strain management resources and may result in dilution to our shareholders or dilution of
our interests in our subsidiaries and other investees.



Our
investing strategy and our market selection process may not ultimately be successful, may not provide positive returns on our
investments and may result in losses. The acquisition of properties, groups of properties or other businesses entails risks that
include the following, any of which could adversely affect our results of operations and financial condition:



| | ● | we
                                         may not be able to identify suitable properties to acquire or may be unable to complete
                                         the acquisition of the properties we identify;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | there
                                         may be a lack of available suitable properties for our portfolio;
| | - | ----------------------------------------------------------------------------------------------------------------



| | ● | we
                                         may not be able to integrate any acquisitions into our existing operations successfully;
| | - | ------------------------------------------------------------------------------------------------------------------------------------



| | ● | properties
                                         we acquire may fail to achieve the occupancy or rental rates we project at the time we
                                         make the decision to acquire;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | our
                                         pre-acquisition evaluation of the physical condition of each new investment may not detect
                                         certain defects or identify necessary repairs or may fail to properly evaluate the costs
                                         involved in implementing our plans with respect to such investment;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | we
                                         may experience delays or increased costs in development or redevelopment due to changes
                                         in applicable laws or regulations;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | we
                                         may not be able to obtain financing on favorable terms for acquisition, development or
                                         redevelopment; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | our
                                         investigation of a property or building prior to our acquisition, and any representations
                                         we may receive from the seller of such building or property, may fail to reveal various
                                         liabilities (such as to tenants or vendors or with respect to environmental contamination),
                                         which could reduce the cash flow from the property or increase our acquisition cost.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Together
with our acquisition of individual properties and groups of properties, we have been an active business acquirer and, as part
of our growth strategy, we expect to seek to acquire real estate-related businesses in the future. The acquisition and integration
of each business involves a number of risks and may result in unforeseen operating difficulties and expenditures in assimilating
or integrating the businesses, properties, personnel or operations of the acquired business. Our due diligence prior to our acquisition
of a business may not uncover certain legal or regulatory issues that could affect such business. Furthermore, future acquisitions
may involve difficulties in retaining the tenants or customers of the acquired business, and disrupt our ongoing business, divert
our resources and require significant management attention that would otherwise be available for ongoing operation and development
of our current business. Moreover, we can provide no assurances that the anticipated benefits of any acquisition, such as operating
improvements or anticipated cost savings, would be realized or that we would not be exposed to unexpected liabilities in connection
with any acquisition.



To
complete a future acquisition, we may determine that it is necessary to use a substantial amount of our available liquidity sources
or cash or engage in equity or debt financing. If we raise additional funds through further issuances of equity or convertible
debt securities, our existing shareholders could suffer significant dilution, and any new equity securities we or our investees
issue could have rights, preferences and privileges senior to those of holders of our ordinary shares. If our public investees
raise additional funds through further issuances of equity or convertible debt securities, Gazit-Globe, as the holder of equity
securities of our public investees, could suffer significant dilution, and any new equity securities our public investees issue
could have rights, preferences and privileges senior to those held by Gazit-Globe. We may not be able to obtain additional financing
on terms favorable to us, if at all, which could limit our ability to engage in acquisitions.



We
are particularly dependent upon large tenants that serve as anchors in our shopping centers and decisions made by these tenants
or adverse developments in their businesses could have a negative impact on our financial condition.





We own shopping
centers that are anchored by large tenants. Because of their reputation or other factors, these large tenants are particularly
important in attracting shoppers and other tenants to our centers. Our rental income depends upon the ability of the tenants of
our properties and, in particular, these anchor tenants, to generate enough income to make their lease payments to us. Certain
of our anchor tenants may make up a significant percentage of our rental income in certain markets. For example, Kesko accounted
for 6.6% of Citycon’s rental income in 2016, AFM (and other affiliated brands) accounted for 4.0% of Atrium’s rental
income in 2016, and Loblaws and Sobey’s accounted for 10.2% and 6.6% respectively, of First Capital’s total annual
minimum rent as of December 31, 2016. In addition, supermarkets and other grocery stores, many of which are anchor tenants, accounted
for approximately 16.2% of our total rental income in 2016.







6







Revenue
from our properties depends primarily on the ability of our tenants to pay the full amount of rent and other charges due under
their leases on a timely basis. Any reduction in our tenants’ abilities to pay rent or other charges on a timely basis,
including tenants filing for bankruptcy protection, could adversely affect our financial condition and results of operations.
In the event of default by tenants, we may experience delays and unexpected costs in enforcing our rights as landlords under the
leases, which may also adversely affect our financial condition and results of operations.



We
generally develop or redevelop our shopping centers based on an agreement with an anchor tenant. Changes beyond our control may
adversely affect the tenants’ ability to make lease payments or could result in them terminating their leases. These changes
include, among others:



| | ● | downturns
                                         in national or regional economic conditions where our properties are located, which generally
                                         will negatively impact the rental rates;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | changes
                                         in the buying habits of consumers in the regions surrounding those shopping centers including
                                         a shift to preference for online shopping and e-commerce;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | changes
                                         in local market conditions such as an oversupply of properties, including space available
                                         by sublease or new construction, or a reduction in demand for our properties;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | competition
                                         from other available properties; and
| | - | -----------------------------------------------------------------------------------------



| | ● | changes
                                         in federal, state or local regulations and controls affecting rents, prices of goods,
                                         interest rates, fuel and energy consumption.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



As
a result, tenants may determine not to renew leases, delay lease commencement or reduce their square footage needs. In addition,
anchor tenants often have more favorable lease provisions and significant negotiating power. In some instances, we may need to
seek their permission to lease to other, smaller tenants. Anchor tenants, particularly retail chains, may also change their operating
policies for their stores (such as the size of their stores) and the regions in which they operate. As a result, anchor tenants
may determine not to renew leases or delay lease commencement. An anchor tenant may decide that a particular store is unprofitable
and close its operations in our center, and, while the tenant may continue to make rental payments, such a failure to occupy its
premises could have an adverse effect on the property. A lease termination by an anchor tenant or a failure by that anchor tenant
to occupy the premises could result in lease terminations or reductions in rent by other tenants in the same shopping center.
In addition, we are subject to the risk of defaults by tenants or the failure of any lease guarantors to fulfill their obligations,
tenant bankruptcies and other early termination of leases or non-renewal of leases. Any of these developments could materially
and adversely affect our financial condition and results of operations.



Online
sales can have an adverse impact on our tenants and our business.



The
use of the internet by consumers continues to gain in popularity and growth in online sales is likely to continue in the future.
The increase in online sales could result in a downturn in the business of some of our current tenants and could affect the way
other current and future tenants lease space. For example, the migration towards online sales has led many retailers to reduce
the number and size of their traditional “brick and mortar” locations in order to increasingly rely on e-commerce
and alternative distribution channels. Many tenants also permit merchandise purchased on their websites to be picked up at, or
returned to, their physical store locations, which may have the effect of decreasing the reported amount of their in-store sales
and the amount of rent we are able to collect from them (particularly with respect to those tenants who pay rent based on a percentage
of their in-store sales). We cannot predict with certainty how growth in online sales will impact the demand for space at our
properties or how much revenue will be generated at traditional store locations in the future. If we are unable to anticipate
and respond promptly to trends in retailer and consumer behavior, our occupancy levels and financial results could be negatively
impacted.



We
have substantial debt obligations which may negatively affect our results of operations and financial position and put us at a
competitive disadvantage.



Our organizational documents
do not limit the amount of debt that we may incur and we do not have a policy that limits our debt to any particular level. As
of December 31, 2016, Gazit-Globe and its private subsidiaries had outstanding interest-bearing debt in the aggregate amount of
NIS 15,146 million (U.S.$ 3,939 million) and other liabilities outstanding in the aggregate amount of NIS 1,113 million (U.S.$
289 million) of which approximately 10.3% matures during 2017. On a consolidated basis, we had debt and other liabilities outstanding
as of December 31, 2016 in the aggregate amount of NIS 53,119 million (U.S.$ 13,815 million), of which 12.1% matures during 2017.
We are subject to covenant compliance obligations and each of our public subsidiaries and certain other investees is subject to
its own covenant compliance obligations. Furthermore, the indebtedness of each of our public investees is independent of each
other investee and is not subject to any guaranty by Gazit-Globe or its wholly-owned subsidiaries.



The
amount of debt outstanding from time to time could have important consequences to us and our public investees. For example, it
could:



| | ● | require
                                         that we dedicate a substantial portion of cash flow from operations to payments on debt,
                                         thereby reducing funds available for operations, property acquisitions, redevelopments
                                         and other business opportunities that may arise in the future;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





7







| | ● | limit
                                         our public investees’ ability to make distributions on equity securities held by
                                         us, including the payment of dividends to us;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | make
                                         it difficult to satisfy debt service requirements;
| | - | ------------------------------------------------------------------------------------------------



| | ● | limit
                                         flexibility in planning for, or reacting to, changes in business and the factors that
                                         affect profitability, which may place us at a disadvantage compared to competitors with
                                         less debt or debt with less restrictive terms;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | adversely
                                         affect financial ratios and debt and operational coverage levels monitored by rating
                                         agencies and adversely affect the ratings assigned to our or our public investees’
                                         debt, which could increase the cost of capital; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | limit
                                         our or our public investees’ ability to obtain any additional debt or equity financing
                                         that may be needed in the future for working capital, debt refinancing, capital expenditures,
                                         acquisitions, redevelopment or other general corporate purposes or to obtain such financing
                                         on favorable terms.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



If
our or our public investees’ internally generated cash is inadequate to repay indebtedness upon an event of default or upon
maturity, then we or our public investees will be required to repay or refinance the debt. If we or our public investees are unable
to refinance our or their indebtedness on acceptable terms or if the amount of refinancing proceeds is insufficient to fully repay
the existing debt, we or our public investees might be forced to dispose of properties, potentially upon disadvantageous terms,
which might result in losses and might adversely affect our or their cash available for distribution. If prevailing interest rates
or other factors at the time of refinancing result in higher interest rates on refinancing, our interest expense would increase
without a corresponding increase in our rental rates, which would adversely affect our results of operations.



In
addition, our debt financing agreements and the debt financing agreements of our public investees contain representations, warranties
and covenants, including financial covenants that, among other things, require the maintenance of certain financial ratios. Certain
of the covenants that apply to Gazit-Globe depend upon the performance of our public investees, and we, therefore, have less control
over our compliance with those covenants. For example, covenants that apply to Gazit-Globe require Citycon to maintain a minimum
ratio of equity to total assets less advances received and a minimum ratio of EBITDA to net finance expenses. Another covenant
requires First Capital to maintain a minimum ratio of EBITDA to finance expenses. If the performance of any of our public investees
causes us to breach such covenants in our debt financing agreements or the debt financing agreements of public investees, we or
they may be required to prepay amounts of indebtedness that we or they may be unable to pay at such time, which would cause us
or them to default under such agreements.





Should we or our
public investees breach any such representations, warranties or covenants contained in any such loan or other financing agreement,
or otherwise be unable to service interest payments or principal repayments, we or our public investees may be required immediately
to repay such borrowings in whole or in part, together with any related costs and a default under the terms of certain of our other
indebtedness may result from such breach. For example, a decline in the property market or a wide scale tenant default may result
in a failure to meet any loan to value or debt service coverage ratios, thereby causing an event of default and we or our public
investees, as applicable, may be required to prepay the relevant loan. A significant portion of Gazit-Globe’s equity interests
in its subsidiaries and other investees are pledged as collateral for Gazit-Globe’s revolving credit facilities and other
indebtedness incurred by Gazit-Globe and its private subsidiaries. As of December 31, 2016, the principal amount of such indebtedness
was NIS 2,839 million (U.S.$ 738 million), which constituted 6.3% of our consolidated indebtedness as of such date. In the event
that Gazit-Globe is required to prepay its loans and is unable to do so, the lenders under such loans may determine to pursue remedies
against Gazit-Globe and cause the sale of those equity interests, which could have an adverse effect on our financial condition
and results of operations. In addition, since certain of our properties were mortgaged to secure payment of indebtedness with a
principal amount of NIS 5,853 million (U.S.$ 1,522 million) as of December 31, 2016, which constituted 13.0% of our consolidated
indebtedness as of such date, in the event we are unable to refinance or repay our borrowing, we may be unable to meet mortgage
payments, or we may default under the related mortgage, deed of trust or other pledge and such property could be transferred to
the mortgagee or pledgee, or the mortgagee or pledgee could foreclose upon the property, appoint a receiver and receive an assignment
of rents and leases or pursue other remedies, all with a consequent loss of income and asset value. Moreover, any restrictions
on cash distributions as a result of breaching financial ratios, failure to repay such borrowings or, in certain circumstances,
other breaches of covenants, representations and warranties under our debt financing agreements could result in us being prevented
from paying dividends to our investors and have an adverse effect on our liquidity.





Volatility
in the credit markets may affect our ability to obtain or re-finance our indebtedness at a reasonable cost.



At
times during the last decade, global credit markets have experienced significant price volatility, dislocations and liquidity
disruptions, which at times caused the spreads on debt financings to widen considerably. Additionally, the U.S. Federal Reserve
System increased short-term interest rates in December 2015, December 2016 and March 2017, and expressed intentions to further
increase rates in the near future. If a downturn or dislocation in credit markets were to occur or if interest rates were to dramatically
increase from their current low levels, we may experience difficulty refinancing our upcoming debt maturities at a reasonable
cost or with desired financing alternatives. For example, it may be difficult to raise new unsecured financing in the form of
additional bank debt or corporate bonds at interest rates that are appropriate for our long term objectives. Any change in our
credit ratings could further impact our access to capital and our cost of capital. Additionally, we may be unable to further diversify
our lending portfolio so as not to depend substantially on Israeli financial institutions for our financing requirements due to
market conditions or other factors, which may limit our ability to efficiently access credit markets. To the extent we are unable
to efficiently access the credit markets, we may need to repay maturing debt with proceeds from the issuance of equity or the
sale of assets. In addition, lenders may impose upon us more restrictive covenants, events of default and other conditions.





8







The
inability of any of our public investees to satisfy their liquidity requirements may materially and adversely impact our results
of operations.



Even
though we present the assets and liabilities of our public subsidiaries on a consolidated basis and on the equity method for certain
public investees, our public investees satisfy their short-term liquidity and long-term capital requirements through cash generated
from their respective operations and through debt and equity financings in their respective local markets. Our liquidity and available
borrowings presented on a consolidated basis may not, therefore, be reflective of the position of our public investees since the
liquidity and available borrowings of each of them are not available to support the others’ operations. Although we have
from time to time purchased equity securities of our public investees, we have not generally made shareholder loans to them (with
exceptions during 2014 and 2015, when we made loans to Luzon Group, see Note 9(g) to our audited consolidated financial statements
included elsewhere in this annual report) and may have insufficient resources to do so even if our overall financial position
on a consolidated basis is positive. Each public investee is subject to its own covenant compliance obligations and the failure
of any public investee to comply with its obligations could result in the acceleration of its indebtedness which could have a
material adverse effect on our financial position and results of operations.



Commencement
of operations in new geographic markets and asset classes involves risks and may result in us investing significant resources
without realizing a return and may adversely impact our future growth.



The
commencement of operations in new geographic markets or asset classes in which we have little or no prior experience involves
costs and risks. In the past, we expanded into new regions, including Central and Eastern Europe and Brazil, and into other asset
classes, such as medical office buildings and senior care facilities. We may decide to enter into new markets or asset classes
in the future when an opportunity presents itself. When commencing such operations, we need to learn and become familiar with
the various aspects of operating in these new geographic markets or asset classes, including regulatory aspects, the business
and macro-economic environment, new currency exposure, as well as the necessity of establishing new systems and administrative
headquarters potentially at substantial costs. Additionally, it may take many years for an acquisition to achieve desired results
as factors such as obtaining regulatory permits, construction, signing the right mix of tenants and assembling the right management
team take time to implement. In some cases, we may commence such operations by means of a joint venture which often offers the
advantage of a partner with superior experience, but also has the risks associated with any activity conducted jointly with a
non-controlled third party. In addition, entry into new geographic markets may also lead to difficulty managing geographically
separated organizations and assets, difficulty integrating personnel with diverse business backgrounds and organizational cultures
and compliance with foreign regulatory requirements applicable to acquisitions. Our failure to successfully expand into new geographies
and asset classes may result in our investment of significant resources without realizing a return and may adversely impact our
future growth.



If
we are unable to obtain adequate capital, we may have to limit our operations substantially.



Our
acquisition and development of properties and our acquisition of other businesses and equity interests in real estate companies
are financed in part by loans received from banks, insurance companies and other financing sources, as well as from the sale of
shares, notes, debentures and convertible debentures in public and private offerings. Our public investees satisfy their capital
requirements through debt and equity financings in their respective local markets. The practices in these markets vary significantly,
for example, with some of the markets based partly on bank lending and others depending significantly on accessing the capital
markets. Our ability to obtain economically desirable financing terms could be affected by unavailability or a shortage of external
financing sources, changes in existing financing terms, changes in our financial condition and results of operations, legislative
changes, changes in the public or private markets in our operating regions and deterioration of the economic situation in our
operating regions. Should our ability to obtain financing be impaired, our operations could be limited significantly.



Future
terrorist acts and shooting incidents could harm the demand for, and the value of, our properties.



Over
the past few years, a number of terrorist acts and shootings have occurred at retail properties throughout the world, including
highly publicized incidents in the U.S., Europe and Israel. In the event concerns regarding safety were to alter shopping habits
or deter customers from visiting shopping centers, our tenants would be adversely affected, as would the general demand for retail
space. Additionally, if such incidents were to continue, insurance for such acts may become limited or subject to substantial
cost increases.



Many
of our real estate costs are fixed, even if income from our properties decreases.



Our
financial results depend in part on leasing space to tenants on favorable financial terms. Costs associated with real estate investment,
such as real estate taxes, insurance and maintenance costs generally are not reduced even when a property is not fully occupied,
or when rental rates decrease, or when other circumstances cause a reduction in income from the property. As a result, cash flow
from the operations of the properties may be reduced if a tenant does not pay its rent or we are unable to fully lease the properties
on favorable terms. Additionally, properties that we develop or redevelop may not produce any significant revenue immediately,
and the cash flow from existing operations may be insufficient to pay the operating expenses and debt service associated with
such projects until they are fully occupied.





9







Our
results of operations may be adversely affected by fluctuations in currency exchange rates and we may not have adequately hedged
against them.



Because
we own and operate assets in many regions throughout the world, our results of operations are affected by fluctuations in currency
exchange rates. For the year ended December 31, 2016, 30.7% of our rental income (assuming full consolidation of jointly-controlled
entities and discontinued operation) was earned in Canadian dollars, 29.7% in Euros, 22.9% in U.S. dollars, 3.0% in Swedish Krona,
5.7% in Norwegian Krone, 3.3% in NIS and 4.7% in other currencies. In addition, our reporting currency is the NIS, and the functional
currency is separately determined for each of our subsidiaries and certain of our investees. When an investee’s functional
currency differs from our reporting currency, the financial statements of such investee are translated to NIS so that they can
be included in our financial statements. As a result, fluctuations of the currencies in which we conduct business relative to
the NIS impact our results of operations and the impact may be material. For example, the average annual rate in NIS of the U.S.
Dollar, the Canadian Dollar and the Euro weakened by 1.2%, 4.9% and 1.5%, respectively, for 2016 compared to 2015, which resulted
in our net operating income decreasing by 2.1% or a total amount of NIS 89 million. We continually monitor our exposure to currency
risk and pursue a company-wide foreign exchange risk management policy, which includes seeking to hold our equity in the currencies
of the various markets in which we operate in the same proportions as the assets in each such currency bear to our total assets.
We have in the past and expect to continue in the future to at least partly hedge such risks with certain financial instruments.
Future currency exchange rate fluctuations that we have not adequately hedged could adversely affect our profitability. We also
face risks arising from the imposition of exchange controls and currency devaluations. Exchange controls may limit our ability
to convert foreign currencies into NIS or to remit dividends and other payments by certain of our investees or businesses located
in or conducted within a country imposing controls. Currency devaluations result in a diminished value of funds denominated in
the currency of the country instituting the devaluation.



Furthermore,
the Company engages in currency and interest rate swap transactions, some of which are governed by agreements entered into by
the Company that provide for mechanisms for the current settling of accounts in connection with the fair value of the swap transactions.
Consequently, the Company could be required, from time to time, to transfer material amounts to the banking institutions based
on the fair value of such transactions.



Our
ability to manage risks through derivatives may be negatively affected by the Dodd-Frank Act and legislation initiatives of the
European Commission, which provide for a new framework of regulation of over-the-counter derivatives markets. These new regulations
may require us to clear certain types of transactions currently traded in the over-the-counter derivative markets through a central
clearing organization and may limit our ability to customize derivative transactions for our needs. As a result, we may experience
additional collateral requirements and costs associated with derivative transactions.



We
are subject to a disproportionate impact on our properties due to concentration in certain areas.



As
of December 31, 2016, approximately 10.3%, 6.9% and 3.9% of our total GLA was located in the greater Toronto area (Canada),
the greater Montreal area (Canada) and metropolitan Helsinki (Finland), respectively. A regional recession or other major,
localized economic disruption or a natural disaster, such as an earthquake or hurricane, in any of these areas could
adversely affect our ability to generate or increase operating revenues from our properties, attract new tenants to our
properties or dispose of unproductive properties. Any reduction in the revenues from our properties would effectively reduce
the income we generate from them, which would adversely affect our results of operations and financial condition. Conversely,
strong economic conditions in a region could lead to increased building activity and increased competition for
tenants.



Certain
emerging markets in which we have properties are subject to greater risks than more developed markets, including significant legal,
economic and political risks.



Some
of our current and planned investments are located in emerging markets, primarily within Russia and Brazil, which as of December
31, 2016 comprised 16.7% and 2.1% of our total GLA, respectively, and in India, where we have an investment commitment in Hiref
International LLC (“Hiref”), a real estate fund, for U.S.$ 110 million (of which we had invested U.S.$ 95 million
through December 31, 2016) and, as such, are subject to greater risks than those in markets in Northern and Western Europe and
North America, including greater legal, economic and political risks. Our performance could be adversely affected by events beyond
our control in these markets, such as a general downturn in the economy of countries in which these markets are located, conflicts
between states, changes in regulatory requirements (including Market Abuse Regulation in the European Union) and applicable laws
(including in relation to taxation and planning), adverse conditions in local financial markets and interest and inflation rate
fluctuations. In addition, adverse political or economic developments in these or in neighboring countries could have a significant
negative impact on, among other things, individual countries’ gross domestic products, foreign trade or economies in general.
Recent examples of potentially detrimental developments in emerging markets include the economic downturn and political developments
in Brazil (including the impeachment of president Dilma Rousseff in 2016) and the geopolitical tension between Russia and its
neighbors. While we currently have no plans to enter new emerging markets, some emerging economies in which we currently operate
have historically experienced substantial rates of inflation, an unstable currency, high government debt relative to gross domestic
products, a weak banking system providing limited liquidity to domestic enterprises, high levels of loss-making enterprises that
continue to operate due to the lack of effective bankruptcy proceedings, significant increases in unemployment and underemployment
and the impoverishment of a large portion of the population. This may have a material adverse effect on our business, financial
condition or results of operations.





10







Furthermore,
we are subject to the U.S. Foreign Corrupt Practices Act (“FCPA”) and other laws that prohibit improper payments or
offers of payments to foreign governments and their officials and political parties for the purpose of obtaining or retaining
business. We currently and may in the future conduct business in countries and regions in which we may face, directly or indirectly,
corrupt demands by officials, tribal or insurgent organizations, or private entities. Thus, we face the risk of unauthorized payments
or offers of payments by one of our employees or consultants, even though these parties are not always subject to our control.
Our existing safeguards and any future improvements may prove to be less than effective, and our employees and consultants may
engage in conduct for which we might be held responsible. Violations of the FCPA may result in severe criminal or civil sanctions,
and we may be subject to other liabilities, which could have a material adverse effect on our business, financial condition or
results of operations. In addition, governments may seek to hold us liable for successor liability anti-corruption violations
committed by our investees.



Our
reported financial condition and results of operations under IFRS are impacted by changes in value of our real estate assets,
which is inherently subjective and subject to conditions outside of our control.



Our
audited consolidated financial statements have been prepared in accordance with IFRS. There are significant differences between
IFRS and U.S. GAAP which lead to different results under the two systems of accounting. Currently, one of the most significant
differences between IFRS and U.S. GAAP is an option under IFRS to record the fair market value of our real estate assets in our
financial statements on a quarterly basis, which we have adopted. Accordingly, our financial statements have been significantly
impacted in the past by fluctuations due to changes in fair market value of our properties even if no actual disposition of assets
took place. For example, in 2016, we increased the fair value of our properties on a consolidated basis by NIS 885 million and
in 2015 we decreased the fair value of our properties on a consolidated basis by NIS 372 million.



The
valuation of property is inherently subjective due to the individual nature of each property as well as exposure to macro-economic
conditions. As a result, valuations are subject to uncertainty. Fair value of investment property including development and land
was determined by accredited independent appraisers with respect to 68.5% of such investment properties during the year ended
December 31, 2016 (53.5% of which were performed at December 31, 2016). A significant proportion of the valuations of our properties
were not performed by appraisers at the balance sheet date, based on materiality thresholds and other considerations that we have
applied across our properties. As a result of these factors, there is no assurance that the valuations of our interests in the
properties reflected in our financial statements would reflect actual sale prices even where any such sales occur shortly after
the financial statements are prepared.



Other
real estate companies that are publicly traded in the United States use U.S. GAAP to report their financial statements and are
therefore not currently required to record the fair market value of their real estate assets on a quarterly basis. As a result,
significant declines or fluctuations in the value of their real estate could impact us disproportionately compared to these other
companies.



In
addition, in recent years several amendments have been made to IFRS standards, including those that affect us, and we have had
to revise our accounting policies in order to comply with such amended standards. Commonly, the transition provisions of these
amendments require us to implement the amendments with respect to comparative figures as well. Figures with respect to prior periods
that are not required to be included in our financial statements are therefore not adjusted retrospectively. As a result, the
utility of the comparative figures for certain years may be limited.



Real
estate is generally an illiquid investment.



Real
estate is generally an illiquid investment as compared to investments in securities. While we do not currently anticipate a need
to dispose of a significant number of real estate assets in the short-term, such illiquidity may affect our ability to dispose
of or liquidate real estate assets in a timely manner and at satisfactory prices in response to changes in economic, real estate
market or other conditions.



We
may be obliged to dispose of our interest in a property or properties at a time, for a price or on terms not of our choosing.
In addition, some of our anchor tenants have rights of first refusal or rights of first offer to purchase the properties in which
they lease space in the event that we seek to dispose of such properties. The presence of these rights of first refusal and rights
of first offer could make it more difficult for us to sell these properties in response to market conditions. These limitations
on our ability to sell our properties could have an adverse effect on our financial condition and results of operations.



Our
competitive position and future prospects depend on our senior management and the senior management of our investees.



The
success of our property development and investment activities depend, among other things, on the expertise of our board of directors,
our executive team and other key personnel in identifying appropriate opportunities and managing such activities, as well as the
executive teams of our investees. Mr. Katzman does not have an employment agreement with Gazit-Globe. Even though his employment
agreement has expired, Mr. Katzman is continuing to serve as our executive chairman. As of December 31, 2016, Mr. Katzman also
served as the chairman of the board of Equity One, Citycon, Atrium, and Norstar, and as a director of First Capital. With respect
to some of these positions, Messrs. Katzman has written engagement and remuneration agreements with these public investees. As
of December 31, 2016, Dor J. Segal served as the executive vice chairman of the board of Gazit-Globe, chairman of the board of
First Capital, deputy chairman of the board of Citycon, vice chairman of the board of Equity One and vice chairman of the board
and CEO of Norstar. Mr. Segal no longer serves on the board of Citycon as of the date of this annual report. In January 2017,
Mr. Segal was appointed vice chairman of the board and CEO of Gazit-Globe. Mr. Segal intends to step down as CEO of Norstar and
will be replaced by Mr. Katzman, subject to approval by Norstar’s shareholders in the annual general meeting. Effective
as of March 1, 2017, Equity One completed the Regency Merger and is no longer a consolidated subsidiary of Gazit-Globe. In connection
with such merger, Mr. Katzman was appointed to serve as the non-executive vice chairman of Regency’s board of directors,
and Mr. Segal no longer serves on the board of Equity One. In addition, legislation in Israel, specifically Amendment 20 to the
Israeli Companies Law, requires, in certain circumstances, that the Company’s compensation plan for officers as well as
the employment agreement of its CEO be approved by a special majority shareholder vote. The loss of some or all of these individuals
or an inability to attract, retain and maintain additional personnel, including due to the possible failure to attain special
majority shareholder approval as aforementioned, could prevent us from implementing our business strategy and could adversely
affect our business and our future financial condition or results of operations. We do not carry key man insurance with respect
to any of these individuals. We cannot guarantee that we will be able to retain all of our existing senior management personnel
or to attract additional qualified personnel when needed.





11







We
face significant competition for the acquisition of real estate assets, which may impede our ability to make future acquisitions
or may increase the cost of these acquisitions.



We
compete with many other entities for acquisitions of necessity-driven retail real estate, including institutional pension funds,
real estate investment trusts and other owner-operators of shopping centers. This competition may affect us in various ways, including:



| | ● | reducing
                                         properties available for acquisition;
| | - | ---------------------------------------------------------------------------------------



| | ● | increasing
                                         the cost of properties available for acquisition;
| | - | -----------------------------------------------------------------------------------------------------



| | ● | reducing
                                         the rate of return on these properties;
| | - | -----------------------------------------------------------------------------------------



| | ● | reducing
                                         rents payable to us;
| | - | ----------------------------------------------------------------------



| | ● | interfering
                                         with our ability to attract and retain tenants;
| | - | ----------------------------------------------------------------------------------------------------



| | ● | increasing
                                         vacancy rates at our properties; and
| | - | ----------------------------------------------------------------------------------------



| | ● | adversely
                                         affecting our ability to minimize expenses of operation.
| | - | -----------------------------------------------------------------------------------------------------------



The
number of entities and the amount of funds competing for suitable properties and companies may increase. Such competition may
reduce the number of suitable properties and companies available for purchase and increase the bargaining position of their owners.
We may lose acquisition opportunities in the future if we do not match prices, structures and terms offered by competitors and
if we match our competitors, we may experience decreased rates of return and increased risks of loss. If acquisition prices increase,
our profitability may be reduced.



Our
competitors may enjoy significant competitive advantages that result from, among other things, a lower cost of capital and enhanced
operating efficiencies. Some of these competitors may also have higher risk tolerances or different risk assessments, which could
allow them to consider a wider variety of acquisitions. Furthermore, companies that are potential acquisition targets may find
competitors to be more attractive because they may have greater resources, may be willing to pay more or may have a more compatible
operating philosophy. These factors may create competitive disadvantages for us with respect to acquisition opportunities.



Our
investments in development and redevelopment projects may not yield anticipated returns, and we are subject to general construction
risks which may increase costs and delay or prevent the construction of our projects.



An
important component of our growth strategy is the redevelopment of properties we own and the development of new projects. Some
of our assets are at various stages of development and redevelopment (including expansions), representing 1.0% and 4.1%, respectively,
of the value of our properties (including our jointly-controlled entities and discontinued operation) as of December 31, 2016.
These developments and redevelopments may not be as successful as currently expected. Expansion, renovation and development projects
and the related construction entail the following considerable risks:



| | ● | significant
                                         time lag between commencement and completion subjects us to risks of fluctuations in
                                         the general economy;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | failure
                                         or inability to obtain construction or permanent financing on favorable terms, which
                                         may result from rising interest rates, among other factors;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | inability
                                         to achieve projected rental rates or anticipated pace of lease-up;
| | - | ---------------------------------------------------------------------------------------------------------------------



| | ● | delay
                                         of completion of projects, which may require payment of penalties under lease agreements
                                         and subject us to claims for breach of contract;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | incurrence
                                         of construction costs for a development project in excess of original estimates;
| | - | ------------------------------------------------------------------------------------------------------------------------------------



| | ● | expenditure
                                         of time and resources on projects that may never be completed;
| | - | -------------------------------------------------------------------------------------------------------------------





12







| | ● | acts
                                         of nature, such as harsh climate conditions in the winter, earthquakes and floods, that
                                         may damage or delay construction of properties; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | delays
                                         and costs relating to required zoning or other regulatory approvals or changes in laws.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------



The
inability to complete the construction of a property on schedule or at all for any of the above reasons could have a material
adverse effect on our business, financial condition and results of operations.



Insurance
on real estate may not cover all losses.



We
currently carry insurance on all of our properties. Certain of our policies contain coverage limitations, including exclusions
for certain catastrophic perils and certain aggregate loss limits. We currently do not have comprehensive insurance covering losses
from these perils due to the properties being uninsurable, not justifiable and/or commercially reasonable to insure, or for which
any insurance that may be available would be insufficient to repair or replace a damaged or destroyed property. Further, due to
inflation, changes in codes and ordinances, environmental considerations and other factors, it may not be feasible to use insurance
proceeds to replace a building after it has been damaged or destroyed.



The
availability of insurance coverage may decrease and the prices for insurance may increase as a consequence of significant losses
incurred by the insurance industry. In the event of future industry losses, we may be unable to renew or duplicate our current
insurance coverage in adequate amounts or at reasonable prices. In addition, insurance companies may no longer offer coverage
against certain types of losses, or, if offered, the expense of obtaining these types of insurance may not be justified. We therefore
may cease to have insurance coverage against certain types of losses and/or there may be decreases in the limits of insurance
available.



Should
an uninsured loss, a loss over insured limits or a loss with respect to which insurance proceeds would be insufficient to repair
or replace the property occur, we may lose capital invested in the affected property as well as anticipated income and capital
appreciation from that property, while we may remain liable for any debt or other financial obligation related to that property.



A
failure by Regency to be treated as a REIT could have an adverse effect on our investment in Regency.



As
of December 31, 2016, Regency has been treated as a Real Estate Investment Trust (“REIT”) for U.S. federal income
tax purposes. Subject to certain exceptions, a REIT generally is able to avoid entity-level tax on income it distributes to its
shareholders, provided certain requirements are met, including certain income, asset, and distribution requirements. If Regency
ceases to be treated as a REIT and cannot qualify for any relief provisions under the Internal Revenue Code of 1986, as amended
(the “Code”), Regency would generally be subject to an entity-level tax on its income at the graduated rates applicable
to corporations. Such tax would reduce Regency’s profitability and would have an adverse effect on our investment in Regency.



If
we or third-party managers fail to efficiently manage our properties, tenants may not renew their leases or we may become subject
to unforeseen liabilities.



If
we fail to efficiently manage a property or properties, increased costs could result with respect to maintenance and improvement
of properties, loss of opportunities to improve income and yield and a decline in the value of the properties. In addition, we
sometimes engage third parties to provide management services for our properties. We may not be able to locate and enter into
agreements with qualified management service providers. If any third parties providing us with management services do not comply
with their agreements or otherwise do not provide services at the level that we expect, our tenant relationships and rental rates
for such properties and, therefore, their condition and value, could be negatively affected.



We
rely on third-party management companies to manage certain of our properties which represented 0.8% of our total GLA as of December
31, 2016. While we are in regular contact with our third-party managers, we do not supervise them and their personnel on a day-to-day
basis and we cannot guarantee that they will manage our properties in a manner that is consistent with their obligations under
our agreements, that they will not be negligent in their performance or engage in other criminal or fraudulent activity, or that
they will not otherwise default on their management obligations to us. If any of the foregoing occurs, the relationships with
our tenants could be damaged, which may cause the tenants not to renew their leases, and we could incur liabilities resulting
from loss or injury to the properties or to persons at the properties. If we are unable to lease the properties or we become subject
to significant liabilities as a result of third-party management performance, our operating results and financial condition could
be substantially harmed.



Properties
held by us are subject to multiple permits and administrative approvals and to compliance with existing and future laws and regulations.



Our
operations and properties, including our development and redevelopment activities, are subject to regulation by various governmental
entities and agencies in connection with obtaining and renewing various licenses, permits, approvals and authorizations, as well
as with ongoing compliance with existing and future laws, regulations and standards. A significant change in the regime for obtaining
or renewing these licenses, permits, approvals and authorizations, or a significant change in the licenses, permits, approvals
and authorizations our operations and properties are subject to, could result in us incurring substantially increased costs which
could adversely affect our business, financial condition and results of operations. In addition, each maintenance, development
and redevelopment project we undertake must generally receive administrative approvals from various governmental agencies, including
fire, health and safety and environmental protection agencies, as well as technical approvals from various utility providers,
including electricity, gas and sewage services. These requirements may hinder, delay or significantly increase the costs of these
projects, and failure to comply with these requirements may result in fines and penalties as well as cancellation of such projects
even, in certain cases, the demolition of the building already constructed. Such consequences could have a material adverse effect
on our business, financial condition and results of operations.





13







We
may be subjected to liability for environmental contamination.



As
an owner and operator of real estate, we may be liable for the costs of removal or remediation of hazardous or toxic substances
present at, on, under, in or released from our properties, as well as for governmental fines and damages for injuries to persons
and property. We may be liable without regard to whether we knew of, or were responsible for, the environmental contamination
and with respect to properties we have acquired, whether the contamination occurred before or after the acquisition. The presence
of such hazardous or toxic substances, or the failure to remediate such substances properly, may also adversely affect our ability
to sell or lease the real estate or to borrow using the real estate as security. Laws and regulations, as these may be amended
over time, may also impose liability for the release of certain materials into the air or water from a property, including asbestos,
and such release can form the basis for liability to third persons for personal injury or other damages. Other laws and regulations
can limit the development of, and impose liability for, the disturbance of wetlands or the habitats of threatened or endangered
species.



The
presence of contamination or the failure to properly remediate contamination at any of our properties may adversely affect our
ability to sell or lease those properties or to borrow funds by using those properties as collateral. The costs or liabilities
could exceed the value of the affected real estate. Although we have environmental insurance policies covering most of our properties,
there is no assurance that these policies will cover any or all of the potential losses or damages from environmental contamination;
therefore, any liability, fine or damage could directly impact our financial results.



We
rely extensively on computer systems to process transactions and manage our business. Disruptions in both our primary and secondary
(back-up) systems or breaches of our network security could harm our ability to run our business and expose us to liability.



In
order to successfully operate our business, it is essential that we maintain uninterrupted operation of our business-critical
computer systems. Our computer systems, including our back-up systems, are subject to damage or interruption from power outages,
computer and telecommunications failures, computer viruses, security breaches, cyber-attacks, catastrophic events such as fires,
hurricanes, earthquakes and tornadoes, and usage errors by our employees. If our computer systems cease to function properly or
are damaged, we may have to make a significant investment to repair or replace them, and we may suffer interruptions in our operations
in the interim. Any material interruption in our computer systems may have a material adverse effect on our business or results
of operations.



Additionally,
increased global IT security threats and more sophisticated and targeted computer crime pose a risk to the security of our systems
and networks and the confidentiality, availability and integrity of our data. In the event a security breach or failure results
in the disclosure of sensitive third party data or the transmission of harmful/malicious code to third parties, we could be subject
to liability claims. Depending on their nature and scope, such threats also could potentially lead to improper use of our systems
and networks, manipulation and destruction of data, loss of trade secrets, system downtimes and operational disruptions, which
in turn could adversely affect our reputation, competitiveness and results of operations.



If
we do not maintain the security of tenant-related information, we could incur substantial costs and become subject to litigation.



We
receive certain information about our tenants that depends upon secure transmissions of confidential information over public networks,
including information permitting cashless payments. A compromise of our security systems that results in information being obtained
by unauthorized persons could result in litigation against us or the imposition of penalties and require us to expend significant
resources related to our information security systems. Such disruptions could adversely affect our operations, results of operations,
financial condition and liquidity.



We
have significant investments in different countries and our worldwide after-tax income as well as our ability to repatriate it
might be influenced by any change in the tax law in such countries.



Our
effective tax rate reflected in our financial statements might increase or decrease over time as a result of changes in corporate
income tax rates, or by other changes in the tax laws of the various countries in which we operate which could reduce our after-tax
income or impose or increase taxes upon the repatriation of earnings from countries in which we operate.



We
have in the past restated our historical financial statements. Restatements of our historical financial statements may have a
material adverse effect on our business, financial condition or operations.



During
2014, we restated our audited consolidated financial statements as of and for the year ended December 31, 2013 (which also included
corrections to the audited consolidated financial statements as of and for the year ended December 31, 2012, which were not material)
and our audited consolidated financial statements as of and for the period ended March 31, 2014, to retrospectively reflect a
change in the estimated revenues and costs for completion of construction projects of Dori Construction, which was sold as of
January 2016. See Note 9(g) to our audited consolidated financial statements included elsewhere in this annual report.





14







We
cannot be certain that measures we have taken to prevent future restatements will ensure that no additional restatements will
occur in the future. A restatement may affect investor confidence in the accuracy of our financial disclosures, may raise reputational
issues for our business, and frequently triggers litigation.



In
addition, we may receive inquiries from the SEC, the Israeli Securities Authority, or the Canadian Securities Administrators regarding
our past restated financial statements or matters relating thereto. Any future inquiries from the SEC, the Israeli Securities
Authority, or the Canadian Securities Administrators as a result of the restatement of our historical financial statements will,
regardless of the outcome, likely consume a significant amount of our internal resources and result in additional legal and accounting
costs. The restatement of our historical financial statements may result in litigation. If litigation were to occur, we may incur
additional substantial legal defense costs regardless of the outcome of such litigation. Likewise, such events might cause a diversion
of our management’s time and attention. If we do not prevail in any such litigation, we could be required to pay substantial
damages or settlement costs.



We
have in the past identified a material weakness in our internal control over financial reporting.



Partly
as a result of the restatement of our historical financial statements described above, we reassessed our disclosure controls and
procedures and determined that, as of December 31, 2013, they were not effective due to a material weakness in our internal control
over financial reporting. A “material weakness” is a deficiency, or combination of deficiencies, in internal control
over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial
statements will not be prevented, or detected on a timely basis. We subsequently remediated the material weakness. For further
information, see “Item 15—Controls and Procedures.”



Our
management is responsible for establishing and maintaining adequate internal control over financial reporting designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements
for external purposes in accordance with IFRS.



Any
failure to maintain such internal controls could adversely impact our ability to report our financial results on a timely and
accurate basis. If our financial statements are not accurate, investors may not have a complete understanding of our operations.
Insufficient internal controls could also cause investors to lose confidence in our reported financial information, which could
have a negative effect on the trading price of our stock. It is possible that additional material weaknesses or restatements of
financial results may arise in the future due to a failure to implement and maintain adequate internal control over financial
reporting or circumvention of these controls. In addition, even if we are successful in strengthening our controls and procedures,
in the future those controls and procedures may not be adequate to prevent or identify irregularities and errors or to facilitate
the fair presentation of our audited consolidated financial statements.



Risks
Related to Our Structure



We
may face difficulties in obtaining or using information from our public subsidiaries and other investees, and it is possible that
such information, if received, may contain inaccuracies.



We
rely on information that we receive from our public subsidiaries and other investees both to provide guidance in connection with
managing the business and to comply with our reporting obligations as a public company. We receive information from our public
subsidiaries and other investees on a quarterly basis in connection with the preparation of our quarterly or annual results of
operations. While we request that our subsidiaries and other investees provide us with all material information that we require
to manage our business and comply with our reporting obligations as a public company, we do not have formal arrangements with
all of them requiring them to do so. In addition, directors of our public subsidiaries and other investees who are affiliated
with us receive information at their periodic board meetings and through their discussions with management. However, the ability
of these directors to use or disclose that information to others at Gazit-Globe prior to its disclosure by the public subsidiary
or other investee, as applicable, may be subject to limitations resulting from the corporate governance and securities laws governing
such subsidiary or other investee, as applicable, and contractual and fiduciary obligations limiting the actions of its directors.
In limited circumstances, we could face a conflict between our disclosure obligations and the disclosure obligations of our public
subsidiaries and other investees. In addition, if we wish to engage in a capital markets or other transaction in which we are
required to disclose certain information that our subsidiaries and other investees are not required or willing to disclose under
their respective securities laws, we may need to change the timing or form of our capital raising plans. Our public subsidiaries
and other investees are listed in different jurisdictions and operate in different geographic markets and do not present information
regarding their operations on a uniform basis. Accordingly, we may not present certain data that is typically presented by other
real estate companies in certain jurisdictions.



In
addition, we consolidate the financial statements of our subsidiaries into our audited consolidated financial statements and we
include the financial information of certain other investees, which are accounted for in our audited consolidated financial statements
using the equity method. In doing so, we rely on their published financial statements. Accordingly, a material inaccuracy in the
financial statements of one of our subsidiaries or other investees can result in a material error in our audited consolidated
financial statements. In 2014, the Company was compelled to restate and refile its audited consolidated financial statements as
of and for the year ended December 31, 2013 (which also included corrections to the audited consolidated financial statements
as of and for the year ended December 31, 2012, which were not material) and its consolidated financial statements as of and for
the period ended March 31, 2014, following the restatement and refiling of the financial statements for the same periods of its
fully-consolidated subsidiary, Dori Construction, due to a material deviation in the estimates of anticipated revenues and costs
with respect to construction projects. We do not supervise the preparation of the financial statements of our public subsidiaries
and equity-accounted investees. Accordingly, we cannot guarantee that such errors will not occur again or that the Company will
not be compelled to restate its consolidated financial statements in the future.





15







A
significant portion of our business is conducted through our public investees and our failure to generate sufficient cash flow
from these public investees, or otherwise receive cash from these public investees, could result in our inability to repay our
indebtedness.



We
conduct the substantial majority of our operations through our public investees that operate in key regions around the world.
After satisfying their cash needs, certain of these investees have traditionally declared dividends to their shareholders, including
us. In 2016, we received dividend payments of NIS 1,002 million from our public investees.



The
ability of our investees in general and our public investees in particular, to pay dividends and interest or make other distributions
on equity to us, is subject to limitations that could change or become more stringent in the future. Applicable laws of the respective
jurisdictions governing each investee may place limitations on payments of dividends, interest or other distributions by each
of our investees or may subject them to withholding taxes. The determination to pay a dividend is made by the boards of directors
of each entity and our nominees or persons otherwise affiliated with us represent less than a majority of the members of the boards
of directors of each of these entities. In addition, certain of our public investees incur debt on their own behalf and the instruments
governing such debt may restrict their ability to pay dividends or make other distributions to us. Creditors of such investees
will be entitled to payment from the assets of those investees before those assets can be distributed to us. The inability of
our operating investees to make distributions to us could have a material adverse effect on our business, financial condition
and results of operations.



The
control that we exert over our consolidated public subsidiaries may be subject to legal and other limitations, and a decision
by us to exert that control may adversely impact perceptions of investors in those subsidiaries.



Although
as of December 31, 2016 we had a controlling interest in each of our public subsidiaries—Equity One, First Capital, Citycon
and Atrium—they are publicly traded companies in which significant portions of the shares are held by public shareholders.
These entities are subject to legal or regulatory requirements that are typical for public companies and we may be unable to take
certain courses of action without the prior approval of a particular shareholder or a specified percentage of shareholders (either
under shareholders’ agreements or by operation of law or the rules of a stock exchange). The existence of minority interests
in certain of our public subsidiaries may limit our ability to influence the operations of these subsidiaries, to increase our
equity interests in these subsidiaries, to combine similar operations, to utilize synergies that may exist between the operations
of different subsidiaries or to reorganize our structure in ways that may be beneficial to us. Under certain circumstances, the
boards of directors of those entities may decide to undertake actions that they believe are beneficial to the shareholders of
the in subsidiary, but that are not necessarily in the best interests of Gazit-Globe. In addition, in the event that one of our
subsidiaries issues additional shares either for purposes of capital raising or in an acquisition, our holdings in such subsidiary
may be diluted or we may be forced to invest capital in such subsidiary to avoid dilution at a time that is not of our choosing
and that adversely impacts our capital requirements.



Effective
as of March 1, 2017, Equity One completed the Regency Merger, and is no longer a consolidated subsidiary of Gazit-Globe. Regency
is also a publicly traded company, and we are currently its largest shareholder as a result of the merger. However, we do not
have a controlling interest in Regency. Therefore, Regency will not be consolidated into our financial statements in 2017 and
instead we will present the investment as an available-for-sale financial asset. Equity One is presented in our audited consolidated
financial statements included elsewhere in this annual report as a discontinued operation. As of March 2, 2017, we held approximately
19.5 million shares of Regency’s common stock, which constituted approximately 11.5% of Regency’s total outstanding
share capital. There can be no assurance the Regency Merger and our subsequent ownership of a non-controlling equity interest
in Regency will be beneficial to us or our shareholders.



Additionally,
following the sale of 9 million shares of First Capital in March 2017, we reported on March 20, 2017 that we will deconsolidate
First Capital from our financial statements and present the investment on an equity method basis.



The
market price of our ordinary shares may be adversely affected if the market prices of our publicly traded investees decrease.



A
significant portion of our assets is comprised of equity securities of publicly traded companies, including First Capital, Citycon,
Atrium and Regency. The stock prices of these publicly traded companies have been volatile, and have been subject to fluctuations
due to market conditions and other factors which are often unrelated to operating results and which are beyond our control. Fluctuations
in the market price and valuations of our holdings in these companies may affect the market’s valuation of the price of
our ordinary shares and may also thereby impact our results of operations. If the value of our assets decreases significantly
as a result of a decrease in the value of our interest in our publicly traded investees, our business, operating results and financial
condition may be materially and adversely affected and the market price of our ordinary shares may also decline.





16







Changes
in our ownership levels of our public investees and related determinations may impact the presentation of our financial statements
and affect investor perception of us.



The
determination under IFRS as to whether we consolidate the assets, liabilities and results of operations of our investees depends
on whether we have legal or effective control over these investees. As of December 31, 2016, as required by IFRS, we had control
over Atrium and effective control over Citycon, Equity One and First Capital even though we had less than a majority ownership
interest and/or potential voting rights interest in each entity. Effective as of March 1, 2017, Equity One completed the Regency
Merger, and is presented in our audited consolidated financial statements included elsewhere in this annual report as a discontinued
operation. Regency will not be consolidated into our financial statements in 2017 and instead we will present the investment as
an available-for-sale financial asset. Additionally, we reported on March 20, 2017 that we will deconsolidate First Capital from
our financial statements and present the investment on an equity method basis. In the future, our public investees may undertake
securities offerings or issue securities in connection with acquisitions which result in dilution of our ownership interest. Furthermore,
we may determine that it is in our best interests and the best interests of our public investees that they undertake an acquisition
that results in dilution to our equity position. In the future, if we do not exercise effective control over a particular investee,
we will need to deconsolidate such investee from our financial statements. If a change in the level of control which impacts whether
and how we consolidate our public investees occurs, such an event may affect investor perception of us and our business model
even if there is no material economic impact on our company.



Changes
in accounting standards may adversely impact our financial condition and results of operations.



New
accounting standards or pronouncements that may become applicable to us from time to time, or changes in the interpretation of
existing standards and pronouncements, could have a significant adverse effect on our reported results for the affected periods.



It
would have an adverse effect on our results of operations and our shareholders if we become subject to regulation under the U.S.
Investment Company Act of 1940.



We
do not expect to be subject to regulation under the U.S. Investment Company Act of 1940, or the Investment Company Act, because
we are not engaged in the business of investing or trading in securities. In the event we engage in business combinations which
result in our holding passive investment interests in a number of entities, we could be subject to regulation under the Investment
Company Act. In this event, we would be required to register as an investment company and become obligated to comply with a variety
of substantive requirements under the Investment Company Act, including limitations on capital structure, restrictions on specified
investments, and compliance with reporting, record keeping, voting, proxy disclosure and other rules and regulations that would
significantly increase our operating expenses, which may make it impractical, if not impossible, for us to continue our business
as currently conducted. Furthermore, as a non-U.S. entity, we would be unable to register as an investment company under the Investment
Company Act, which could result in us needing to reincorporate as a U.S. entity or cease being a public company in the United
States. As a result of these restrictions, any determination that we are an investment company would have material adverse consequences
for our investors.



Joint
venture investments could be adversely affected by our lack of sole decision-making authority, our reliance on the financial condition
of co-venturers and disputes between us and our co-venturers.



We
enter into joint ventures, partnerships and other co-ownership arrangements for the purpose of making investments, which currently
include First Capital’s joint venture with Main and Main Developments LP, Citycon’s joint venture with the CPPIB in
the Kista Galleria Shopping Center located in Stockholm, Sweden and Atrium’s joint venture with the Otto family in the Arkády
Pankrác Shopping Center located in Prague, the Czech Republic. Under the agreements with respect to certain of our jointly-controlled
entities, we may not be in a position to exercise sole decision-making authority regarding the jointly-controlled entity. Co-venturers
may have economic or other business interests or goals which are inconsistent with our business interests or goals, and may be
in a position to take actions contrary to our policies or objectives. Such investments may also have the potential risk of impasses
on decisions, such as a sale, because neither we nor the co-venturer would have full control over the jointly-controlled entities.
Investments in jointly-controlled entities may, under certain circumstances, involve risks not present were a third party not
involved, including the possibility that partners or co-venturers might become bankrupt or fail to fund their required capital
contributions. While we have not experienced any material disputes in the past, disputes between us and co-venturers may result
in litigation or arbitration that would increase our expenses and prevent our officers and/or directors from focusing their time
and effort on our business. Consequently, actions by or disputes with co-venturers might result in subjecting properties owned
by the jointly-controlled entity to additional risk. In addition, we may in certain circumstances be liable for the actions of
our co-venturers.



Proposed
changes to enhance Israeli corporate governance laws may adversely affect our ability to expand our business and raise capital
from certain Israeli financial institutions.



In December 2013, the
Israeli Knesset enacted a law in order to promote competition and reduce concentration (the “Concentration Law”).
The Concentration Law imposes restrictions on “pyramidal structures” in Israel, which are corporate structures where
control in a public company is held through a chain of more than one other public company.



17







The
Concentration Law imposes a two-layer limitation on the total number of public companies in any pyramidal structure. Under its
provisions, the Company is considered a “second layer company” (as it is controlled by Norstar, which is itself a
public company). Under the Concentration Law, the Company’s former subsidiary, Luzon Group, would have been considered a
“third layer company” and Luzon Group’s subsidiary, Dori Construction, a “fourth layer company.”
Therefore, we were required to make structural adjustments to comply with the Concentration Law by the end of the respective transition
periods (four years for a fourth layer company and six years for a third layer company), since Gazit-Globe, as a second layer
company, is no longer permitted to control another public company in Israel. The sale of the entire stake in Luzon Group by Gazit
Development in January 2016, primarily in an off-market transaction, has brought the Company into compliance with the aforementioned
provisions of the Concentration Law.



The
Concentration Law also authorizes the Israeli Minister of Finance to establish limits with respect to the aggregate credit that
may be provided by financial institutions to a specific company or a business group (defined to include an ultimate controlling
shareholder and the companies under its control). Such limitations, if ultimately established, might limit our ability to refinance
our debt from financial institutions.



Proper
Banking Management Directive No. 313 of the Supervisor of Banks in Israel imposes restrictions on the volume of loans that may
be extended by a bank to a “single borrower”, a single “group of borrowers” and to the bank’s largest
“groups of borrowers”, as such terms are defined in such Directive. On June 9, 2015, the Supervisor of Banks issued
a Circular for the Amendment of Proper Banking Management Directive No. 313 (the “Circular”), which increased restrictions
on lending activities. The Circular narrows the definition of bank equity, resulting in stricter restrictions on extensions of
credit. Since the Company obtains loans and credit from Israeli banks, such restrictions could adversely affect the volumes of
credit that may be attained by the Company.



Pursuant
to the recommendations of the Committee to Assess the Debt Restructuring Proceedings in Israel, the Supervisor of Banks and the
Commissioner of the Capital Market, Insurance and Savings in the Ministry of Finance issued updates to the Proper Banking Management
Directives and to circulars (as appropriate) in May 2015 with respect to restrictions on the financing of equity transactions,
restrictions on the provision and management of leveraged loans, information requirements on controlling shareholders of entities
that obtain credit and additional guidelines for banks regarding credit risk management. In addition, in July 2015, the Israeli
Legislation Committee approved an amendment to the Concentration Law, which sets a credit limit for business groups. Furthermore,
in December 2015, the Israeli Securities Authority approved a bill imposing disclosure requirements, including: past conduct of
controlling shareholders where a controlled company had encountered financial difficulties, debt obtained by a controlling shareholder
in an entity to finance the acquisition of the controlling shares in the entity or the pledging of such shares, and restrictions
on credit. Since the Company and its controlling shareholder raise credit on the Israeli capital markets as well as from financial
institutions in Israel, such restrictions could adversely affect their ability to raise or renew credit.



In
addition, the Concentration Law imposes limitations on the holdings by non-finance companies in the financial sector and similar
limitations on financial institutions with holdings in non-financial sectors. Such limitations restrict the ability of financial
institutions or their controlling shareholders to invest in the Company, and restricts the ability of the Company to invest in
such financial institutions.



Risks
Related to Investment in Our Ordinary Shares



The
price of our ordinary shares may be volatile.



The
market price of our ordinary shares could be highly volatile and may fluctuate substantially as a result of many factors, including:



| | ● | actual
                                         or anticipated fluctuations in our results of operations;
| | - | ---------------------------------------------------------------------------------------------------------



| | ● | variance
                                         in our financial performance from the expectations of market analysts;
| | - | ------------------------------------------------------------------------------------------------------------------------



| | ● | announcements
                                         by us or our competitors of significant business developments, changes in tenant relationships,
                                         acquisitions or expansion plans;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | our
                                         involvement in litigation or regulatory proceedings;
| | - | -------------------------------------------------------------------------------------------------



| | ● | our
                                         sale of ordinary shares or other securities in the future;
| | - | -------------------------------------------------------------------------------------------------------



| | ● | market
                                         conditions in our industry and changes in estimates of the future size and growth rate
                                         of our markets;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | changes
                                         in political and economic conditions in the countries where our properties are located;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------



| | ● | changes
                                         in key personnel;
| | - | ------------------------------------------------------------------



| | ● | the
                                         trading volume of our ordinary shares;
| | - | -----------------------------------------------------------------------------------



| | ● | the
                                         delisting of our ordinary shares from any securities exchange; and
| | - | ---------------------------------------------------------------------------------------------------------------



| | ● | general
                                         economic and market conditions.
| | - | --------------------------------------------------------------------------------



Although
our ordinary shares are listed on the Tel-Aviv Stock Exchange (“TASE”), the New York Stock Exchange (“NYSE”)
and the Toronto Stock Exchange (“TSX”), there may not be an active trading market on the NYSE and the TSX for our
ordinary shares. If an active market for our ordinary shares does not exist, it may be difficult to sell our ordinary shares in
the U.S. and Canada.



In
addition, stock markets have experienced price and volume fluctuations. Broad market and industry factors may materially adversely
affect the market price of our ordinary shares, regardless of our operating performance. In the past, following periods of volatility
in the market price of a company’s securities, securities class action litigation has often been instituted against that
company. If we were involved in any similar litigation, we could incur substantial costs and our management’s attention
and resources could be diverted.





18







Future
sales of our ordinary shares could reduce the market price of our ordinary shares.



If
our shareholders sell substantial amounts of our ordinary shares, either on the TASE, the NYSE or the TSX, or if there is a public
perception that these sales may occur in the future, the market price of our ordinary shares may decline.



Raising
additional capital by issuing securities may cause dilution to existing shareholders.



In
the future, we may increase our capital resources by additional offerings of equity securities. Because our decision to issue
equity securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict
or estimate the amount, timing or nature of our future offerings. Thus, holders of our ordinary shares bear the risk of our future
offerings reducing the market price of our ordinary shares and diluting their shareholdings in us.



Our
ability to pay dividends is dependent on the ability of our investees to efficiently distribute cash, including dividends, to
Gazit-Globe and our ability to obtain financing.



In
the past, our policy has been, subject to legal requirements, to distribute a quarterly dividend, the minimum amount of which
we set for each fiscal year. Any dividends will depend on our earnings, financial condition and other business and economic factors
affecting us as our board of directors may consider relevant at the time. We may pay dividends in any fiscal year only out of
“profits,” as defined by the Israeli Companies Law, unless otherwise authorized by an Israeli court, and provided
that the distribution is not reasonably expected to impair our ability to fulfill our outstanding and expected obligations.



The
Company’s ability to pay dividends is dependent on the ability of our investees to efficiently distribute cash, including
dividends, to Gazit-Globe. In the event that our investees are restricted from distributing dividends due to their earnings, financial
condition or results of operations or they determine not to distribute dividends, including as a result of taxes that may be payable
with respect to such distribution, and in the event that our debt or equity financing is restricted or limited, we may not be
able to pay dividends in the amounts otherwise anticipated or at all. If we decrease or discontinue our dividend payments, the
market price of our ordinary shares may decrease.



Our
controlling shareholder has the ability to take actions that may conflict with the interests of other holders of our shares.



Our
controlling shareholder, Norstar, owned 50.6% of our outstanding ordinary shares as of April 10, 2017. Chaim Katzman, our chairman,
and certain members of his family, own or control, including through private entities owned by them and trusts under which they
are the beneficiaries, directly and indirectly, approximately 24.3% of Norstar’s outstanding shares as of April 10, 2017.
Mr. Katzman also controls First U.S. Financial, LLC (“FUF”), which controls the voting rights of approximately 18.6%
of Norstar’s outstanding shares as of April 10, 2017. In addition, Mr. Segal, our CEO and vice-chairman, holds 8.8% of Norstar’s
outstanding shares. Additionally, Mr. Katzman has entered into a shareholders agreement with Mr. Segal and other related parties
with respect to their holdings in Norstar, which, among other things, provides Mr. Katzman the right to vote such holders’
Norstar shares regarding certain issues relating to director nominations. In aggregate, Mr. Katzman has the right to vote 57.5%
of Norstar’s outstanding shares. Accordingly, Mr. Katzman will be able to, subject to his duties as a controlling shareholder
under the Israeli Companies Law, exercise control over the outcome of substantially all matters required to be submitted to our
shareholders for approval, including decisions relating to the election of our board of directors, except for those matters which
require special majorities under Israeli law. In addition, Mr. Katzman may be able to influence the outcome of any proposed merger
or consolidation of the Company. The aforementioned arrangements may discourage third parties from seeking to acquire control
of us which may adversely affect the market price of our shares. See “Item 7—Major Shareholders and Related Party
Transactions—Major Shareholders.”



Our
ordinary shares are traded on more than one market and this may result in price variations.



Our
ordinary shares have been traded on the TASE since January 1983, on the NYSE since December 2011, and on the TSX since October
2013. Trading in our ordinary shares on these markets takes place in different currencies (U.S. dollars on the NYSE, NIS on the
TASE, and Canadian dollars on the TSX), and at different times (resulting from different time zones, different trading days and
different public holidays in the United States, Israel, and Canada). The trading prices of our ordinary shares on these three
markets may differ due to these and other factors. Any decrease in the price of our ordinary shares on the TASE could cause a
decrease in the trading price of our ordinary shares on the NYSE and/or the TSX and vice versa.





19







As
a foreign private issuer, we follow certain home country corporate governance practices instead of applicable SEC and NYSE requirements,
which may result in less protection than is accorded to shareholders under rules applicable to domestic issuers.



As
a foreign private issuer, in reliance on Section 303A.11 of the NYSE Listed Company Manual, which permits a foreign private issuer
to follow the corporate governance practices of its home country, we are permitted to follow certain home country corporate governance
practices instead of those otherwise required under the NYSE corporate governance standards for domestic issuers. We currently
follow the NYSE corporate governance standards for domestic issuers, except with respect to private placements to directors, officers
or 5% shareholders, with respect to which we follow home country practice in Israel. Under home country practice in Israel, we
may not be required to seek the approval of our shareholders for such private placements which would require shareholder approval
under NYSE rules applicable to a U.S. company. We may in the future elect to follow home country practice in Israel with regard
to formation of compensation, nominating and corporate governance committees, separate executive sessions of independent directors
and non-management directors and shareholder approval for establishment and material amendments of equity compensation plans,
transactions involving below market price issuances in private placements of more than 20% of outstanding shares, or issuances
that result in a change in control. If we follow our home country governance practices on these matters, we may not have a compensation,
nominating or corporate governance committee, we may not have mandatory executive sessions of independent directors and non-management
directors, and we may not seek approval of our shareholders for material amendments of equity compensation plans and the share
issuances described above. Accordingly, following our home country governance practices as opposed to the requirements that would
otherwise apply to a U.S. company listed on the NYSE may provide less protection than is accorded to investors under the NYSE
corporate governance standards applicable to domestic issuers. In addition, we are not currently obligated to follow additional
corporate governance practices promulgated by the TSX provided that (i) no more than 25% of the trading volume in our ordinary
shares over any six-month period occurs on the TSX and (ii) another stock exchange is providing review of the action in question.
Should TSX regulations change or were we to exceed the aforementioned 25% threshold, we could become obligated to comply with
TSX corporate governance requirements that also differ from those of the NYSE and from home country practice in Israel.



We
are an “SEC foreign issuer” under Canadian securities regulations and are exempt from certain requirements of Canadian
securities laws.



Although
we are a reporting issuer in Canada, we are an “SEC foreign issuer” within the meaning of National Instrument 71-102
- Continuous Disclosure and Other Exemptions Relating to Foreign Issuers under Canadian securities law statutes and are therefore
exempt from certain Canadian securities laws relating to continuous disclosure obligations and proxy solicitation as long as we
comply with certain reporting requirements applicable in the United States, provided that the relevant documents filed with the
SEC are also filed in Canada and sent to our shareholders in Canada to the extent and in the manner and within the time required
by applicable U.S. requirements. Therefore, there may be less publicly available information in Canada about us than is regularly
published by or about other reporting issuers in Canada. In the event that we cease to be an “SEC foreign issuer”,
we may have to comply with additional Canadian securities laws and reporting requirements.



We
may incur significant costs as a result of the registration of our ordinary shares under the Securities Exchange Act of 1934 and
the listing of our shares on the New York Stock Exchange and the Toronto Stock Exchange and our management must devote substantial
time to compliance and new compliance initiatives.



As
a public company in the United States and Canada, we incur significant accounting, legal and other expenses. We are also incurring
costs associated with the requirements under Section 404 and other provisions of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley
Act. Similarly, while National Instrument 52-109 - Certification of Disclosure in Issuers’ Annual and Interim Filings under
Canadian securities law statutes permits us to satisfy the Canadian equivalent of the certification obligations under the Sarbanes-Oxley
Act on an annual basis by simply re-filing as soon as practicable the same certifications in Canada as were originally filed with
the SEC in the United States, we are also now obligated to file separate interim certifications in Canada with our quarterly financial
results. These rules and regulations may continue to increase our legal and financial compliance costs. In addition, being a public
company involves various costs, such as stock exchange listing fees and shareholder reporting fees and takes up a significant
amount of management’s time. Furthermore, we remain a publicly traded company on the TASE and are subject to Israeli securities
laws and disclosure requirements. Accordingly, we need to comply with U.S., Canadian, and Israeli disclosure requirements and
the resolution of any conflicts between those requirements may lead to additional costs and require significant management time.



In
addition, changing laws, regulations and standards relating to corporate governance and public disclosure and other matters may
be implemented in the future, which may increase our legal and financial compliance costs, make some activities more time consuming
and divert management’s time and attention from revenue-generating activities to compliance activities. If our efforts to
comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities
related to practice, regulatory authorities may initiate legal proceedings against us and our business may be harmed. Being a
publicly traded company in North America and being subject to these rules and regulations has made it more expensive for us to
obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher
costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our
board of directors, particularly to serve on our audit committee, and qualified executive officers.





20







A
substantial number of the shares held by our majority shareholder, Norstar, are pledged to secure its indebtedness and foreclosure
on such pledges, or other negative developments with respect to Norstar, could adversely impact the market price of our ordinary
shares.



Our
majority shareholder, Norstar, owned 50.6% of our outstanding ordinary shares as of April 10, 2017. Norstar is a public company
listed on the TASE. A substantial number of our shares held by Norstar are pledged predominantly to a number of financial institutions
who are lenders to Norstar. Based on Norstar’s most recent publicly filed reports in Israel, Norstar was in compliance as
of December 31, 2016, with all of the covenants governing such indebtedness, including the requirement that the value of the pledged
shares exceeds a certain percentage of the amount of outstanding indebtedness (“loan to value ratios”). In addition,
Norstar may otherwise breach applicable covenants or default on required payments. Under those circumstances, if the secured parties
foreclose on the pledge, they may acquire and seek to sell the pledged shares. The secured parties will not be subject to any
restrictions other than those that apply under applicable U.S., Canadian and Israeli securities laws, and there can be no assurance
that they would do so in an orderly manner. Furthermore, the mere foreclosure on the pledge and transfer of shares to such financial
institutions would likely be perceived adversely by investors. In the event that the secured parties do not transfer the shares
immediately, their interests may differ from those of our public shareholders. In addition, should Norstar incur significant losses,
it may choose to sell its holdings of our outstanding shares and/or may no longer be able to acquire additional shares. Any of
these events could adversely impact the market price of our ordinary shares.



Our
U.S. shareholders may suffer adverse tax consequences if we are characterized as a “passive foreign investment company.”



Generally,
if for any taxable year 75% or more of our gross income is passive income, or at least 50% of the average value of our gross assets
are held for the production of, or produce, passive income, we would be characterized as a passive foreign investment company
(a “PFIC”) for U.S. federal income tax purposes. To determine whether at least 50% of the average value of our gross
assets are held for the production of, or produce, passive income, we may use the market capitalization method for certain periods.
Under the market capitalization method, the total asset value of a company would be considered to equal the fair market value
of its outstanding shares plus outstanding indebtedness on a relevant testing date. Because the market price of our ordinary shares
may fluctuate and may affect the determination of whether we will be considered a PFIC, there can be no assurance that we will
not be considered a PFIC for any taxable year. If we are characterized as a PFIC, our U.S. shareholders may suffer adverse tax
consequences, including having gains realized on the sale of our ordinary shares treated as ordinary income, rather than capital
gain, the loss of the preferential rate applicable to dividends received on our ordinary shares by individuals who are U.S. Holders
(as defined below), and having interest charges apply to distributions by us and the proceeds of share sales. See “Item
10. Additional Information—Taxation—United States Federal Income Tax Considerations.”



Our
U.S. shareholders may suffer adverse tax consequences if we are characterized as a “United States-owned foreign corporation”
unless such U.S. shareholders are eligible for the benefits of the U.S.-Israel income tax treaty and elect to apply the provisions
of such treaty for U.S. tax purposes.



Subject
to certain exceptions, a portion of our dividends will be treated as U.S. source income for U.S. foreign tax credit purposes,
in proportion to our U.S. source earnings and profits, if we are treated as a United States-owned foreign corporation for U.S.
federal income tax purposes. We will generally be treated as a United States-owned foreign corporation if U.S. persons own, directly
or indirectly, 50% or more of the voting power or value of our shares. To the extent any portion of our dividends is treated as
U.S. source income pursuant to this rule, the ability of our U.S. shareholders to claim a foreign tax credit for any Israeli withholding
taxes payable in respect of our dividends may be limited. We do not expect to maintain calculations of our earnings and profits
under U.S. federal income tax principles and, therefore, if we are subject to the resourcing rule described above, U.S. shareholders
should expect that the entire amount of our dividends will be treated as U.S. source income for U.S. foreign tax credit purposes.
Importantly, however, U.S. shareholders who qualify for benefits of the U.S.-Israel income tax treaty may elect to treat any dividend
income otherwise subject to the sourcing rule described above as foreign source income, though such income will be treated as
a separate class of income subject to its own foreign tax credit limitations. The rules relating to the determination of the foreign
tax credit are complex, and investors should consult their tax advisor to determine whether and to what extent they will be entitled
to this credit, including the impact of, and any exception available to, the special sourcing rule described in this paragraph,
and the availability and impact of the U.S.-Israel income tax treaty election described above. See “Item 10. Additional
Information—Taxation—United States Federal Income Tax Considerations”.



Risks
Related to Our Operations in Israel



We
conduct our operations in Israel and therefore our business, financial condition and results of operations may be adversely affected
by political, economic and military instability in Israel.



Our
headquarters are located in central Israel and many of our key employees and officers and certain of our directors are residents
of Israel. Accordingly, political, economic and military conditions in Israel directly affect our business. Since the State of
Israel was established in 1948, a number of armed conflicts have occurred between Israel, its neighboring countries and other
organizations. Any armed conflicts, terrorist activities or political instability in the region could adversely affect business
conditions and could harm our business, financial condition and results of operations.





21







For
example, any major escalation in hostilities in the region could result in a portion of our employees, including executive officers,
directors, and key personnel being called upon to perform military duty for an extended period of time or otherwise disrupt our
normal operations. In response to increases in terrorist activity, there have been periods where significant numbers of military
reservists have been summoned for duty. Our operations could be disrupted by the absence of a significant number of our employees
or of one or more of our key employees. Such disruption could materially adversely affect our business, financial condition and
results of operations. Our commercial insurance does not cover losses that may occur as a result of events associated with the
security situation in the Middle East, such as damages resulting in disruption of our operations. Although the Israeli government
currently covers the reinstatement value of direct damages that are caused by terrorist attacks or acts of war, we cannot guarantee
that this government coverage will be maintained or will be adequate in the event we submit a claim.



Provisions
of Israeli law may delay, prevent or otherwise impede a merger with, or an acquisition of, our company, which could prevent a
change of control, even when the terms of such a transaction are favorable to us and our shareholders.



Israeli
corporate law regulates mergers, requires that acquisitions of shares above specified thresholds be conducted through special
tender offers, requires special approvals for transactions involving directors, officers or significant shareholders and regulates
other matters that may be relevant to these types of transactions. For example, a tender offer for all of a company’s issued
and outstanding shares can only be completed if the acquirer receives positive responses from the holders of at least 95% of the
issued share capital. Completion of the tender offer also requires approval of a majority of the offerees that do not have a personal
interest in the tender offer unless, following consummation of the tender offer, the acquirer would hold at least 98% of the company’s
outstanding shares. Furthermore, the shareholders, including those who indicated their acceptance of the tender offer, may, at
any time within six months following the completion of the tender offer, petition an Israeli court to alter the consideration
for the acquisition, unless the acquirer stipulated in its tender offer that a shareholder that accepts the offer may not seek
such appraisal rights.



Israeli
tax considerations may also make potential transactions unappealing to us or to our shareholders whose country of residence does
not have a tax treaty with Israel exempting such shareholders from Israeli tax or who are not exempt under the provisions of the
Israeli Income Tax Ordinance from Israeli capital gains tax on the sale of our shares. For example, Israeli tax law does not recognize
tax-free share exchanges to the same extent as U.S. tax law. With respect to mergers, Israeli tax law allows for tax deferral
in certain circumstances but makes the deferral contingent on the fulfillment of a number of conditions, including, in some cases,
a holding period of two years from the date of the transaction during which sales and dispositions of shares of the participating
companies are subject to certain restrictions. Moreover, with respect to certain share swap transactions, the tax deferral is
limited in time, and when such time expires, the tax becomes payable even if no disposition of the shares has occurred. These
provisions of Israeli law could have the effect of delaying or preventing a change in control and may make it more difficult for
a third party to acquire us, even if doing so would be beneficial to our shareholders, and may limit the price that investors
may be willing to pay in the future for our ordinary shares.



It
may be difficult to enforce a U.S. judgment against us, our officers and directors and our independent registered public accounting
firm in Israel or the United States, or to assert U.S. securities laws claims in Israel or serve process on our officers and directors
and these experts.



We
are incorporated in Israel. Some of our executive officers and directors are not residents of the United States. Our independent
registered public accounting firm is not a resident of the United States. The majority of our assets and the assets of these persons
are located outside the United States. Therefore, it may be difficult for an investor, or any other person or entity, to enforce
a U.S. court judgment based upon the civil liability provisions of the U.S. federal securities laws against us or any of these
persons in a U.S. or Israeli court, or to effect service of process upon these persons in the United States. Additionally, it
may be difficult for an investor, or any other person or entity, to assert U.S. securities law claims in original actions instituted
in Israel. Israeli courts may refuse to hear a claim based on a violation of U.S. securities laws on the grounds that Israel is
not the most appropriate forum in which to bring such a claim. Even if an Israeli court agrees to hear a claim, it may determine
that Israeli law and not U.S. law is applicable to the claim. If U.S. law is found to be applicable, the content of applicable
U.S. law must be proven as a fact by expert witnesses, which can be a time-consuming and costly process. Certain matters of procedure
will also be governed by Israeli law. There is little binding case law in Israel that addresses the matters described above. As
a result of the difficulty associated with enforcing a judgment against us in Israel, holders of our ordinary shares may not be
able to collect any damages awarded by either a U.S. or foreign court.



Shareholder
rights and responsibilities are governed by Israeli law, which differs in some respects from the laws governing the rights and
responsibilities of shareholders of U.S. companies.



Since
we are incorporated under Israeli law, the rights and responsibilities of our shareholders are governed by our articles of association
and Israeli law. These rights and responsibilities differ in some material respects from the rights and responsibilities of shareholders
in typical U.S.-based companies. In particular, a shareholder of an Israeli company has a duty to act in good faith and in a customary
manner in exercising its rights and performing its obligations towards the company and other shareholders and to refrain from
abusing its power in the company, including, among other things, in voting at the general meeting of shareholders on certain matters,
such as an amendment to the company’s articles of association, an increase of the company’s authorized share capital,
a merger of the company and approval of related party transactions that require shareholder approval. In addition, a shareholder
who is aware that it possesses the power to determine the outcome of a shareholder vote or to appoint or prevent the appointment
of a director or executive officer in the company has a duty of fairness toward the company. There is limited case law available
to assist us in understanding the nature of this duty or the implications of these provisions that govern shareholders’
actions. These provisions may be interpreted to impose additional obligations and liabilities on our shareholders that are not
typically imposed on shareholders of U.S. companies.





22







|ITEM
    4. | INFORMATION
    ON THE COMPANY
|----------- | ------------------------------



| | A. | History
                                         and Development of the Company
| | -- | -------------------------------------------------------------------------------



We
believe we are one of the leading global owners, developers and operators of supermarket-anchored shopping centers in major urban
markets. As of December 31 2016 our 426 properties have a gross leasable area, or GLA, of approximately 71 million square feet
and are geographically diversified across 20 countries, including the United States, Canada, Sweden, Norway, Finland, Poland,
the Czech Republic, Israel, Russia and Brazil. We, through our public and private subsidiaries, acquire, manage, develop and redevelop
well-located, supermarket-anchored neighborhood and community shopping centers in high growth, urban markets with high barriers
to entry and strong demographic trends. Our properties are typically located in countries characterized by stable GDP growth,
political and economic stability and investment-grade credit ratings, with the exception of our emerging markets operations in
Brazil and Russia. In addition, we work to identify and realize business opportunities by acquiring shopping centers and/or companies
operating in our sector (including with partners), in the regions in which we operate and in other regions.



Gazit-Globe
Ltd. was incorporated in Israel in May 1982. The Company is a limited liability corporation, and it operates under the Israeli
Companies Law 5759-1999. We issued our first prospectus on the Tel Aviv Stock Exchange in January 1983. Our ordinary shares are
currently listed on the Tel Aviv Stock Exchange under the symbol “GZT.” In December 2011, we completed our initial
public offering on the New York Stock Exchange where our ordinary shares are also currently listed under the symbol “GZT”.
In October 2013, we listed our ordinary shares on the Toronto Stock Exchange also under the symbol “GZT”. Our principal
executive offices are located at 1 Hashalom Rd., Tel Aviv 67892, Israel, and our telephone number is +972 3 694-8000. Our agent
for service of process in the United States is Gazit Group USA, Inc., 1696 NE Miami Gardens Drive, North Miami Beach, FL 33179,
USA, whose telephone number is (305) 947-8800.



On January 14, 2016,
Gazit Development divested its entire holdings (direct and indirect) of Luzon Group for a total consideration of NIS 10.7
million (U.S.$ 2.7 million). Consequently, commencing in the first quarter of 2016, Luzon Group’s operations are no longer
consolidated as an operating segment in our financial statements and are presented in our audited consolidated financial statements
included elsewhere in this annual report as discontinued operations. See Note 9(g) to our audited consolidated financial statements
included elsewhere in this annual report.



In
January 2016, the Company sold 6.5 million shares of First Capital on the TSX for consideration of approximately C$ 117 million
(NIS 329 million; U.S.$ 84 million). In May and August 2016, First Capital issued and sold 13 million shares in a public offering
in Canada, which further diluted the Company’s ownership interest. In March 2017, the Company sold 9 million shares of First
Capital on the TSX for consideration of approximately C$ 185 million (NIS 500 million; U.S.$ 137 million). As of April 10, 2017,
the Company held 32.7% of the share capital of First Capital. The Company reported on March 20, 2017 that, as a result of the
aforementioned sale, the Company will deconsolidate First Capital from its financial statements and present the investment on
an equity method basis. See Note 39(a) to our audited consolidated financial statements included elsewhere in this annual report.



In
November 2016, Equity One, in which the Company held an approximately 34.3% interest as of December 31, 2016, entered into a
definitive merger agreement with Regency, a U.S. real estate investment trust listed on the NYSE. Regency owns, manages and
develops neighborhood and community supermarket-anchored shopping centers throughout the United States. Effective as of March
1, 2017, Equity One completed the Regency Merger, and is no longer a consolidated subsidiary of Gazit-Globe. Each share of
Equity One common stock was converted into 0.45 shares of newly issued shares of Regency common stock, which reflects a tax
deferred premium for Equity One’s shareholders of approximately 13.7% above Equity One’s market value (as of
November 14, 2016, the date of entry into the merger agreement). As of the date of the Regency Merger, the merged
company’s property portfolio was comprised of 429 retail properties, with a total GLA in excess of 57 million square
feet, throughout the United States. The merged company had a market value of approximately U.S.$ 12 billion as of March 1,
2017 and, according to the 2017 FFO forecasts of Regency, the Company’s share in the economic FFO of the merged company
is expected to increase by NIS 35 million (including a NIS 6 million saving in the Company’s head office related to
general and administrative expenses). On March 2, 2017, the Company sold 2.8 million shares of Regency for consideration of
approximately U.S.$192 million. Following these transactions, as of March 2, 2017, the Company held approximately 19.5
million shares of Regency’s common stock, which constituted approximately 11.5% of Regency’s total outstanding
share capital. Equity One is presented in the Company’s financial statements included elsewhere in this annual report
as a discontinued operation under “assets and liabilities held for sale.” Accordingly, the comparative financial
information in the statement of income has been reclassified to reflect the change in presentation of Equity
One’s operation. Regency will not be consolidated into the Company’s financial statements and instead the Company
will present the investment as an available-for-sale financial asset. As a result of the Regency Merger, the Company is
expected to recognize a gain (pre-taxes) of approximately NIS 0.6 billion and an increase in equity attributable to
shareholders of NIS 0.8 billion, in the first quarter of 2017. For additional information on the accounting treatment of the
Regency Merger and the presentation of the merged company in the financial statements of the Company, see Note 9(d) to our
audited consolidated financial statements included elsewhere in this annual report.





23







In
conjunction with the Regency Merger (to which the Company was not a party), the Company (including through certain of its wholly-owned
subsidiaries) has entered into a governance agreement (the “Governance Agreement”) with Regency. Pursuant to the Governance
Agreement, the number of directors on Regency’s board of directors increased by three additional directors upon the closing
of the Regency Merger, from 9 to 12 directors. Of the three new directors, two are independent directors appointed on behalf of
Equity One (without any commitment that such directors will be nominated for another term at Regency’s next general meeting),
and one new director was appointed on behalf of the Company. The initial director to be nominated on behalf of the Company is
Mr. Chaim Katzman, who currently serves as Gazit-Globe’s chairman of the board and served as Equity One’s chairman
of the board. For so long as Mr. Katzman is the Company’s nominee and elected to Regency’s board of directors, he
will be nominated as the non-executive vice chairman of Regency’s Board and as a member of its investment committee (which
as of the date of the Regency Merger consisted of seven members). Regency has undertaken to continue to nominate one director
on behalf of the Company as long as the Company holds at least 7% of Regency’s share capital, as determined based on the
outstanding share capital as of the date of closing of the Regency Merger, provided that if the Company requests to nominate a
director other than Mr. Katzman, such alternative nominee must be reasonably acceptable to Regency’s board of directors.



The
Governance Agreement includes a standstill period, during which the Company will be prohibited from taking the following actions:
(1) acquiring securities of Regency that would result in an increase of the Company’s holdings of Regency’s shares
above 18% of Regency’s outstanding share capital; (2) entering into a voting or similar agreement with respect to its Regency
shares, subject to certain exceptions; (3) entering into a change of control or similar transaction involving Regency, unless
approved by Regency’s board of directors; (4) initiating a Regency shareholder meeting; (5) seeking additional representation
on the Regency’s board of directors; and (6) proposing or seeking to change or influence Regency’s management, Regency’s
board of directors, its governance structure or policies (including dividend policies). Moreover, during the term of the standstill
period, the Company has undertaken to vote at Regency’s general meetings in favor of all persons nominated to serve as directors
by Regency’s board of directors and against any proposal to remove any director or change the size of Regency’s board
of directors. The term of the standstill period commenced upon the closing of the Regency Merger and will terminate upon the later
of: (1) the date that is two years following the closing of the Regency Merger; (2) six months following the date on which the
Company holds shares constituting less than 7% of Regency’s share capital (determined based on the outstanding share capital
as of the date of closing of the Regency Merger); or (3) six months following the date on which there is no director nominated
by the Company serving on Regency’s board of directors. In addition, the Company is entitled to certain information rights,
mainly with respect to information required for its public reporting, and it is also entitled to registration rights with respect
to its Regency shares.



In March 2016, Mr. Shaiy
Pilpel resigned as a director of the Company and Ms. Zehavit Cohen was appointed in his place. In June 2016, Mr. Gary Epstein
resigned as a director of the Company. In September 2016, Arie Mientkavich’s term as deputy chairman of the board of directors
of the Company expired. In December 2016, Mr. Liad Barzilai stepped down as the Company’s Chief Investment Officer. On January
19, 2017, Ms. Rachel Lavine, the Company’s then-Chief Executive Officer and a director, concluded her service in both capacities.
Mr. Dor J. Segal, then-executive vice chairman of the Company, became the Chief Executive Officer of the Company, commencing January
20, 2017, and vice chairman of the board of directors, effective as of January 23, 2017. Mr. Segal previously served as the Company’s
Chief Executive Officer from 1998 to 2008 and President and Chief Executive Officer of First Capital from 2000 to 2015 and currently
serves as the chairman of the board of First Capital. Mr. Segal additionally served as vice chairman of Equity One until the closing
of the Regency Merger on March 1, 2017, as vice chairman of the board of directors of Citycon until March 22, 2017, and as vice
chairman and Chief Executive Officer of Norstar (Mr. Segal intends to step down as Norstar’s CEO and will be replaced by
Mr. Kaztman, subject to approval of Norstar’s shareholders in the annual general meeting), Gazit’s largest shareholder.
Ms. Lavine has agreed to continue to serve as vice chairman of the board of Atrium and as a director of Citycon. In January 2016,
Mr. Gil Kotler stepped down as the Company’s Executive Vice President and Chief Financial Officer. Mr. Adi Jemini, the Company’s
then-acting Chief Financial Officer since January 2016, was appointed, effective as of January 1, 2017, Executive Vice President
and Chief Financial Officer of the Company.



As
part of our continued recycling of capital and in line with our strategy to increase direct holdings of our properties, during
2016, we sold all of our holdings in BR Malls Participações S.A. (“BR Malls”) for approximately BRL
532 million (NIS 611 million). We recognized a gain from the sale of BR Malls of approximately BRL 109 million (NIS 125 million),
which was recycled to finance the acquisition of a 33% ownership stake in Shopping Cidade Jardim. Aside from such acquisition,
Gazit Brasil acquired additional properties for approximately BRL 153 million (NIS 179 million).



On
November 11, 2016, the Company announced that a wholly owned subsidiary of the Company, Gazit Brasil, entered into a binding agreement
for the purchase of a 33% ownership stake in Shopping Cidade Jardim, a shopping center located in the city of Sao Paulo, from
JHSF Participacoes SA (“JHSF”) for consideration of approximately NIS 470 million. Pursuant to the agreement, JHSF
has also granted Gazit Brasil an option to purchase a 33% interest in the potential retail areas located on adjacent land parcels,
which is designated for future development. In parallel, Gazit Brasil has granted JHSF a right of first offer to purchase 33%
of Gazit Brasil’s share in an asset it partially owns in the event that Gazit Brasil decides to develop or sell it, for
a period of four years. The acquisition was completed on December 29, 2016, and was funded with the proceeds from the sale of
BR Malls.





24







As
part of the Company’s financing strategy, the Company has determined to diversify its lending base and increase its
lines of credit with international lenders. In line with this strategy, on October 26, 2016, the Company and its wholly owned
subsidiaries, entered into a replacement, three-year credit facility agreement with Citibank N.A. (“Citibank”),
in an amount of U.S.$ 360 million. This new credit facility agreement replaces, increases the line of credit by approximately
U.S.$ 150 million, and extends the term of the Company’s pre-existing credit facility agreement with Citibank until
October 2019. The loans under the facility are secured by pledges over shares of Equity One, First Capital, and Citycon. On March 1,
2017, as a result of the Regency Merger, the Company and its wholly owned subsidiaries, entered into an amendment to this
credit facility agreement pursuant to which securities of Equity One which were pledged to Citibank were replaced by
securities of Regency.



Our
capital expenditures, consisting of the acquisition, construction and development of investment property including land for future
use, amounted to NIS 4,835 million (U.S.$ 1,257 million) as of December 31, 2016. For the breakdown of these amounts by operating
segments, see Note 38(b) to our audited consolidated financial statements included elsewhere in this annual report.



We
financed these expenditures primarily by equity and debt offerings, and by borrowing from financial institutions. For further
information regarding our methods of financing, see “Item 5—Operating and Financial Review and Prospects—Liquidity
and Capital Resources—Cash Flows.” For further information on our equity and debt offerings, also see Note 9, Note
20, Note 22 and Note 27(c) to our audited consolidated financial statements included elsewhere in this annual report.



For
a discussion of our principal capital expenditures and divestitures over the last three financial years, see “Item 5—Operating
and Financial Review and Prospects—Liquidity and Capital Resources—Cash Flows,” as well as Note 9 (for interests
in other companies) and Note 38 to our audited consolidated financial statements included elsewhere in this annual report.



As
of the date of this annual report, there have been no public takeover offers by third parties with respect to our ordinary shares
or by the Company with respect to other companies’ shares during the last and current financial year.



| | B. | Business
                                         Overview
| | -- | ----------------------------------------------------------



We
believe we are one of the leading global owners, developers and operators of supermarket-anchored shopping centers in major urban
markets. As of December 31, 2016, our 426 properties have a GLA of approximately 71 million square feet across 20 countries. As
of December 31, 2016, Gazit-Globe and its subsidiaries operated properties with a total value of approximately U.S.$ 22.1 billion
(NIS 84.9 billion), which includes the value of properties of jointly-controlled entities and properties managed by us, approximately
U.S.$ 1.6 billion (NIS 6.3 billion) of which is not recorded in our financial statements. We, through our public and private investees,
acquire, develop and redevelop well-located, supermarket-anchored neighborhood and community shopping centers in high growth,
urban markets with high barriers to entry and strong demographic trends. Our properties are typically located in countries characterized
by stable GDP growth, political and economic stability and investment-grade credit ratings with the exception of our emerging
markets operations in Brazil and Russia. As of December 31, 2016, over 95% of our occupied GLA was leased to retailers and the
majority of our occupied GLA was leased to tenants that provide consumers with daily necessities and other non-discretionary products
and services, such as supermarkets, drugstores, discount retailers, moderately-priced restaurants, fitness centers, hair salons,
banks, dental and medical clinics and other retail spaces. Our shopping centers draw high levels of consumer traffic and have
provided us with growing rental income and strong and sustainable cash flows through different economic cycles.



We
own and operate our shopping centers in Brazil, Israel and Germany through private subsidiaries. Throughout 2015 and 2016, we
have continued to acquire properties in Brazil. Our broad geographical footprint supports our growth strategy by giving us access
to opportunities around the world, allowing us to raise capital in different markets, and reducing the risks typically inherent
in operating within a narrower geographic area.



We
operate by establishing a local presence in a country through the direct acquisition of either individual assets or operating
businesses. We either have built or seek to build a leading position in each market through a disciplined, proactive strategy
using our significant experience and local market expertise. We execute this strategy by identifying and purchasing shopping centers
that are not always broadly marketed or are in need of redevelopment or repositioning, acquiring high quality, cash generating
shopping centers, selectively developing supermarket-anchored shopping centers in growing areas and executing strategic and opportunistic
mergers and acquisitions. As a result, our real estate businesses range from new operations with a small number of properties
to large, well-established public companies, representing a range of return and risk profiles. We continue to leverage our expertise
to grow and improve operations, maximize profitability, and create substantial value for all shareholders. By implementing this
business model, we have grown our GLA from 3.6 million square feet as of January 1, 2000 to approximately 71 million square feet
as of December 31, 2016.





25







Our
Competitive Strengths





Necessity-driven
asset class.The substantial majority of our rental income is generated from shopping centers with supermarkets as their
anchor tenants that drive consistent traffic flow throughout various economic cycles. A critical element of our business strategy
is to have market-leading supermarkets as our anchor tenants. During the global economic downturn in 2008 and 2009, our average
occupancy rate was 94.5% and 93.6%, respectively, and our average same property NOI, excluding foreign exchange fluctuations, increased
by 3.1% from 2008 to 2009. From 2009 to 2010 it increased by 3.6%, 4.0% from 2010 to 2011, 3.9% from 2011 to 2012, 3.4% from 2012
to 2013, and 1.7% from 2013 to 2014, and from 2014 to 2015 it decreased by 0.5%. In the year ended December 31, 2016, average same
property NOI increased by 1.2% from the year ended December 31, 2015.For further information,
see “Item 5—Operating and Financial Review and Prospects—Operating Results—Results of Operations—Same
Property NOI.” Our supermarket-anchored shopping centers are generally well-located in densely populated high growth, urban
markets with high barriers to entry and strong demographic trends in countries that have stable GDP growth, political and economic
stability and investment-grade credit ratings. The high barriers to entry generally result from a scarcity of commercial land,
the high cost of new development or limits on the availability of shopping center properties imposed by local planning and zoning
requirements. These prime locations attract high-quality tenants seeking long-term leases, which provide us with high occupancy
rates, favorable rental rates and stable cash flows.





Diversified
global real estate platform across 20 countries.We focus our investments primarily on developed economies, including
the United States, Canada, Sweden, Norway, Finland, Poland, the Czech Republic, and Israel. As of December 31, 2016, our asset
base included 426 properties totaling approximately 71 million square feet of GLA. Approximately 89% of our net operating income,
or NOI, on a proportionate consolidation basis, for the year ended December 31, 2016 was derived from properties in countries
with investment grade credit ratings as assigned either by Moody’s or Standard & Poor’s, and 62% of our NOI on
a proportionate consolidation basis for the year ended December 31, 2016, was derived from properties in countries with at least
AA+ ratings as assigned by Standard & Poor’s. We believe that our geographic diversity provides Gazit-Globe with flexibility
to allocate its capital and improves our resilience to changes in economic conditions and the cyclicality of markets, enabling
us to apply successful ideas and proven market strategies in multiple countries. Our global reach, together with our local management,
enables us to make accretive acquisitions to expand our asset base both in countries where we already own properties and in countries
where we do not. For example, during the global economic downturn in 2008 and 2009, we used the opportunity to invest an aggregate
of approximately U.S.$ 3.8 billion to acquire, develop, and redevelop new shopping centers and other properties, to initially
purchase interest in Atrium, to increase our holdings in our public subsidiaries and to repurchase our debt securities at a significant
discount to par value.



Proven
business model implemented in multiple markets driving growth.The business model that we have developed and implemented
over the last 25 years, whereby we own and operate our properties through our public and private subsidiaries and other investees,
has driven substantial and consistent growth. We leverage our expertise to grow and improve the operations of our investees, maximize
profitability, mitigate risk and create value for all shareholders. We enter high growth, urban markets that are densely populated,
with high barriers to entry, by acquiring and developing well-located, supermarket-anchored shopping centers. We continue to expand
our business and drive growth while optimizing our capital structure with respect to our assets. For example, in the United States,
Equity One acquired its first property in 1992 and became a publicly-traded REIT listed on the New York Stock Exchange in 1998.
We continued to expand Equity One’s platform through internal growth and acquisitions. As of December 31, 2016, Equity One
owned 123 properties with a GLA of 16.4 million square feet. Effective as of March 1, 2017, Equity One completed the Regency Merger
(creating one of the largest shopping centers REITs in the United States), and is presented in our audited consolidated financial
statements included elsewhere in this annual report as a discontinued operation. Similarly, our business in Canada began in 1997
with the purchase of eight properties, followed by the acquisition of a controlling stake in First Capital, a Toronto Stock Exchange-listed
company in 2000. We have since expanded to 160 properties (including properties under development) in Canada with a GLA of 24.7
million square feet as of December 31, 2016. We reported on March 20, 2017 that we will deconsolidate First Capital from our financial
statements and present the investment on an equity method basis. Following our successes in both the United States and Canada,
we identified new and attractive regions and expanded by replicating this business model. For example, we successfully applied
our model in Northern Europe through Citycon and in Central and Eastern Europe through Atrium, resulting in improved performance
of the shopping centers acquired in those regions.





26







Leading
presence and local market knowledge. We have a leading presence in most
of our markets, which helps us generate economies of scale and marketing and operational synergies that drive profitability. Leveraging
our leading market positions and our local management teams’ extensive knowledge of these markets gives us access to attractive
acquisition, development and redevelopment opportunities while mitigating the risks involved in these opportunities. In addition,
our senior management provides our local management teams with strategic guidance to proactively manage our business, calibrated
to the needs and requirements of each local management team. This approach also allows us to address the needs of our regional
and national tenants and to anticipate trends on a timely basis.



Business
and Growth Strategies



Our
objective is to create value through long-term maximization of cash flow and capital appreciation, while improving our properties
and increasing our dividends. The strategies we intend to execute to achieve this objective are set forth below:



Increase our
privately held real estate portfolio and diversify our source of funding. As
part of our growth strategy, we are continuing to evaluate opportunities to increase our private real estate portfolio by
directly (or through our privately held subsidiaries) owning our assets rather than through our public subsidiaries. The
Company’s management believes that increasing the private real estate component of our portfolio will lead to an
increase in cash flows received directly by the Company through improvement of the Company’s cost structure and
revenues. Moreover, we believe that by increasing the number of properties we directly own, we are likely to strengthen our
financial ratios, which, in turn, would improve our financial strength, and lead to an upgrade in our debt rating and to the
receipt of international investment rating. We anticipate that these improvements would lead to a reduction in costs of
capital and thereby, increase profitability. The Company also intends to reduce its costs of financing by diversifying its
sources of financing through international financial institutions and accessing new capital markets. The Company’s
management believes that the increase in our privately held real estate portfolio and the diversification of our sources of
financing will ultimately increase the return for shareholders.



Continue
to focus on supermarket-anchored shopping centers. We will continue to concentrate
on owning and operating high quality supermarket-anchored neighborhood and community shopping centers and other necessity-driven
retail real estate assets predominantly in densely-populated areas with high barriers to entry and strong demographic trends in
countries with stable GDP growth, political and economic stability and investment-grade credit ratings. By maintaining this focus,
we will seek to keep the occupancy and NOI performance of our properties consistent through different economic cycles. We believe
that this approach, combined with the geographic diversity of our current properties and our conservative approach to risk, will
provide growing long-term returns. We intend to continue to actively manage and grow our presence in each region in which we operate
by increasing the size and quality of our asset base, while continuing to ensure geographic diversity. Our properties are held
directly and indirectly, and we are working to increase our direct holdings in our properties, depending on market conditions
and business opportunities.



Pursue
high growth opportunities to complement our stable asset base. We intend
to continue to expand into new high growth urban markets and other high growth necessity-driven asset types that generate strong
and sustainable cash flow using our experience developed over the past 25 years in entering new markets, to continue to assess
opportunities, including the establishment of new real estate businesses, the acquisition of real estate companies and properties,
primarily supermarket-anchored shopping centers and also other necessity-driven assets. In particular, while we currently have
no specific plans to expand into new geographic markets, we will seek to prudently expand into politically and economically stable
countries with compelling demographics through a thorough knowledge of local markets. For example, in 2007, we established an
office in Brazil and began assessing local opportunities. In 2008, we acquired a 154,000 square foot shopping center in Sao Paulo
for U.S.$ 31.3 million. In November 2010, we completed our first development project in Brazil. By December 2016, we had nine
properties in Brazil.



We
will also seek opportunities in other necessity-driven asset classes in order to drive shareholder value across a range of necessity-driven
assets. We also may selectively recycle capital from time to time, including from our private subsidiaries. For example, during
2016, we sold all of our holdings in BR Malls and purchased a 33% ownership stake in Shopping Cidade Jardim using primarily the
proceeds from the sale of BR Malls.



From
time to time, we access capital by utilizing bank credit facilities and by issuing debt and equity. We utilize international capital
markets to increase our financial flexibility and to gain greater exposure to local and international institutional investors.
We are working to improve the credit rating of the Company in order to reduce our debt-related costs.





27







Enhance
the performance of existing assets. We continually seek to enhance the performance
of our existing assets by repositioning, expanding and redeveloping our existing properties. We believe that improving our properties
makes them more desirable for both our supermarket anchor tenants and our other tenants, and drives more consumers to our properties,
increasing occupancy and our rental income. We continue to actively manage our tenant mix and placement, re-leasing of space,
rental rates and lease durations. We will focus on attracting more consumers to our properties by using advertising and promotions,
building the branding of our shopping centers and providing a more consumer-friendly experience, for example, by improving our
tenants’ locations. We believe that the repositioning of our properties and our active management will improve our occupancy
rates and rental income, lower our costs and increase our cash flows.



Selectively
develop new properties in strategic locations. We intend to leverage our
experience in all stages of the development and ownership of real estate to continue to selectively develop new properties in
our current markets and in new markets. We intend to continue our disciplined approach to development which is characterized by
developing supermarket-anchored properties for specific anchor tenants in locations that we believe have high barriers to entry,
thereby significantly decreasing the risk associated with development of real estate. We analyze development prospects utilizing
our local market expertise and familiarity with tenants. From January 1, 2014 through December 31, 2016, we invested approximately
NIS 5.8 billion (U.S.$ 1.5 billion) in development, redevelopment, and expansion projects as well as in other expenditures (including
leasing expenditures, tenant inducements, tenant improvements, and other capital expenditures), including approximately NIS 3.7
billion (U.S.$ 1.0 billion) in development and redevelopment projects (excluding attributed lease expenditures).



Proactively
optimize our property base and our allocation of capital.Using the expertise of our local management, we carefully monitor
and optimize our property base by taking advantage of opportunities to purchase and sell properties. Proactive management of our
property base allows us to use our resources prudently and recycle our capital when we determine that more accretive opportunities
are available. We may determine to sell a property or group of properties for a number of reasons, including a determination that
we are unable to build critical mass in a particular market, our view that additional investment in a property would not be accretive
or because we acquired non-core assets as part of a larger purchase. We plan to continue to seek creative structures through which
to enhance our property base or divest non-core properties and allocate our capital. We continually recycle our capital to make
new core acquisitions in high-density urban markets and deleverage our balance sheet. For example, in 2014, we began selling assets
of ProMed, which was completed in 2015, and Gazit Germany. Our public subsidiaries also have disposed of non-core assets. For
example, commencing in January 2015 Atrium has completed the sale of 89 small retail properties across the Czech Republic, with
an aggregate area of 284 thousand square meters for a total consideration of EUR 186.3 million. In addition, Atrium completed
the sale of three non-core assets in Poland, with an aggregate area of 15.7 thousand square meters for a total consideration of
EUR 17.5 million. We may also use jointly-controlled entities to enter into new markets where we are not established to access
attractive opportunities with lower capital risk.



For
a breakdown of the location and type of our properties, see “—Property, Plants and Equipment—Our Properties”
below.



28







Properties
Under Development



We
had 24 properties under development or redevelopment as of December 31, 2016. The following table summarizes our properties under
development, redevelopment and expansion as of December 31, 2016:



|Region                              |  | Number of Properties (1) |    |  | Estimated Total GLA (sq. ft. in thousands) |  |       | Total investments
as of
December 31,
2016 
(U.S.$ in thousands) |  |  | Cost to Complete
(U.S.$ in thousands) | 
|----------------------------------- |  | ------------------------ | -- |  | ------------------------------------------ |  | ----- | --------------------------------------------------------------- |  |  | ------------------------------------- | 
|Development                         |  |                          |    |  |                                            |  |       |                                                                 |  |  |                                       | 
|Canada                              |  |                          | 2  |  |                                            |  | 775   |                                                                 |  |  | 168,270                               | 
|Northern Europe                     |  |                          | 1  |  |                                            |  | 43    |                                                                 |  |  | 37,711                                | 
|Total Development                   |  |                          | 3  |  |                                            |  | 818   |                                                                 |  |  | 205,981                               | 
|Redevelopment (2)                   |  |                          |    |  |                                            |  |       |                                                                 |  |  |                                       | 
|United States                       |  |                          | 8  |  |                                            |  | 722   |                                                                 |  |  | 144,603                               | 
|Canada                              |  |                          | 6  |  |                                            |  | 668   |                                                                 |  |  | 383,355                               | 
|Northern Europe                     |  |                          | 2  |  |                                            |  | 668   |                                                                 |  |  | 286,346                               | 
|Central and Eastern Europe          |  |                          | 4  |  |                                            |  | 226   |                                                                 |  |  | 47,334                                | 
|Israel                              |  |                          | 1  |  |                                            |  | 140   |                                                                 |  |  | 10,663                                | 
|Total Redevelopment                 |  |                          | 21 |  |                                            |  | 2,424 |                                                                 |  |  | 872,301                               | 
|Total Development and Redevelopment |  |                          | 24 |  |                                            |  | 3,242 |                                                                 |  |  | 1,078,282                             | 










| | (1) | Excludes
                                         land for future development.
| | --- | ------------------------------------------------------------------------------



| | (2) | Including
                                         properties under expansion.
| | --- | ------------------------------------------------------------------------------



The
following table summarizes the rental income and NOI of our shopping center and healthcare properties for the years ended December
31, 2014, December 31, 2015 and December 31, 2016.





|                                                      |  |                                |        | Year Ended December 31, |      
|----------------------------------------------------- |  | ------------------------------ | ------ | ----------------------- | -----
|                                                      |  |                                |        | 2014                    |      
|                                                      |  |                                |        | Rental Income           |      
|Property type                                         |  | Region                         |        | (NIS in thousands) (5)  |      
|Shopping Centers                                      |  |                                |        |                         |      
|                                                      |  | Canada                         |        |                         | 2,100
|                                                      |  | Northern Europe(1)             |        |                         | 1,366
|                                                      |  | Central and Eastern Europe (2) |        |                         | 1,373
|                                                      |  | Germany                        |        |                         | 75   
|                                                      |  | Israel (3)                     |        |                         | 216  
|                                                      |  | Brazil                         |        |                         | 40   
|Healthcare                                            |  |                                |        |                         |      
|                                                      |  | Medical office buildings (4)   |        |                         | 128  
|Total                                                 |  |                                | 5,298  |                         |      
|Adjustment to Exclude Non-Consolidated Properties (6) |  |                                | (1,573 | )                       |      
|Total Consolidated Properties                         |  |                                | 3,725  |                         |      










| | (1) | Includes
                                         rental income and NOI of Kista Galleria which was purchased with a 50% partner and accounted
                                         for according to the equity method.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | We
                                         operate in Central and Eastern Europe through Atrium, which was presented in the financial
                                         statements according to the equity method until the beginning of 2015. Following the
                                         acquisition by the Company of 52 million of Atrium’s shares in January 2015, the
                                         Company became the sole controlling shareholder of Atrium and began to consolidate Atrium’s
                                         financial statements into its own financial statements. For further information, refer
                                         to Note 9(c) to our audited consolidated financial statements included elsewhere in this
                                         annual report. Beginning in 2015, includes rental income and NOI of Arkady Pankrac which
                                         was purchased with a 25% partner and accounted for according to the equity method.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Includes
                                         a shopping center in Bulgaria, which is owned by and operated through Gazit Development,
                                         a private subsidiary.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | Our
                                         medical office buildings were located in the United States through ProMed. During 2015,
                                         ProMed sold four medical office buildings to third parties for total consideration of
                                         U.S.$ 193 million. Since the completion of the sale of said medical office buildings,
                                         the Company is no longer active in the medical office buildings sector in the United
                                         States.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (5) | Translations
                                         of December 31, 2016 figures into U.S. dollars is provided in the chart below under “—Property,
                                         Plants, and Equipment—Our Properties” below.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





29







| | (6) | Numbers
                                         through 2014 are primarily with respect to properties in Central and Eastern Europe which
                                         were presented in the financial statements according to the equity method and presented
                                         above assuming 100% consolidation. The above also includes Kista Galleria which was purchased
                                         with a 50% partner and is also accounted for according to the equity method. Beginning
                                         in 2015, the above also includes Arkady Pankrac which was purchased with a 25% partner
                                         and is also accounted for according to the equity method.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Our
Tenants and Leases



We
have strong relationships with a diverse group of market-leading tenants in the regions in which we operate. For the year ended
December 31, 2016, our top three tenants (by base rent) represented 6.8% of our consolidated rental income (including rental income
from discontinued operations).
Our properties are subject to over 15,000 leases.



The
following table sets forth as of December 31, 2016 the anticipated expirations of tenant leases for our properties for each year
from 2017 through 2025 and thereafter(1):





|               |  | Number of Expiring Leases |        |  | GLA of Expiring Leases (thousands of sq. ft.) |  |        | Percent of Leased GLA |  |  | Percent of Total GLA |   |  | Expiring Rental Income (U.S.$ in thousands) |       |   | Percent of Total Rental Income | 
|-------------- |  | ------------------------- | ------ |  | --------------------------------------------- |  | ------ | --------------------- |  |  | -------------------- | - |  | ------------------------------------------- | ----- | - | ------------------------------ | 
|Month-to-Month |  |                           | 335    |  |                                               |  | 429    |                       |  |  | 0.8                  | % |  |                                             | 0.8   | % |                                | 
|2017           |  |                           | 3,595  |  |                                               |  | 7,330  |                       |  |  | 14.5                 | % |  |                                             | 13.9  | % |                                | 
|2018           |  |                           | 2,209  |  |                                               |  | 6,708  |                       |  |  | 13.3                 | % |  |                                             | 12.7  | % |                                | 
|2019           |  |                           | 1,946  |  |                                               |  | 6,462  |                       |  |  | 12.8                 | % |  |                                             | 12.2  | % |                                | 
|2020           |  |                           | 1,588  |  |                                               |  | 5,661  |                       |  |  | 11.2                 | % |  |                                             | 10.7  | % |                                | 
|2021           |  |                           | 1,362  |  |                                               |  | 5,483  |                       |  |  | 10.9                 | % |  |                                             | 10.4  | % |                                | 
|2022           |  |                           | 504    |  |                                               |  | 3,783  |                       |  |  | 7.5                  | % |  |                                             | 7.2   | % |                                | 
|2023           |  |                           | 330    |  |                                               |  | 2,745  |                       |  |  | 5.4                  | % |  |                                             | 5.2   | % |                                | 
|2024           |  |                           | 290    |  |                                               |  | 1,894  |                       |  |  | 3.8                  | % |  |                                             | 3.6   | % |                                | 
|2025           |  |                           | 282    |  |                                               |  | 1,794  |                       |  |  | 3.6                  | % |  |                                             | 3.4   | % |                                | 
|Thereafter     |  |                           | 1,043  |  |                                               |  | 8,174  |                       |  |  | 16.2                 | % |  |                                             | 15.4  | % |                                | 
|Vacant         |  |                           | N/A    |  |                                               |  | 2,382  |                       |  |  | N/A                  |   |  |                                             | 4.5   | % |                                | 
|Total          |  |                           | 13,484 |  |                                               |  | 52,845 |                       |  |  | 100.0                | % |  |                                             | 100.0 | % |                                | 












| | (1) | Excludes
                                         Equity One, which is presented in our audited consolidated financial statements included
                                         elsewhere in this annual report as a discontinued operation, with 16.4 million square
                                         feet, and excludes the joint ventures of Citycon and Atrium, which are accounted for
                                         according to the equity method, with 1.3 million square feet.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



As
of December 31, 2016, we had 7.3 million, 6.7 million, and 6.5 million square feet of GLA in our consolidated portfolio with leases
expiring in 2017, 2018, and 2019, respectively. We expect to achieve moderate increases in average rent spreads Canada as we renew
or re-lease these spaces while in East and Central Europe we expect a slight decrease and in North Europe it remains relatively
flat. In addition, we believe that the information provided in “Item 5—Operating and Financial Review and Prospects—Operating
Results—Shopping Centers” regarding the rental rates of renewed leases compared with the prior lease rental rates,
provides certain indications of the market rents across our markets.



30







The
following table provides a breakdown of the largest tenants of our principal investees by geographical segment:



|Subsidiary            |  | Geographical
        Region                                                                                                                                                                                                                                                                      |  | Anchor/Major
        Tenants                                                                                                                   
|--------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------
|                      |  |                                                                                                                                                                                                                                                                                                  |  |                                                                                                                                                
|Equity
    One(1)     |  | United
    States
    Florida, Georgia, Louisiana, North Carolina, California, Connecticut and the metropolitan areas of Boston, Massachusetts,
    New York City and Maryland                                                                                                                   |  | Albertsons, Bed Bath & Beyond, Barneys New York, CVS Pharmacy, LA Fitness, Publix, Sports Authority, Stop & Shop,
    The Gap Inc. and TJ Maxx.
|                      |  |                                                                                                                                                                                                                                                                                                  |  |                                                                                                                                                
|First
    Capital(2)  |  | Canada
        Greater Toronto Area (including the Golden Horseshoe Area and London); Greater Calgary Area; Greater Edmonton Area; Greater
        Vancouver Area (including Vancouver Island); Greater Montreal Area; Greater Ottawa Area (including Gatineau region); and
        Quebec City. |  | Canadian Tire, CIBC, Dollarama, GoodLife Fitness, Loblaw Companies, Metro, RBC Royal Bank, Sobey’s, TD Canada Trust
    and Walmart            
|                      |  |                                                                                                                                                                                                                                                                                                  |  |                                                                                                                                                
|Citycon               |  | Northern
    Europe
    Sweden, Norway, Finland, Denmark, and Estonia                                                                                                                                                                                                                            |  | City of Espoo, Noredea, Kesko Corp., S-Group, Varner Group, ICA                                                                                
|                      |  |                                                                                                                                                                                                                                                                                                  |  |                                                                                                                                                
|Atrium                |  | Central
        and Eastern Europe
        
        Poland,
        the Czech Republic, Slovakia, Russia, Hungary and Romania                                                                                                                                                                    |  | AFM, A.S. Watson, ASPIAG, Carrefour, Hennes & Mauritz, Inditex, Kingfisher, LPP, Metro Group, New Yorker,
Tengelmann Group                     
|                      |  |                                                                                                                                                                                                                                                                                                  |  |                                                                                                                                                
|Gazit
    Development |  | Israel                                                                                                                                                                                                                                                                                           |  | Cinema
    City, Homecenter, Supersol, Super-pharm, and VIM Clubs                                                                              
|                      |  |                                                                                                                                                                                                                                                                                                  |  |                                                                                                                                                
|Gazit
    Brasil      |  | Brazil
    Sao Paulo                                                                                                                                                                                                                                                                             |  | Cinepolis,
    Cinesystem, Forever 21, Lojas Americanas, Planet Girls & Polo Wear, Renner, Runner (gym), Tok Stok and Zaffari                  
|                      |  |                                                                                                                                                                                                                                                                                                  |  |                                                                                                                                                
|Gazit
    Germany     |  | Germany                                                                                                                                                                                                                                                                                          |  | Aldi,
    dm, Inter Continental Hotels Group, and HIT                                                                                          








| | (1) | Effective
                                         as of March 1, 2017, Equity One completed the Regency Merger, and is presented in our
                                         audited consolidated financial statements included elsewhere in this annual report as
                                         a discontinued operation. Regency will not be consolidated into our financial statements
                                         in 2017 and instead we will present the investment as an available-for-sale financial
                                         asset.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | We
                                         reported on March 20, 2017 that we will deconsolidate First Capital from our financial
                                         statements and present the investment on an equity method basis.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Most
of our shopping centers in the United States and Canada are located in major cities and have large supermarkets or retailers as
the anchor, with outdoor parking areas and many smaller shops that depend on the traffic generated by the anchor. They attract
and cater to residents of an expanded or expanding population area. On the other hand, our shopping centers in Europe, more typically
in the Nordic region, and in Brazil are anchored by hypermarkets which combine the function of both grocery stores and retailers.
They tend to be located in major urban cities and are comprised of one or more buildings forming a complex of retail-oriented
shops with indoor parking garages and connected to metro stations.





31







Seasonality
of the Company’s Main Business



Our
main business operations are not materially impacted by seasonality. Citycon, however, has in the past disclosed that its operations
benefited from milder weather.



Investments
in India



In
August 2007, we entered into an agreement to invest in Hiref, a real estate fund in India. Hiref was sponsored by HDFC Group,
one of the largest financial services companies in India. Hiref invests directly and indirectly in real estate companies that
operate in the development and construction field and in similar fields, including in special economic and trade zones, technological
parks, combined municipal complexes, industrial parks, and buildings in the accommodation and leisure sector, such as hotels,
residential buildings and commercial and recreation centers. We have a commitment to invest U.S.$ 110 million with Hiref, and
we have invested U.S.$ 95 million as of December 31, 2016. For more details, refer to Note 11 to our audited consolidated financial
statements included elsewhere in this annual report.



Marketing



From
time to time we use various marketing channels for the purpose of leasing our properties, principally advertising at the relevant
property location; ongoing contacts with realty brokers; advertising concentrated on local and industry media; participation in
sector-orientated exhibitions and conventions; posting lists of available properties on our websites and the employment of staff
whose principal roles are the marketing and leasing of our properties. The cost of such marketing activities has not been and
is not expected to be material to us.



Intellectual
Property



Gazit-Globe
owns several trademarks in Israel: “Gazit-Globe” (in Hebrew and in English), “AAA”, “LOCATION LOCATION
LOCATION” (text and design), “G”; registered trademarks in the United States: “Gazit-Globe”, “G”
(design in black and white), and “G” (design in color); and a registered trademark in the European Union, in Russia
and in Brazil: LOCATION LOCATION LOCATION (design).



As
of the reporting date, intangible properties have not been recognized as an asset in the Company’s financial statements.



Government
Regulations



Our
operations and properties, including our development and redevelopment activities, are subject to regulation by various governmental
entities and agencies of the country or state where that project is located in connection with obtaining and renewing various
licenses, permits, approvals and authorizations, as well as with ongoing compliance with existing and future laws, regulations
and standards. Each project must generally receive administrative approvals from various governmental agencies of the country
or state where that project is located. No individual regulatory body, permit, approval or authorization is material to our business
as a whole.



32







| | C. | Organizational
                                         Structure
| | -- | -----------------------------------------------------------------



We
were incorporated in Israel in May 1982. We operate our business through public and private investees in our five principal geographic
regions: the U.S., Canada, Europe, Israel and Brazil. The following chart summarizes our corporate structure as of December 31,
2016:














| | (1) | Following
                                         the sale of nine million shares of First Capital in March 2017, we reported on March
                                         20, 2017 that we will deconsolidate First Capital from our financial statements and present
                                         the investment on an equity method basis. As of April 10, 2017, the Company held 32.7%
                                         of the share capital of First Capital.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Effective
                                         as of March 1, 2017, Equity One completed the Regency Merger, and is presented in our
                                         audited consolidated financial statements included elsewhere in this annual report as
                                         a discontinued operation. Regency will not be consolidated into our financial statements
                                         in 2017 and instead we will present the investment as an available-for-sale financial
                                         asset. As of March 2, 2017, we held approximately 11.5% of Regency’s total outstanding
                                         share capital.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



For
the country of incorporation of each subsidiary, see “Appendix A to Consolidated Financial Statements–List of Major
Group Investees as of December 31, 2016.”



Our public investees are
listed on stock exchanges in their local regions and are subject to oversight by their respective boards of directors. We seek
to balance our role as each company’s most significant shareholder with the recognition that they are public companies in
their respective countries with obligations to all of their shareholders. Chaim Katzman, the chairman of our board, serves as
the chairman of the boards of our major public subsidiaries—Citycon and Atrium. Dor J. Segal, the vice chairman of our board
and our CEO, serves on the board of First Capital (as chairman). In connection with the Regency Merger, Mr. Katzman serves as
the non-executive vice chairman of the board of directors of Regency. Other individuals affiliated with us also serve on the boards
of our public investees. As public companies, our public investees are generally required to have a number of directors who meet
independence requirements under local law and stock exchange rules. As a result of this requirement and other factors, individuals
affiliated with us represent less than a majority of the members of the boards of directors of each of these entities. We are
also active in seeking, and assisting our public investees in engaging, experienced executive management. Beyond providing oversight
and guidance through our board representation, the level of our involvement with each public investee varies based on each investee’s
general business needs, with greater guidance provided to those with less well-established operations or in connection with significant
transactions, such as an acquisition.



33







| | D. | Property,
                                         Plants and Equipment
| | -- | -----------------------------------------------------------------------



Our
Properties



We
own interests in 426 properties in 20 countries. The following tables summarize our properties as of December 31, 2016:





|                                      |  | As
    of December 31, 2016 |     |  | Year
    Ended December 31, 2016     |  |       | As
    of December 31, 2016 | 
|------------------------------------- |  | --------------------------- | --- |  | ------------------------------------ |  | ----- | --------------------------- | 
|Region                                |  | Total
    No. of Properties |     |  | Gazit-Globe’s
    Ownership Interest |  |       | GLA                         | 
|                                      |  |                             |     |  |                                      |  |       | (thousands
    of sq. ft.)  | 
|Shopping
    Centers                  |  |                             |     |  |                                      |  |       |                             | 
|United
    States (6)(7)              |  |                             | 123 |  |                                      |  | 34.3  | %                           | 
|Canada                                |  |                             | 158 |  |                                      |  | 36.4  | %                           | 
|Northern
    Europe(1)                |  |                             | 58  |  |                                      |  | 43.9  | %                           | 
|Central
    and astern Europe (1)     |  |                             | 60  |  |                                      |  | 59.5  | %                           | 
|Germany                               |  |                             | 3   |  |                                      |  | 100.0 | %                           | 
|Israel(10)                            |  |                             | 11  |  |                                      |  | 100.0 | %                           | 
|Brazil                                |  |                             | 8   |  |                                      |  | 100.0 | %                           | 
|Other
    Properties                  |  |                             |     |  |                                      |  |       |                             | 
|Land
    for future development       |  |                             | -   |  |                                      |  | -     |                             | 
|Properties
    under development (11) |  |                             | 3   |  |                                      |  | -     |                             | 
|Other                                 |  |                             | 2   |  |                                      |  | -     |                             | 
|Total                                 |  |                             | 426 |  |                                      |  | -     |                             | 












| | (1) | Amounts
                                         in this table with respect to shopping centers in Central and Eastern Europe includes
                                         the 75%-held joint property, Pankrac Shopping Centre, which is accounted for using the
                                         equity method and is presented above at 100%. Likewise, in Northern Europe, the 50%-held
                                         joint venture property, Kista Galleria which is accounted for using the equity method,
                                         is presented above at 100%.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Represents
                                         amounts translated into U.S.$ using the exchange rate in effect on December 31, 2016
                                         (U.S.$ 1.00 = NIS 3.845).
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Same
                                         property amounts are calculated as the amounts attributable to properties which have
                                         been owned and operated by us, and reported in our consolidated results, for the entirety
                                         of the relevant periods excluding the impact of currency exchange rate fluctuation. Therefore,
                                         any properties either acquired after the first day of the earlier comparison period or
                                         sold, contributed or otherwise removed from our consolidated financial statements before
                                         the last day of the later comparison period are excluded from same properties. Same property
                                         NOI growth excludes 36 properties that are considered under redevelopment and expansion.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | Investment
                                         properties and investment properties under development are measured at fair value with
                                         changes in their fair value recognized as a gain (loss) in the income statement. For
                                         a detailed description of the accounting treatment of investment properties and investment
                                         properties under development, the valuation methods used by the Group and the extent
                                         external appraisals are performed, see “Item 5—Operating and Financial Review
                                         and Prospects—Critical Accounting Policies—Investment Property and Investment
                                         Property Under Development”.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (5) | Includes
                                         100% of the fair value of the properties of entities whose accounts are consolidated
                                         in Gazit-Globe’s financial statements. Includes 100% of the fair value of the properties
                                         Pankrac Shopping Centre and Kista Galleria, each of which are presented according to
                                         the equity method in Gazit-Globe’s financial statements with respect to the year
                                         ended December 31, 2016.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (6) | As
                                         of December 31, 2016, includes six office, industrial, residential and storage properties.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------



| | (7) | Occupancy
                                         data excludes the occupancy of six office, industrial, residential and storage properties.
                                         The properties are excluded because they are non-retail properties that are not considered
                                         part of Equity One’s core portfolio. If these properties were included in the occupancy
                                         data and include development and redevelopment properties, the occupancy rate as of December
                                         31, 2016 would be 94.5%.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





34







| | (8) | The
                                         change in same property NOI does not include the operations in Norway, which represent
                                         approximately one third of Citycon’s operations and were acquired in July 2015.
                                         With the operations in Norway and a jointly controlled property in Sweden, the change
                                         in same property NOI is an increase of 0.7% compared to 2015.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (9) | Excluding
                                         Russia, the change in same property NOI increased by 1.8%.
| | --- | -------------------------------------------------------------------------------------------------------------



| | (10) | Israel
                                         includes one income-producing property in Bulgaria.
| | ---- | ---------------------------------------------------------------------------------------------------



| | (11) | As
                                         of December 31, 2016, total GLA under development was 0.8 million square feet.
| | ---- | --------------------------------------------------------------------------------------------------------------------------



| | (12) | This
                                         amount includes rental income from jointly-controlled entities in the amount of U.S.$
                                         57 million.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (13) | This
                                         amount includes net operating income from jointly-controlled entities in the amount of
                                         U.S.$ 43 million.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (14) | Excluding
                                         Russia, the change in same property NOI increased by 2.1%.
| | ---- | -------------------------------------------------------------------------------------------------------------



| | (15) | This
                                         amount would be approximately NIS 84.9 billion (U.S.$ 22.1 billion) if it included 100%
                                         of the fair value of properties operated by us through joint ventures or other management
                                         arrangements, which are accounted for using the equity method of accounting. Approximately
                                         U.S.$ 1.6 billion of this amount is not recorded in our financial statements and includes
                                         mainly Pankrac Shopping Centre and Kista, which, however, are included in the table (see
                                         footnote (5) above). This amount represents the following amounts recorded in our consolidated
                                         statements of financial position as of December 31, 2016: NIS 55,982 million (U.S.$ 14,560
                                         million) of investment property, NIS 2,113 million (U.S.$ 550 million) of investment
                                         property under development and NIS 20,555 million (U.S.$ 5,346 million) of assets classified
                                         as held for sale.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Environmental



We
seek to conduct our business in an environmentally-friendly manner. We are investing resources in environmental conservation and
in the construction of environmentally-friendly shopping centers. We believe that, in the long-term, the consumers, the retailers
and we will benefit from these investments. For example, we expect that the use of green energy and the recycling of various materials
will benefit the community, preserve the environment, and in the long-term decrease our costs. In addition, we believe that the
growing awareness of the need to preserve the environment will lead the population to prefer visiting "green" shopping
centers over regular shopping centers, thus increasing the value of such properties.



Leasing
Expenditures



Leasing
expenditures, such as tenant improvement costs and leasing commissions, are not material to our business as a whole and therefore
additional disclosure would not be meaningful to current and prospective investors. See also “—Information on the
Company—Business Overview—Government Regulations”.



|ITEM
    4A. | UNRESOLVED
    STAFF COMMENTS
|------------ | -----------------------------



None.





35







|ITEM
    5. | OPERATING
    AND FINANCIAL REVIEW AND PROSPECTS
|----------- | ------------------------------------------------

|A. | Operating
                                         Results
|-- | ----------------------------------------------------------





We believe we are
one of the leading global owners, developers and operators of supermarket-anchored shopping centers in major urban markets. As
of December 31, 2016, our 426 properties have a GLA of approximately 71 million square feet across 20 countries. As of December
31, 2016, Gazit-Globe and its subsidiaries operated properties with a total value of approximately U.S.$ 22.1 billion (NIS 84.9
billion), which includes the value of properties of jointly-controlled entities and properties managed by us, approximately U.S.$
1.6 billion (NIS 6.3 billion) of which is not recorded in our financial statements. We, through our public and private investees,
acquire, develop and redevelop well-located supermarket-anchored neighborhood and community shopping centers in high-growth urban
markets with high barriers to entry and strong demographic trends. Our properties are typically located in countries characterized
by stable GDP growth, political and economic stability and investment-grade credit ratings, with the exception of our emerging
markets operations in Brazil and Russia. As of December 31, 2016, over 95% of our occupied GLA was leased to retailers and the
majority of our occupied GLA was leased to tenants that provide consumers with daily necessities and other non-discretionary products
and services, such as supermarkets, drugstores, discount retailers, moderately-priced restaurants, fitness centers, hair salons,
banks, dental and medical clinics and other retail spaces. Our shopping centers draw high levels of consumer traffic and have provided
us with growing rental income and strong and sustainable cash flows through different economic cycles.





Our
properties are owned and operated through a variety of public and private subsidiaries and other investees. In 2016, our primary
public subsidiaries were Equity One in the United States, First Capital in Canada, Citycon in Northern Europe, and Atrium in Central
and Eastern Europe. Additionally, our private subsidiaries own and operate our shopping centers in Brazil, Israel and Germany.
Effective as of March 1, 2017, Equity One completed the Regency Merger, and is presented in our audited consolidated financial
statements included elsewhere in this annual report as a discontinued operation. Regency will not be consolidated into our financial
statements in 2017 and instead we will present the investment as an available-for-sale financial asset. As a result of our sale
of common shares of First Capital in 2017, we will deconsolidate First Capital from our financial statements and present the investment
on an equity method basis.



Our
strategy includes growing our cash flow through the proactive management of our properties, acquiring properties that offer long-term
growth opportunities in high-growth urban markets, and making strategic divestments of non-core properties with limited growth
potential.



Our
strategy also includes growing our private real estate operations in order to grow our cash flows and improve our cost structure
through the creation of cost efficiencies and economies of scale. Moreover, we believe that increasing the number of properties
we directly own will improve our financial ratios and, in turn, improve our financial strength, upgrade our debt rating, reduce
financial costs and increase the return for shareholders.



We
mainly intend to continue focusing on owning and operating high quality supermarket-anchored neighborhood and community
shopping centers and other necessity-driven retail real estate assets in high-growth urban markets with high barriers to
entry and strong demographic trends and in countries with stable GDP growth, political and economic stability and
investment-grade credit ratings. We believe this focus stabilizes the occupancy and NOI performance of our properties through
different economic cycles.



We
intend to continue expanding into new high-growth markets in politically and economically stable countries with compelling demographics
by investing in high-growth necessity-driven asset types that generate strong and sustainable cash flow. We will use the knowledge
and expertise gained from over 25 years of experience in entering new markets to assess opportunities, such as the establishment
of new necessity-driven retail real estate businesses, the acquisition of real estate companies and the acquisition of properties,
primarily supermarket-anchored shopping centers, and also other necessity-driven assets



We
also intend to divest non-core properties and allocate our capital. For example, during 2016, we sold all of our holdings in BR
Malls and purchased a 33% ownership stake in Shopping Cidade Jardim using primarily the proceeds from the sale of BR Malls.



Factors
Impacting our Results of Operations



Rental
income. In 2016, our revenues were derived only from rental income. Our rental income is a product of the number of income
producing properties we own, the occupancy rates at our properties and the rental rates we charge our tenants. Our rental income
is a product of the number of income producing properties we own, the occupancy rates at our properties and the rental rates we
charge our tenants.



Our
rental income is impacted by a number of factors:



|● | Global,
                                         regional and local economic conditions. The economic downturn of 2008 and 2009
                                         caused many companies to take a more cautious approach to leasing activities. Potential
                                         tenants may want to consolidate, reduce overhead and preserve operating capital. The
                                         downturn also impacted the financial condition of some our tenants and their ability
                                         to fulfill their lease commitments which, in turn, impacted our ability in some of our
                                         regions to maintain or increase the occupancy level and/or rental rates of our properties.
                                         While the economy in most of our markets has improved since the downturn of 2008 and
                                         2009, we still face macro-economic challenges in some of our markets, particularly in
                                         Europe which remains particularly vulnerable to volatility, and Russia which is suffers
                                         from significant economic and politic turmoil.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



36









|● | Scheduled
                                         lease expirations. As of December 31, 2016, leases representing 13.9% and 12.7%
                                         of the GLA of our properties will expire during 2017 and 2018, respectively. Our results
                                         of operations will depend on whether expiring leases are renewed and, with respect to
                                         renewed leases (including jointly-controlled entities), whether the properties are re-leased
                                         at base rental rates equal to or above our current average base rental rates. We proactively
                                         manage our properties to reduce the risk that expiring leases are not renewed or that
                                         properties are not re-leased and to reduce the risk that renewals and re-leases are at
                                         base rental rates lower than our current average base rental rates. However, our ability
                                         to renew leases at base rental rates equal to or above our current average base rental
                                         rates is dependent on a number of factors, including micro- and macro-economic factors
                                         in the markets in which we operate.                                                                                                                                                                                                             
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|● | Availability
                                         of properties for acquisition.We grow our portfolio of properties through targeted
                                         acquisitions. Our results of operations depend on whether we are able to identify suitable
                                         properties to acquire and whether we can complete the acquisition of the properties we
                                         identify on commercially attractive terms. Our results of operations also depend on whether
                                         we successfully integrate acquisitions into our existing operations and achieve the occupancy
                                         or rental rates we project at the time we make the decision to acquire a property. Our
                                         results of operations for the year ended December 31, 2016 were impacted by the acquisition
                                         of 15 income-producing properties and the disposition of 36 income-producing properties
                                         across our markets which resulted in a net decrease in GLA of 1.7 million square feet.
                                         The results of operations for the year ended December 31, 2015 were impacted by the acquisition
                                         of 28 income-producing properties and the disposition of 103 income-producing properties
                                         across our markets which resulted in a net increase in GLA of 0.96 million square feet.
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|● | Development
                                         and redevelopment. Our results of operations depend in part on our ability to
                                         develop new shopping centers and redevelop existing shopping centers in a timely and
                                         cost-efficient manner, in order to increase rental rates, as well as our ability to locate
                                         anchor tenants for these properties prior to the completion of such development or redevelopment.
                                         For the year ended December 31, 2016, we completed the development and redevelopment
                                         of properties representing 0.4 million square feet of GLA. For the year ended December
                                         31, 2015, we completed the development and redevelopment of properties representing 0.9
                                         million square feet of GLA. For the year ended December 31, 2014, we completed the development
                                         and redevelopment of properties representing 1.0 million square feet of GLA.                                                                                                                                                                                                                                                                                                                                                                                                                              
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|● | Other
                                         factors. Factors including changes in consumer preferences and fluctuations in
                                         inflation rates can affect the ability of tenants to meet their commitments to us. In
                                         addition, those factors and changes in interest rates, oversupply of properties, competition
                                         from other properties and prices of goods, fuel and energy consumption can affect our
                                         ability to continue renting our properties at the same rent levels.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            



Change
in fair value of our properties.Our results of operations are subject to changes in the fair market value of our properties.
After initial recognition at cost (including costs directly attributable acquisitions), investment property is measured at fair
value, which reflects market conditions at the balance sheet date. Gains or losses arising from changes in fair value of investment
property are recognized in profit or loss when they arise. Accordingly, such changes will impact our results of operations even
though no actual disposition of assets took place and no cash or other value was received. Property valuation typically requires
the use of certain judgments and assumptions with respect to a variety of factors, including supply and demand of comparable properties,
the rate of local economic growth, interest rates, inflation and political and economic developments in the region in which the
property is located. For the year ended December 31, 2014, valuation gains from investment property and investment property under
development were NIS 0.4 billion. For the year ended December 31, 2015, valuation losses from investment property and investment
property under development were NIS 0.4 billion. For the year ended December 31, 2016, valuation gains from investment property
and investment property under development were NIS 0.9 billion (U.S.$ 230 million) (or NIS 2.1 billion (U.S.$ 0.5 million) including
discontinued operations).



Interest
expense. Our results of operations depend on expenses relating to our debt service and our liquidity. In addition, our
ability to acquire new assets is highly dependent on our ability to access capital in a cost efficient manner. The securities
of Gazit-Globe and of our major subsidiaries and other investees are traded on six international stock exchanges, and we benefit
from the flexibility offered by raising debt or equity on many of these public markets. We believe that this global access to
liquidity provides us with the ability to pursue opportunities and execute transactions quickly and efficiently. A significant
portion of our debt is fixed rate and fluctuations in our interest expense in a particular period typically result from changes
in outstanding debt balances.



37









Functional
currency and currency fluctuations. We operate globally in multiple regions and countries within each region. Our
functional currency and our reporting currency is the New Israel Shekel. Our principal public subsidiaries as of December 31,
2016 had the following functional currencies: Equity One—U.S. dollar, First Capital—Canadian dollar,
Citycon—Euro and Atrium—Euro. The financial statements of these investees and our other equity-accounted
investees whose functional currencies are not the NIS are translated into NIS when included in our financial statements. Our
financial statements recognize the differences resulting from such translations as other comprehensive income (loss) in a
separate component of shareholders’ equity under the capital reserve “foreign currency translation
reserve”. Due to these differences resulting from such translations, our statement of comprehensive income (loss)
reported a loss of NIS 3.8 billion for the year ended December 31, 2015 and a loss of NIS 0.6 billion (U.S.$ 151 million) for
the year ended December 31, 2016. We are also exposed to risks associated with fluctuations in currency exchange rates
between the NIS, the U.S. dollar, the Canadian dollar, the Euro and certain other currencies in which we conduct business. In
order to reduce currency risk, our policy is to maintain a strong correlation between the currency in which we purchase our
assets and the currency in which we assume liabilities relating to such purchases. As part of this policy, we enter into
cross currency swap transactions and forward contracts. However, these transactions appear in the financial statements at
their fair value and in some cases, these fair value changes are recognized in profit or loss which could materially impact
our net income. Accordingly, during the year ended December 31, 2016 we recognized a NIS 45 million (U.S.$ 11.7 million)
revaluation gain and during the year ended December 31, 2015 we recognized a NIS 699 million revaluation  gain in profit or
loss with respect to such derivatives. See also “Item 11—Quantitative and Qualitative Disclosures About Market
Risk” for a discussion of our hedging activities.



Shopping
Centers





United
States. In the United States, prior to the Regency Merger in March 2017, we acquired, developed and managed shopping centers
through Equity One, which was a REIT listed on the New York Stock Exchange. The following data is presented on a fully consolidated
basis without reflecting non-controlling interests:



|                                                 |  | As of December 31, |      
|------------------------------------------------ |  | ------------------ | -----
|                                                 |  | 2014               |      
|Our economic interest in Equity One              |  |                    | 43.3 
|Shopping centers (1)                             |  |                    | 116  
|Other properties (2)                             |  |                    | 6    
|Properties under development                     |  |                    | 1    
|GLA (millions of square feet) (1)                |  |                    | 16.2 
|Occupancy rate (3)                               |  |                    | 95.0 
|Average annualized base rent (U.S.$ per sq. ft.) |  |                    | 17.34







| | (1) | Includes
                                         properties of jointly-controlled entities.                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (2) | Comprised
                                         of office, industrial and residential properties.                                                                                                                                                                                                                                                                                                                                                                                                                            
| | (3) | Excludes
                                         six office, industrial and residential properties, since they are non-retail properties
                                         and therefore were not considered part of Equity One’s core portfolio. If these
                                         properties were included in the occupancy data, the occupancy rate would be 95.0% as
                                         of December 31, 2014, 94.1% as of December 31, 2015 and 94.9% as of December 31, 2016.





|                                                                                        |  | Year Ended December 31,                            |      
|--------------------------------------------------------------------------------------- |  | -------------------------------------------------- | -----
|                                                                                        |  | 2014                                               |      
|                                                                                        |  | (NIS in millions except same 
property NOI growth) |      
|Rental income                                                                           |  |                                                    | 1,188
|Net operating income                                                                    |  |                                                    | 874  
|Increase in value of investment property and investment property under development, net |  |                                                    | 654  
|Same property NOI growth (%)                                                            |  |                                                    | 3.0  





The
increase in Equity One’s rental income to NIS 1,385 million (U.S.$ 360 million) for the year ended December 31, 2016 was
driven primarily by higher rents from new rent commencements and renewals and contractual rent increases as well as higher rents
from development and redevelopment projects and from properties acquired in 2016 and 2015 partially offset by property dispositions
during 2016 and 2015 and from lease termination fees received during 2015. The increase in Equity One’s rental income to
NIS 1,341 million for the year ended December 31, 2015 from NIS 1,188 million for the year ended December 31, 2014 was driven
primarily by higher rents from new rent commencements and renewals and contracted rent increase as well as higher rents from developments
and redevelopments projects.



38









The
following table summarizes Equity One’s leasing activities for the years ended December 31, 2014, 2015, and 2016:



|                                                                    |  | Year Ended December 31, |      
|------------------------------------------------------------------- |  | ----------------------- | -----
|                                                                    |  | 2014                    |      
|Renewals                                                            |  |                         |      
|Number of leases                                                    |  |                         | 261  
|GLA leased (square feet at end of period, in thousands)             |  |                         | 1,386
|New contracted annualized rent per leased square foot (U.S.$)       |  |                         | 16.97
|Prior contracted annualized rent per leased square foot (U.S.$)     |  |                         | 15.66
|New Leases                                                          |  |                         |      
|Number of leases                                                    |  |                         | 187  
|GLA leased (square feet at end of period, in thousands)             |  |                         | 790  
|Contracted annualized rent per leased square foot (U.S.$)           |  |                         | 18.67
|Total New Leases and Renewals                                       |  |                         |      
|Number of leases                                                    |  |                         | 448  
|GLA leased (square feet at end of period, in thousands)             |  |                         | 2,176
|Contracted annualized rent per leased square foot (U.S.$)           |  |                         | 17.32
|Expired Leases                                                      |  |                         |      
|Number of leases (1)                                                |  |                         | 145  
|GLA of expiring leases (square feet at end of period, in thousands) |  |                         | 644  












(1)          
Excludes developments and non-retail properties.



Most
of Equity One’s leases provided for the monthly payment, in advance, of fixed minimum rent, the tenants’ pro rata
share of property taxes, insurance (including fire and extended coverage, rent insurance and liability insurance) and common area
maintenance for the property. Utilities were generally paid directly by tenants except where common metering existed with respect
to a property. In those cases, Equity One made the payments for the utilities which were then reimbursed by the tenants on a monthly
basis. Generally, Equity One’s leases prohibited tenants from assigning their leases or subletting their spaces. Where a
tenant was granted the right to assign its space, the lease agreement generally provided that the original tenant would remain
liable for the payment of the lease obligations under that lease agreement. Equity One’s leases generally contained escalations
that occurred at specified times during the lease term. These escalations were either fixed amounts, fixed percentage increases
or increases based on changes to the CPI or similar inflation indices. A small number of Equity One’s leases also provided
for the payment of additional rent based on a percentage of the tenants’ sales. The leases also required tenants to use
their spaces for designated purposes and to operate their businesses on a continuous basis. Some of the lease agreements with
major or national or regional tenants contained modifications of these basic provisions in view of the financial condition, stability
or desirability of those tenants.



Canada.In Canada, we acquire, develop and manage income-producing properties, comprised mostly of shopping centers, through our
investee First Capital, which is listed on the Toronto Stock Exchange. First Capital’s properties are located primarily
in growing metropolitan areas in the provinces of Ontario, Quebec, Alberta and British Columbia.



The
following data is presented on a fully consolidated basis without reflecting non-controlling interests.





|                                              |  | As of December 31, |      
|--------------------------------------------- |  | ------------------ | -----
|                                              |  | 2014               |      
|Our economic interest in First Capital        |  |                    | 44.0 
|Income-producing properties                   |  |                    | 153  
|Properties under development                  |  |                    | 5    
|GLA (millions of square feet)                 |  |                    | 23.5 
|Occupancy rate                                |  |                    | 96.0 
|Average annualized base rent (C$ per sq. ft.) |  |                    | 18.42



39









|                                                                                        |  | Year Ended December 31,                            |      
|--------------------------------------------------------------------------------------- |  | -------------------------------------------------- | -----
|                                                                                        |  | 2014                                               |      
|                                                                                        |  | (NIS in millions except same 
property NOI growth) |      
|Rental income                                                                           |  |                                                    | 2,100
|Net operating income                                                                    |  |                                                    | 1,318
|Increase in value of investment property and investment property under development, net |  |                                                    | 137  
|Same property NOI growth (%) (1)                                                        |  |                                                    | 2.8  










|(1) | In
                                         2014, 2015 and 2016 including expansion and development, same property NOI growth was
                                         3.2%, 3.7% and 1.1%, respectively.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The
decrease in First Capital’s rental income to NIS 1,960 million (U.S.$ 510 million) for the year ended December 31, 2016
from NIS 2,001 million for the year ended December 31, 2015 was driven primarily by a lower average C$/NIS exchange rate in 2016
compared to 2015 offset by an increase in rental rates due to step-ups and lease renewals at higher rates. The decrease in First
Capital’s rental income to NIS 2,001 million for the year ended December 31, 2015 from NIS 2,100 million for the year ended
December 31, 2014 was driven primarily by a lower average C$/NIS exchange rate in 2015 compared to 2014 offset by an increase
in rental rates due to step-ups, lease renewals and lease surrender fees.



The
following table summarizes First Capital’s leasing activities for the years ended December 31, 2014, 2015 and 2016:





|                                                                    |  | Year Ended December 31, |      
|------------------------------------------------------------------- |  | ----------------------- | -----
|                                                                    |  | 2014                    |      
|Renewals                                                            |  |                         |      
|Number of leases                                                    |  |                         | 600  
|GLA leased (square feet at end of period, in thousands)             |  |                         | 2,415
|New contracted annualized rent per leased square foot (C$)          |  |                         | 18.56
|Prior contracted annualized rent per leased square foot (C$)        |  |                         | 16.93
|New Leases                                                          |  |                         |      
|Number of leases                                                    |  |                         | 348  
|GLA leased (square feet at end of period, in thousands)             |  |                         | 978  
|Contracted annualized rent per leased square foot (C$)              |  |                         | 17.07
|Total New Leases and Renewals                                       |  |                         |      
|Number of leases                                                    |  |                         | 948  
|GLA leased (square feet at end of period, in thousands)             |  |                         | 3,393
|Contracted annualized rent per leased square foot (C$)              |  |                         | 18.13
|Expired Leases                                                      |  |                         |      
|Number of leases                                                    |  |                         | 357  
|GLA of expiring leases (square feet at end of period, in thousands) |  |                         | 896  



Each
of First Capital’s properties is subject to property tax and common area maintenance costs (e.g., cleaning, repairs and
insurance) among other expenses. First Capital generally passes on these costs to its tenants through clauses in their leases.
However, some leases stipulate payment ceilings in connection with these expenses, and First Capital must bear the difference
in these instances rather than recoup the costs from its tenants.



In
addition, First Capital currently has one residential project under development (through a joint venture with a third party who
engages in the residential development sector; each of the parties owns 50% of the venture), which is in an early stage of development.



For
the year ended December 31, 2016, First Capital’s gross new leasing including development and redevelopment space totaled
945 thousand square feet. Renewal leasing totaled 1,637 thousand square feet with a 7.5% increase over expiring lease rates. The
weighted average rate per occupied square foot increased to C$ 19.23 at December 31, 2016 before acquisitions and dispositions
from C$ 18.74 at December 31, 2015 as a result of rent escalations. During 2016, First Capital acquired properties with gross
leasable area totaling 834 thousand square feet with an average lease rate of C$ 20.64, bringing the total portfolio average in
place rent to C$ 19.39 per square foot at year end. Compared to the year ended December 31, 2015, average lease rate per occupied
square foot increased by 2.9%.



During
2016, new term leases on existing space averaged C$ 21.78 per square foot, and renewals averaged C$ 18.01 per square foot. Newly
developed space was leased at an average rate of C$ 31.96 per square foot. First Capital’s management considers that these
openings and renewals broadly reflect market rates for the portfolio. First Capital’s management believes that the weighted
average rental rate for the portfolio if leased at market rates would be in the C$ 25.0 to C$ 27.0 per square foot range, while
the expiring leases during the next three years reflect an average rent per square foot of C$ 18.5.



40









First
Capital intends to continue carrying out selective acquisitions of quality urban properties in attractive locations and properties
adjacent to its existing properties, selective sales of properties that are not part of its core business, as well as to continue
its development activities.



Northern
Europe. In Northern Europe, we acquire, develop and manage shopping centers through our subsidiary Citycon, which is listed
on the NASDAQ OMX Helsinki Stock Exchange. Citycon operates primarily in Sweden, Norway and Finland as well as Denmark, and Estonia.
The following data is presented on a fully consolidated basis without reflecting non-controlling interests.





|                                                |  | As of December 31, |      
|----------------------------------------------- |  | ------------------ | -----
|                                                |  | 2014               |      
|Our economic interest in Citycon                |  |                    | 42.8 
|Shopping centers (1)                            |  |                    | 60   
|Properties under development                    |  |                    | 1    
|GLA (millions of square feet) (1)               |  |                    | 11.1 
|Occupancy rate                                  |  |                    | 96.3 
|Average annualized base rent (Euro per sq. ft.) |  |                    | 24.07



|                                                                                        |  | Year Ended December 31,                            |      
|--------------------------------------------------------------------------------------- |  | -------------------------------------------------- | -----
|                                                                                        |  | 2014                                               |      
|                                                                                        |  | (NIS in millions except same 
property NOI growth) |      
|Rental income (1)                                                                       |  |                                                    | 1,366
|Net operating income (1)                                                                |  |                                                    | 948  
|Increase in value of investment property and investment property under development, net |  |                                                    | 75   
|Same property NOI growth (%)                                                            |  |                                                    | 2.9  










|(1) | Including
                                         a jointly-controlled entity acquired in 2013.
|--- | ------------------------------------------------------------------------------------------------



Citycon’s
rental income for the year ended December 31, 2016 compared to the year ended December 31, 2015 increased by 9.2% due mainly to
the acquisition of the Norwegian operations offset by divestments.



The
increase in Citycon’s rental income by 6.4% for the year ended December 31, 2015 compared to the year ended December 31,
2014 was due mainly to the acquisition of the Norwegian operations offset by divestments and weaker Swedish krona.



The
following table summarizes Citycon’s leasing activities for the years ended December 31, 2014, 2015, and 2016:





|                                                                    |  | Year Ended December 31, |      
|------------------------------------------------------------------- |  | ----------------------- | -----
|                                                                    |  | 2014                    |      
|Renewals                                                            |  |                         |      
|Number of leases                                                    |  |                         | 95   
|GLA leased (square feet at end of period, in thousands)             |  |                         | 332  
|New contracted annualized rent per leased square foot (EUR)         |  |                         | 29.2 
|Prior contracted annualized rent per leased square foot (EUR)       |  |                         | 30.2 
|New Leases                                                          |  |                         |      
|Number of leases                                                    |  |                         | 500  
|GLA leased (square feet at end of period, in thousands)             |  |                         | 988  
|Contracted annualized rent per leased square foot (EUR)             |  |                         | 19.8 
|Total New Leases and Renewals                                       |  |                         |      
|Number of leases                                                    |  |                         | 595  
|GLA leased (square feet at end of period, in thousands)             |  |                         | 1,320
|Contracted annualized rent per leased square foot (EUR)             |  |                         | 22.2 
|Expired Leases                                                      |  |                         |      
|Number of leases                                                    |  |                         | 724  
|GLA of expiring leases (square feet at end of period, in thousands) |  |                         | 1,560



41









Most
of the lease agreements between Citycon and its tenants require such tenants to pay, in addition to rent, management fees to cover
operating costs that Citycon incurs in maintaining the property. Lease agreements with Citycon’s anchor tenants are mostly
for periods of 10 to 20 years, while lease agreements with smaller tenants are mostly for periods of three to five years. Some
lease agreements have undefined periods and may be terminated by giving advance notice, usually of three to 12 months.



During
2016, the macro-economic environment in Norway, Sweden, Estonia and Denmark remained strong or relatively strong, while market
conditions in Finland remained challenging. In Sweden and Finland, the consumer confidence levels during 2016 have continued a
positive trend. The consumer confidence in Estonia and on average in the Euro area is still negative. Consumer prices have increased
in all of Citycon’s operating countries during 2016, and also in the Euro area generally.



During
the reporting period, the growth rate of retail sales, an index that impacts Citycon’s activity, was particularly high in
Estonia, Sweden and Norway and positive in Finland, but slightly negative in Denmark. Furthermore, during the period, consumer
prices have increased in all of Citycon’s operating countries during 2016, and also in the Euro area generally. In addition,
the unemployment increased slightly in Denmark and Estonia during 2016, but decreased in Finland and Sweden. In Norway the unemployment
was only at 4.7%. All countries in which Citycon operates experienced a low average unemployment rate relative to the average
unemployment rate in the Eurozone.



During
the year ended December 31, 2016, Citycon’s occupancy rate, calculated by the economic method on a rental income basis,
remains at a high level 96.2%. The economic occupancy rate for Citycon’s property portfolio decreased mainly due to a decrease
of occupancy rates in Finland.



The
average rent of the leases that began in 2016 was EUR 24.4 per square foot and the average annualized rent of the leases that
ended in 2016 was EUR 23.2 per square foot More specifically, in Finland, the average annualized rent increased moderately during
2016 from EUR 26.9 per square foot to EUR 29.2 per square foot, and the occupancy rate decreased to 92.8% from 94.8% mainly due
to temporary increase in vacancy. In Sweden, during 2016, the average annualized rent decreased from EUR 23.4 per square foot
to EUR 22.9 per square foot, and the occupancy rate rose to 97.2% from 96.2%, mainly due to improved occupancy rate in specific
properties. In Norway, the average annualized rent decreased moderately during 2016 from EUR 24.0 per square foot to EUR 23.8
per square foot and the occupancy rate slightly increased to 98.7% from 98.6%.



Citycon’s
management believes that, as a whole, its existing rental rates correspond to the current rental market. The Swedish economy continues
to grow, retail sales have increased and prime shopping center rental growth is expected to continue. In Norway the prime rent
for shopping centers is expected to remain unchanged. In Finland the shopping center rents decreased compared to the previous
year and are forecast to remain stable or increase slightly in 2017. In Estonia retail sales have decreased due to intensified
competition resulting in a downwards pressure on rents.



Central
and Eastern Europe. In Central and Eastern Europe, we own, operate and develop shopping centers through Atrium, which
is listed on the Vienna Stock Exchange and on the Euronext Stock Exchange, Amsterdam. Atrium operates primarily in Poland, the
Czech Republic, Slovakia, and Russia, as well as Hungary, Romania and Turkey. The following data is presented on a fully-consolidated
basis without reflecting non-controlling interests.





|                                                |  | As of December 31, |      
|----------------------------------------------- |  | ------------------ | -----
|                                                |  | 2014               |      
|Our economic interest in Atrium                 |  |                    | 41.2 
|Shopping centers (1)                            |  |                    | 153  
|Properties under development                    |  |                    | -    
|GLA (millions of square feet) (1)               |  |                    | 14.7 
|Occupancy rate                                  |  |                    | 97.1 
|Average annualized base rent (Euro per sq. ft.) |  |                    | 13.46



|                                                                                                   |  | Year Ended December 31,                            |      
|-------------------------------------------------------------------------------------------------- |  | -------------------------------------------------- | -----
|                                                                                                   |  | 2014                                               |      
|                                                                                                   |  | (NIS in millions except same 
property NOI growth) |      
|Rental income (1)                                                                                  |  |                                                    | 1,373
|Net operating income (1)                                                                           |  |                                                    | 968  
|Increase (Decrease) in value of investment property and investment property under development, net |  |                                                    | (803 
|Same property NOI growth (%)                                                                       |  |                                                    | (0.8 












|(1) | Including
                                         equity-accounted joint-ventures.
|--- | -----------------------------------------------------------------------------------



The
decrease in Atrium’s rental income by 6.6% for the year ended December 31, 2016 compared to the year ended December 31,
2015 was a result of a decrease in Russian rental income and by a lower average EUR/NIS exchange rate in 2016 compared to 2015.
Excluding operations in Russia, Atrium’s rental income decreased by 3.2%, mainly reflecting a loss of income from the disposal
of fifteen non-core assets in the Czech Republic during 2016. In addition, the disposal of a small portfolio of non-core assets
in Poland adversely affected Atrium’s rental income in Poland.



42









The
decrease in Atrium’s rental income by 11.7% for the year ended December 31, 2015 compared to the year ended December 31,
2014 was a result of a decrease in Russian rental income and by a lower average EUR/NIS exchange rate in 2015 compared to 2014.



For
2009 through 2014, we accounted for our interest in Atrium using the equity method. For further information on our acquisition
of Atrium shares during 2015 and becoming the sole controlling shareholder of Atrium in 2015, refer to Note 9(c) to our audited
consolidated financial statements included elsewhere in this annual report.



The
following table summarizes Atrium’s leasing activities for the years ended December 31, 2014, 2015 and 2016:





|                                                                    |  | Year Ended December 31, |      
|------------------------------------------------------------------- |  | ----------------------- | -----
|                                                                    |  | 2014                    |      
|Renewals                                                            |  |                         |      
|Number of leases                                                    |  |                         | 580  
|GLA leased (square feet at end of period, in thousands)             |  |                         | 1,764
|New contracted annualized rent per leased square foot (EUR)         |  |                         | 12.92
|Prior contracted annualized rent per leased square foot (EUR)       |  |                         | 14.03
|New Leases                                                          |  |                         |      
|Number of leases                                                    |  |                         | 251  
|GLA leased (square feet at end of period, in thousands)             |  |                         | 561  
|Contracted annualized rent per leased square foot (EUR)             |  |                         | 12.70
|Total New Leases and Renewals                                       |  |                         |      
|Number of leases                                                    |  |                         | 831  
|GLA leased (square feet at end of period, in thousands)             |  |                         | 2,325
|Contracted annualized rent per leased square foot (EUR)             |  |                         | 12.81
|Expired Leases                                                      |  |                         |      
|Number of leases                                                    |  |                         | 659  
|GLA of expiring leases (square feet at end of period, in thousands) |  |                         | 1,043



A
significant portion of Atrium’s lease agreements are with international retail chains. Most of the lease agreements into
which Atrium enters are linked to various consumer price indices. A growing number of Atrium’s lease agreements include
provisions to raise the rent as the tenant’s income increases.



During
the year ended December 31, 2016, Atrium’s core markets of Poland, the Czech Republic and Slovakia experienced the continuation
of trends recorded in 2015, alongside a divergence from the market in Russia. The core markets recorded steady growth in demands
amidst the backdrop of improved employment rates and low inflation. In Russia, real wages have increased and the rate of inflation
decreased to the lowest rate recorded since the collapse of the Soviet Union.



A
focus on operational efficiency in shopping center management resulted in an increase in Atrium’s operating margin.
Atrium’s operating margin increased from 95.4% for the year ended December 31, 2015 to 96.4% for the year ended December
31, 2016. Atrium’s NOI decreased 7.1% from EUR 193.3 million for the year ended December 31, 2015 to EUR 179.6 million for
the year ended December, 31 2016. Occupancy rates decreased from 96.9% at the end of 2015 to 96.3% at the end of 2016, and same
property NOI decreased by 2.3% to EUR 156.6 million for the year ended December 31, 2016 compared to EUR 160.3 million for the
year ended December 31, 2015, mainly due to the performance of the Russian portfolio.



Real
estate investors in many markets are currently challenged by low, flat, or in some cases, negative rental growth. This situation
is further compounded in Central and Eastern Europe, where some markets are reaching maturity and are therefore becoming more
saturated, adding additional pressure on all market participants to improve their professional and property management skills.
Atrium’s management believes that the ongoing efforts and proven track record of its operational teams, particularly when
combined with the various proactive asset management initiatives it continues to implement, will play a significant role in mitigating
the impact of these market conditions.



43







Germany.We own and operate shopping centers in Germany through our wholly owned subsidiary, Gazit Germany. We fully consolidate the
results of Gazit Germany.





|                                                |  | As of December 31, |      
|----------------------------------------------- |  | ------------------ | -----
|                                                |  | 2014               |      
|Shopping centers                                |  |                    | 3    
|Other properties                                |  |                    | 1    
|GLA (millions of square feet)                   |  |                    | 0.5  
|Occupancy rate                                  |  |                    | 84.7 
|Average annualized base rent (Euro per sq. ft.) |  |                    | 15.65







|                                                                                                   |  | Year Ended December 31,                            |     
|-------------------------------------------------------------------------------------------------- |  | -------------------------------------------------- | ----
|                                                                                                   |  | 2014                                               |     
|                                                                                                   |  | (NIS in millions except same 
property NOI growth) |     
|Rental income                                                                                      |  |                                                    | 75  
|Net operating income                                                                               |  |                                                    | 47  
|Increase (Decrease) in value of investment property and investment property under development, net |  |                                                    | 26  
|Same property NOI growth (%)                                                                       |  |                                                    | (8.7







Israel,
Bulgaria and Macedonia.In Israel, we acquire, develop and manage shopping centers through Gazit Development. In addition
to its properties in Israel, Gazit Development owns one shopping center in Bulgaria, as well as parcels of land in Bulgaria and
Macedonia. The following data is presented on a fully consolidated basis without reflecting non-controlling interests. In December
2016, the Company completed its acquisition of the remaining 15.35% (25% on a fully diluted basis) of the share capital of Gazit
Development from Ashkenazi Holdings, and Gazit Development became a wholly-owned subsidiary of the Company.



|                                               |  | As of December 31, |       
|---------------------------------------------- |  | ------------------ | ------
|                                               |  | 2014               |       
|Our economic interest in Gazit Development     |  |                    | 84.7  
|Shopping centers                               |  |                    | 11    
|Properties under development                   |  |                    | 2     
|GLA (millions of square feet)                  |  |                    | 1.4   
|Occupancy rate                                 |  |                    | 97.5  
|Average annualized base rent (NIS per sq. ft.) |  |                    | 112.87









|                                                                                        |  | Year Ended December 31,                            |    
|--------------------------------------------------------------------------------------- |  | -------------------------------------------------- | ---
|                                                                                        |  | 2014                                               |    
|                                                                                        |  | (NIS in millions except same 
property NOI growth) |    
|Rental income                                                                           |  |                                                    | 216
|Net operating income                                                                    |  |                                                    | 162
|Increase in value of investment property and investment property under development, net |  |                                                    | 120
|Same property NOI growth (%)                                                            |  |                                                    | 2.3



Brazil.In Brazil, we acquire, develop and manage shopping centers through our wholly-owned subsidiary, Gazit Brasil. In the reporting
period, we sold our entire stake in BR Malls, a company publicly traded on the Brazil Stock Exchange which is engaged in the acquisition,
development and management of shopping centers in Brazil. We recognized a gain from the sale of BR Malls of approximately BRL
109 million (NIS 125 million), which was recycled to finance the acquisition of a 33% ownership stake in Shopping Cidade Jardim.
Gazit Brasil also holds 4.3% stake in a corporation that holds a shopping center in Brazil. We fully consolidate the results of
Gazit Brasil. At the end of 2016, we completed the development of a property in Sao Paulo.



44









|                                               |  | As of December 31, |      
|---------------------------------------------- |  | ------------------ | -----
|                                               |  | 2014               |      
|Shopping centers                               |  |                    | 5    
|Properties under development                   |  |                    | 1    
|GLA (millions of square feet)                  |  |                    | 0.51 
|Occupancy rate                                 |  |                    | 89.3 
|Average annualized base rent (BRL per sq. ft.) |  |                    | 60.95





|                                                                                                   |  | Year Ended December 31, |    
|-------------------------------------------------------------------------------------------------- |  | ----------------------- | ---
|                                                                                                   |  | 2014                    |    
|                                                                                                   |  | (NIS in millions)       |    
|Rental income                                                                                      |  |                         | 40 
|Net operating income                                                                               |  |                         | 30 
|Increase (Decrease) in value of investment property and investment property under development, net |  |                         | (17



Results
of Operations



The
following describe line items from our audited consolidated income statements and are important to understanding our results of
operations.



Rental
income. Rental income consists of rents earned from tenants under lease agreements, including percentage rents based on
tenants’ sales volume, property tax and operating cost recoveries and incidental income, including lease cancellation payments.
Tenant inducements, including rent abatements and the costs of certain improvements and other incentives, are deducted from rental
income on a straight-line basis over the term of the tenant’s lease in cases where the tenant is considered to be the primary
beneficiary of such incentives.



Property
operating expenses. Property operating expenses consist primarily of taxes and fees on properties, repairs and maintenance
of properties, salaries and other expenses relating to management of properties, insurance, security and utilities.



Fair
value gain from investment property and investment property under development, net.We apply the fair value model, as
prescribed in IAS 40. Investment property consists primarily of shopping centers, other retail space and medical office buildings.
Investment property under development consists of shopping centers under development. Investment property and investment property
under development are also presented at fair value, which has been determined based on valuations principally conducted by accredited
independent appraisers with recognized professional expertise and vast experience as to the location and category of the property
being valued, and by management assessments.



General
and administrative expenses. General and administrative expenses include primarily salaries and other benefits, consulting
and professional fees, depreciation, sales and marketing expenses and office maintenance.



Other
income. Other income primarily consists of gain from bargain purchases in connection with acquisitions of investees, which
results from shares in these investees having been acquired at a price lower than the fair value of the investees’ identifiable
net assets, capital gain and other income.



Other
expenses.Other expenses primarily consist of impairment loss, capital loss from property dispositions (including selling
costs), loss from the dilution of interest in investees and provision for legal proceedings.



Company’s
share in earnings of equity-accounted investees, net. Company’s share in earnings (losses) of equity-accounted investees,
net, reflects our share in certain joint ventures, primarily of Atrium, Equity One, Citycon and First Capital with third parties.
In 2014, this item also comprised, among other things, the Company’s share in Atrium’s losses. As of January 2015,
the Company measured its investment in Atrium in its financial statements according to the equity method due to joint control
over Atrium. Following the acquisition by the Company of 52 million of Atrium’s shares in January 2015, the Company became
the sole controlling shareholder of Atrium and began to consolidate Atrium’s financial statements into its own financial
statements. As a result of our sale of common shares of First Capital in 2017, we will deconsolidate First Capital from our financial
statements and present the investment on an equity method basis.



45









Finance
expenses. Finance expenses primarily consist of interest paid on and expenses related to debentures, convertible debentures
and liabilities to financial institutions and others, losses on financial derivatives, losses from early redemption of debentures,
unwinding of financial derivatives, and exchange rate differences, net of finance expenses carried mainly to cost of real estate
under development.



Finance
income.Finance income primarily consists of gain from marketable securities, dividend income, interest income, and revaluation
of financial derivatives.



Taxes
on income (tax benefit). Taxes on income primarily consist of deferred tax benefit or expense, which arises mainly from
changes in deferred tax liability with respect to investment property, as a result of changes in its fair value, as well as from
deferred tax resulting from changes in corporate tax rates, deferred taxes resulting from changes in the fair value of financial
derivatives, current tax expenses including from disposal of properties and taxes with respect to previous years.



Income
from discontinued operations, netincludes the results of Equity One’s operations due to the merger agreement with
Regency during 2016 and of Luzon Group’s operations following the sale of Luzon Group shares by Gazit Development in January
2016. For more information regarding Equity One’s operations following the Regency Merger, see Note 9(d) to our audited
consolidated financial statements included elsewhere in this annual report.



Year
ended December 31, 2016 compared to year ended December 31, 2015





|                                                                                             |  | Year Ended December 31, |        |   |            |      |        |                     |          |  | Year Ended December 31, |  
|-------------------------------------------------------------------------------------------- |  | ----------------------- | ------ | - | ---------- | ---- | ------ | ------------------- | -------- |  | ----------------------- | -
|                                                                                             |  |                         | 2015   |   |            | 2016 |        |                     | Increase |  |                         |  
|                                                                                             |  | (NIS in millions)       |        |   | Change (%) |      |        | (U.S.$ in millions) |         
|Rental income                                                                                |  |                         | 4,809  |   |            |      | 4,801  |                     |          |  | (8                      | )
|Property operating expenses                                                                  |  |                         | 1,613  |   |            |      | 1,607  |                     |          |  | (6                      | )
|Net operating rental income                                                                  |  |                         | 3,196  |   |            |      | 3,194  |                     |          |  | (2                      | )
|Fair value gain (loss) on investment property and investment property under development, net |  |                         | (372   | ) |            |      | 885    |                     |          |  | 1,257                   |  
|General and administrative expenses                                                          |  |                         | (568   | ) |            |      | (542   | )                   |          |  | 26                      |  
|Other income                                                                                 |  |                         | 27     |   |            |      | 37     |                     |          |  | 10                      |  
|Other expenses                                                                               |  |                         | (795   | ) |            |      | (236   | )                   |          |  | 559                     |  
|Company’s share in earnings of equity-accounted investees, net                               |  |                         | 164    |   |            |      | 142    |                     |          |  | (22                     | )
|Operating income                                                                             |  |                         | 1,652  |   |            |      | 3,480  |                     |          |  | 1,828                   |  
|Finance expenses                                                                             |  |                         | (1,586 | ) |            |      | (1,600 | )                   |          |  | (14                     | )
|Finance income                                                                               |  |                         | 849    |   |            |      | 325    |                     |          |  | (524                    | )
|Income before taxes on income                                                                |  |                         | 915    |   |            |      | 2,205  |                     |          |  | 1,290                   |  
|Taxes on income (tax benefit)                                                                |  |                         | (79    | ) |            |      | 434    |                     |          |  | 513                     |  
|Net income from continuing operations                                                        |  |                         | 994    |   |            |      | 1,771  |                     |          |  | 777                     |  
|Income from discontinued operations, net                                                     |  |                         | 1,312  |   |            |      | 1,409  |                     |          |  | 97                      |  
|Net income                                                                                   |  |                         | 2,306  |   |            |      | 3,180  |                     |          |  | 874                     |  



Rental
income



The
decrease of NIS 8 million (U.S.$ 2 million), or 0.2%, in rental income, or increase of NIS 142 million (U.S.$ 36 million), or
2.8%, excluding the impact of currency exchange rates, for the year ended December 31, 2016 compared to the year ended December
31, 2015, was due primarily to:



| | ● | Citycon's
                                         Norwegian business acquisition, which contributed NIS 235 million to gross rental income;                                                                                                                                                                                                                        
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ● | an
                                         increase of NIS 24 million in Gazit Brasil's rental income mainly due to acquisitions,
                                         the completion of development where average rental rates and recovery terms were higher
                                         than the rates and terms of disposed properties; and   
| | ● | an
                                         increase of NIS 60 million in First Capital's rental income primarily due to rent escalations,
                                         as well as acquisitions and developments coming online that was offset by NIS 101 million
                                         due to the impact of currency exchange rates;



46









partially
offset by:



| | ● | a
                                         decrease of NIS 100 million in Atrium's rental income, mainly due to dispositions of
                                         non-core properties and the challenging economic environment in Russia;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ● | a
                                         decrease of NIS 64 million in Citycon’s rental income primarily from property dispositions;
                                         and                                                             
| | ● | a
                                         decrease of NIS 30 million in ProMed’s rental income due to the completion of property
                                         sales during 2015.                                                   



Property
operating expenses



The
decrease of NIS 6 million (U.S.$ 2 million), or 0.4%, in property operating expenses, or increase of NIS 45 million (U.S.$ 12
million), or 2.8%, excluding the impact of currency exchange rates, for the year ended December 31, 2016 compared to the year
ended December 31, 2015, was due primarily to:



| | ● | an
                                         increase in Citycon's property operating expenses mainly due the Norwegian business unit
                                         acquisition, which contributed by NIS 74 million to gross rental income; and                                                                                                                                                                                                             
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ● | an
                                         increase of NIS 29 million in First Capital’s property operating expenses from
                                         acquisitions and the completion of development projects, which was offset by a decrease
                                         in First Capital’s property operating expenses of NIS 39 million due to the impact
                                         of changes to currency exchange rates;



partially
offset by:



| | ● | a
                                         decrease of NIS 30 million in Atrium's property operating expense, primarily from property
                                         dispositions;                  
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ● | a
                                         decrease of NIS 9 million in ProMed’s property operating expenses due to the completion
                                         of property sales during 2015; and
| | ● | a
                                         decrease of NIS 9 million in Citycon’s property operating expenses primarily from
                                         property dispositions.                  



Property
operating expenses, as a percentage of rental income, was 33.5% for the year ended December 31, 2016 compared to 33.5% for the
year ended December 31, 2015.



Same-property
NOI



Same-property
NOI is primarily impacted by changes in rental rates, operating expenses and the recovery of the latter from tenants, and changes
in occupancy.



Same-property
NOI increased by NIS 35 million, or 1.2%, for the year ended December 31, 2016 as compared to the year ended December 31, 2015.
The increase in same-property NOI was primarily driven by an increase in minimum rent throughout the portfolio from rent commencements
(net of concessions and abatements), renewals and contractual rent increases, including indexation increases and lower other operating
costs, partially offset by a net decrease in rental income and service charges in Russia. Excluding Russia, the same property
NOI for the year ended December 31, 2016 as compared to the year ended December 31, 2015 increased by 2.1%.



Fair
value gain (loss) from investment property and investment property under development, net



We
apply the fair value model as prescribed in IAS 40. During the year ended December 31, 2016, the fair value gain of our properties
increased by NIS 885 million (U.S.$ 230 million), compared with a loss of NIS 372 million, in 2015. The revaluation gain from
investment property was mainly derived from First Capital’s and Citycon's moderate capitalization rate compression.



With
respect to our investment properties in Northern Europe, in Finland the weighted average yield requirement decreased due to divested
properties, progress of redevelopment projects and due to strong investor demand for prime properties. In Norway, the weighted
average yield requirement increased due to increased yield requirements for secondary shopping center properties. In Sweden, the
weighted average yield requirement decreased due to strong demand for and low supply of prime properties in addition to continued
low interest rates and a decrease in secondary shopping center yields. In Estonia and Denmark, the weighted average yield requirement
decreased due to real estate being an attractive investment class in the low interest rate environment.



With
respect to our investment properties in Canada, during the year ended December 31, 2016, the weighted average stabilized capitalization
rate of First Capital’s investment property portfolio decreased from 5.7% as of December 31, 2015 to 5.5% as of December
31, 2016, primarily due to capitalization rate compression and the impact of acquisitions during the year. The net increase in
value of investment properties was experienced in Central and Western Canada, while a modest revaluation gain was derived from
Eastern Canada.



With
respect to our investment properties in Central-Eastern Europe, the primary driver behind the revaluation during 2016 across our
Polish portfolio was yield compression, partially offset by capital expenditures. In the Czech Republic, the positive valuation
was also mainly due to yield compression in our major assets, but offset by estimated rental value ("ERV") decreases
in certain assets and capital expenditures. The positive revaluations in Slovakia and Romania were also due to yield compression.
In Russia, the positive revaluation resulted from an increase in rental income compared to 2015. Hungary experienced a net devaluation
due to continuing pressure on rental income levels.



47









For
additional information regarding average capitalization rates and average market rent per square meter used in the Group’s
property valuations, by segment, as of December 31, 2016 and December 31, 2015 as well as a sensitivity analysis, refer to Notes
12 and 13 to our audited consolidated financial statements included elsewhere in this annual report.



It
is difficult to predict whether these market factors will continue into future periods. The fair value of our properties could
be adversely impacted to the extent that capitalization rates increase as a result of an increase in borrowing costs or weakened
demand for retail properties in the markets in which we operate.



General
and administrative expenses



The
decrease of NIS 26 million (U.S. $ 7 million), or 5%, in general and administrative expenses, or NIS 19 million (U.S.$ 5 million),
or 4%, excluding the impact of currency exchange rates, for the year ended December 31, 2016 compared to the year ended December
31, 2015, was mainly due to:



| | ● | a
                                         decrease of NIS 38 million in Citycon's general and administrative expenses, mainly driven
                                         by the transaction costs during 2015 arising from the acquisition of the Norwegian operations
                                         as well as from strengthened cost controls.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ● | a
                                         decrease of NIS 13 million in First Capital's general and administrative expenses, mainly
                                         driven by lower employee compensation and other expenses as a results of the organizational
                                         restructuring plan completed in 2015;         



partially
offset by an increase of NIS 27 million in Atrium's general and administrative expenses, mainly driven by increased legal costs
for legacy legal matters during 2016.



Other
income



The
increase of NIS 10 million (U.S. $ 3 million), or 37%, in other income, for the year ended December 31, 2016 compared to the year
ended December 31, 2015, was primarily due to proceeds from tenants related to store closures.



Other
expenses



The
decrease of NIS 559 million (U.S.$ 145 million) or 70% in other expenses for the year ended December 31, 2016 compared to the
year ended December 31, 2015 was due primarily to:



| | ● | a
                                         decrease due to a net loss on gaining control of Atrium in 2015, in the amount of NIS
                                         14 million, to the reclassification to the statement of income of capital reserves (mainly
                                         from translation differences on foreign operations) that had accumulated with respect
                                         to the investment in Atrium and were previously recognized as other comprehensive loss,
                                         in the amount of NIS 452 million, against a credit to capital reserves;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ● | a
                                         decrease in capital loss on the disposal of properties (including selling costs) in the
                                         amount of NIS 103 million;                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ● | a
                                         decrease due to restructuring expenses at First Capital in the amount of NIS 6 million
                                         in 2016 compared to NIS 39 million in 2015; and                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ● | a
                                         decrease due to goodwill impairment upon the acquisition of assets in Norway in the amount
                                         of NIS 18 million in 2016, as a result of a decrease in the Norwegian tax rate compared
                                         to such goodwill impairment created upon the acquisition of assets in Norway in the amount
                                         of NIS 39 million in 2015;                                                                                                                                                                       



partially
offset by an increase due to a provision for legal proceedings at Atrium in the amount of NIS 163 million compared to NIS 109
million in 2015.



Company's
share in earnings of equity-accounted investees, net



The
decrease of NIS 22 million (U.S.$ 6 million) or 13% in Company's share in earnings of equity-accounted investees, net, for the
year ended December 31, 2016 compared to the year ended December 31, 2015 is comprised mainly of the Group’s share in the
earnings of the equity-accounted investees of Citycon from lower fair value gain.



Finance
expenses



The
increase of NIS 14 million (U.S.$ 4 million), or 1%, in finance expenses, for the year ended December 31, 2016 compared to the
year ended December 31, 2015, was due primarily to:



| | ● | a
                                         loss of NIS 25 million on the revaluation of derivatives recognized in 2016; and                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ● | an
                                         increase of NIS 52 million from liabilities that are linked to the Israeli CPI in the
                                         year ended December 31, 2016 compared to the year ended December 31, 2015;



48









partially
offset by:



| | ● | a
                                         decrease of NIS 34 million due to the impact of the Canadian currency exchange rate for
                                         the year ended December 31, 2016 compared to the year ended December 31, 2015; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ● | a
                                         decrease of NIS 31 million in the loss from early redemption of interest bearing liabilities
                                         and financial derivatives.                                                   



Finance
income



The
decrease of NIS 524 million (U.S.$ 136 million), or 62%, in finance income, for the year ended December 31, 2016 compared to the
year ended December 31, 2015, was due primarily to a decrease of NIS 654 million from revaluation gain of financial derivatives,
primarily with respect to currency hedging transactions; partially offset by:



| | ● | an
                                         increase of NIS 105 million from the realization of securities mainly due to the selling
                                         of BR Malls in Brazil and from dividend income; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ● | an
                                         increase of NIS 24 million in interest income.                                                                                                                                       



Taxes
on income





Taxes on income
amounted to NIS 434 million (U.S.$ 113 million) in the year ended December 31, 2016 compared to NIS 79 million tax benefit (U.S.$
21 million) in the year ended December 31, 2015. The increase of NIS 513 million (U.S. $ 133 million), or 649%, was due mainly
to deferred tax expenses of NIS 378 million (U.S.$ 98 million) arising mainly from the net changes in the temporary differences
between the tax base for the fair value of investment property and investment property under development, including due to the
disposal of properties, and from the change in the tax rates in Israel and Norway (in 2015 – deferred tax income of NIS 257
million that was also due to structural changes at subsidiaries and tax losses). In 2016, the Group recorded current tax expenses
in an amount of NIS 36 million (U.S. $ 9 million), compared with current tax expenses of NIS 78 million in 2015, which included
current tax income of NIS 73 million that was recorded against tax expenses carried directly to capital reserves. In addition,
tax expenses of NIS 20 million (U.S. $ 5 million) were recognized by the Group in 2016 with respect to prior years, compared with
NIS 100 million (U.S. $ 26 million) in 2015.





Income
from discontinued operations, net.



Income from discontinued
operations, net includes the operating results of Equity One following the merger agreement with Regency (see Note 9(d) to our
audited consolidated financial statements included elsewhere in this annual report) and of Luzon Group in the comparative periods
as a result of Gazit Development selling the shares of Luzon Group in January 2016. In 2016, this line item includes a loss of
NIS 230 million, which consists mainly of a net loss from impairment of capital notes and loans, from the realization of capital
reserves from translation of foreign operations and from the sale of Luzon Group shares.



49











Year
ended December 31, 2015 compared to year ended December 31, 2014



|                                                                                                 |  | Year
                                         Ended December
                                         31, |        |   | Increase  |  |        |            | 
|------------------------------------------------------------------------------------------------ |  | --------------------------------------------------------------------------------------------------------- | ------ | - | --------- |  | ------ | ---------- | 
|                                                                                                 |  | 2014                                                                                                      |        |   | 2015      |  |        | (decrease) | 
|                                                                                                 |  | (NIS
    in millions)                                                                                     |        |   | Change %) | 
|Rental
    income                                                                                |  |                                                                                                           | 3,725  |   |           |  | 4,809  |            | 
|Property
    operating expenses                                                                  |  |                                                                                                           | 1,269  |   |           |  | 1,613  |            | 
|Net
    operating rental income                                                                  |  |                                                                                                           | 2,456  |   |           |  | 3,196  |            | 
|Fair
    value gain (loss) on investment property and investment property under development, net |  |                                                                                                           | 400    |   |           |  | (372   | )          | 
|General
    and administrative expenses                                                          |  |                                                                                                           | (386   | ) |           |  | (568   | )          | 
|Other
    income                                                                                 |  |                                                                                                           | 52     |   |           |  | 27     |            | 
|Other
    expenses                                                                               |  |                                                                                                           | (57    | ) |           |  | (795   | )          | 
|Company’s
    share in earnings of equity-accounted investees, net                               |  |                                                                                                           | 3      |   |           |  | 164    |            | 
|Operating
    income                                                                             |  |                                                                                                           | 2,468  |   |           |  | 1,652  |            | 
|Finance
    expenses                                                                             |  |                                                                                                           | (1,835 | ) |           |  | (1,586 | )          | 
|Finance
    income                                                                               |  |                                                                                                           | 144    |   |           |  | 849    |            | 
|Income
    before taxes on income                                                                |  |                                                                                                           | 777    |   |           |  | 915    |            | 
|Taxes
    on income (tax benefit)                                                                |  |                                                                                                           | 282    |   |           |  | (79    | )          | 
|Net
    income from continuing operations                                                        |  |                                                                                                           | 495    |   |           |  | 994    |            | 
|Income
    from discontinued operations, net                                                     |  |                                                                                                           | 588    |   |           |  | 1,312  |            | 
|Net
    income                                                                                   |  |                                                                                                           | 1,083  |   |           |  | 2,306  |            | 





Rental
income



The
increase of NIS 1,084 million, or 29%, in rental income, or increase of NIS 1,484 million, or 39%, excluding the impact of currency
exchange rates, for the year ended December 31, 2015 compared to the year ended December 31, 2014, was due primarily to:



| | ● | an
                                         increase due to the initial consolidation of Atrium, which contributed by NIS 1,312 assuming
                                         2014 currency exchange rates or actual increase of NIS 1,192 million to gross rental
                                         income;                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ● | an
                                         increase due to the Sektor acquisition, which contributed by NIS 284 assuming 2014 currency
                                         exchange rates or actual increase of NIS 258 million to gross rental income;                                                                                      
| | ● | an
                                         increase of NIS 52 million from Gazit Brasil mainly due to acquisitions, the completion
                                         of development where average rental rates and recovery terms were higher than the rates
                                         and terms of disposed properties; and
| | ● | an
                                         increase of NIS 27 million from First Capital due primarily to rent escalations, lease
                                         surrender fees, as well as acquisitions and developments coming online;                                                                                                



partially
offset by:



| | ● | a
                                         decrease of NIS 102 million in ProMed primarily from disposition of properties;                                                     
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ● | a
                                         decrease of NIS 36 million in Citycon primarily from disposition of properties; and                                                 
| | ● | a
                                         decrease of NIS 33 million in Germany primarily from disposition of properties during
                                         2014.



Property
operating expenses



The
increase of NIS 344 million, or 27%, in property operating expenses, or increase of NIS 468 million, or 37%, excluding the impact
of currency exchange rates, for the year ended December 31, 2015 compared to the year ended December 31, 2014, was due primarily
to:



| | ● | an
                                         increase of NIS 394 million assuming 2014 currency exchange rates or actual increase
                                         of NIS 358 due to the initial consolidation of Atrium; and                                 
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ● | an
                                         increase due to the Sektor acquisition, which contributed by NIS 111 million assuming
                                         2014 currency exchange rates or actual increase of NIS 101 million to gross rental income;



50









partially
offset by:



| | ● | a
                                         decrease of NIS 27 million in ProMed primarily from disposition of properties;                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ● | a
                                         decrease of NIS 18 million in Citycon primarily from disposition of properties; and                                                
| | ● | a
                                         decrease of NIS 8 million in Germany primarily from disposition of properties during
                                         2014.



Property
operating expenses, as a percentage of rental income, was 33.5% for the year ended December 31, 2015 compared to 34.1% for the
year ended December 31, 2014.



Same-property
NOI



Same-property
NOI is primarily impacted by changes in rental rates, operating expenses and the recovery of the latter from tenants, and changes
in occupancy.



Same-property
NOI decreased by NIS 43 million, or 1.8%, for the year ended December 31, 2015 as compared to the year ended December 31, 2014
(not including results of our operations in Norway). The decrease in same-property NOI was primarily driven by a net decrease
in rental income and service charges in Russia. Excluding Russia, the same property NOI for the year ended December 31, 2015 as
compared to the year ended December 31, 2014 increased by 2.0%, and was primarily impacted by renewals, contractual rent increases
including indexation increases, as well as from an increase in the operating expenses recovery ratio from tenants.



Fair
value gain from investment property and investment property under development, net



We
apply the fair value model as prescribed in IAS 40. During the year ended December 31, 2015, the fair value gain of our properties
decreased to a loss of NIS 372 million, compared with a gain of NIS 400 million, in 2014. The devaluation loss from investment
property was mainly derived from devaluation of Atrium’s properties and land in Russia, offset by revaluation gain from
its properties in Poland and the Czech Republic.



With
respect to our investment properties in Northern Europe, in Sweden, we have experienced a yield compression and improved rents.
Prime shopping center yields have moved during 2015 followed by strong demand and low supply as well as continued low interest
rates. Also yields for secondary shopping center have decreased due to investors’ willingness for increased risk and the
lack of prime property investments. Moreover, the contract and market rents increased due to positive economic development and
increased retail sales. In Finland, we have recorded a fair value loss resulting from a challenging economic climate which resulted
in decreased contract and market rents. In the Baltics and Denmark, we have recorded a fair value gain resulting from decreased
yield requirement and shopping center extension activity. The positive impact from lower yield was slightly offset by a decrease
in contract and market rental levels due to increased competition in Estonia. In Norway, the fair value change was virtually flat.



With
respect to our investment properties in Canada, during the year ended December 31, 2015, the weighted average stabilized
capitalization rate of the First Capital’s investment property portfolio decreased from 5.8% as  of December 31, 2014
to 5.7%, including the impact of dispositions, acquisitions, and development activities. First Capital experienced a decrease
in the weighted average stabilized capitalization rate due to capitalization rate compression throughout the portfolio,
primarily in the Greater Vancouver Area. The net increase in value of investment properties was experienced in Central
Canada, while a modest revaluation gain was derived from Western Canada, offset by a revaluation loss from Eastern
Canada.



With
respect to our investment properties in Central-Eastern Europe, the primary driver behind the devaluation during 2015 across our
portfolio was the current economic situation and uncertainty in Russia which was reflected in a EUR 98.3 million devaluation of
our Russian portfolio mainly due to lower rent and lower ERV used in valuations, offset by positive revaluations in our core markets
of Poland, Czech Republic and Slovakia, mainly due to yield compression. In the Czech Republic, the positive valuation was partially
offset due to ERV decreases in certain assets and capital expenditures.



For
additional information regarding average capitalization rates and average market rent per square meter used in the Group’s
property valuations, by segment, as of December 31, 2015 and December 31, 2014 as well as sensitivity analysis, refer to Notes
12 and 13 to our audited consolidated financial statements included elsewhere in this annual report.



It
is difficult to predict whether these market factors will continue into future periods, and the fair value of our properties could
be adversely impacted to the extent that capitalization rates increase as a result of an increase in borrowing costs or weakened
demand for retail properties in the markets in which we operate.



General
and administrative expenses



The
increase of NIS 182 million, or 47%, in general and administrative expenses, or NIS 216 million, or 56%, excluding the impact
of currency exchange rates, for the year ended December 31, 2015 compared to the year ended December 31, 2014, was mainly due
to the initial consolidation of Atrium and Sektor that accounted for NIS 129 million, and NIS 31 million respectively and due
to the acquisition costs of Sektor that were not capitalized in the amount of NIS 32 million, offset by a decrease from compromise
settlement with the Israeli VAT Authorities in the amount of NIS 13 million.



51









Other
income



The
decrease of NIS 25 million, or 48%, in other income, for the year ended December 31, 2015 compared to the year ended December
31, 2014, was due primarily to an amount of NIS 47 million resulting from a gain from bargain purchase on the acquisition of Atrium’s
shares on the stock exchange recognized in 2014, offset by an increase of NIS 25 million in 2015 mainly due to management fees
from joint ventures and managed centers in Citycon.



Other
expenses



The
increase of NIS 738 million, or 1,295%, in other expenses for the year ended December 31, 2015 compared to the year ended December
31, 2014 was due primarily to:



| | ● | an
                                         increase due to a net loss on gaining control of Atrium in the amount of NIS 14 million,
                                         to the reclassification to the statement of income of capital reserves (mainly from translation
                                         differences on foreign operations) that had accumulated with respect to the investment
                                         in Atrium and were previously recognized as other comprehensive loss, in the amount of
                                         NIS 452 million, against a credit to capital reserves;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ● | an
                                         increase due to capital loss on the disposal of properties (including selling costs)
                                         in the amount of NIS 111 million compared to NIS 46 in 2014;                                                                                                                                                                                                                                                                                                                                                                                                       
| | ● | an
                                         increase due to a provision for legal proceedings and legal expenses at Atrium in the
                                         amount of NIS 109 million;                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ● | an
                                         increase due to goodwill impairment which created on the acquisition of Sektor in the
                                         amount of NIS 39 million; and                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ● | an
                                         increase due to restructuring expenses at First Capital in the amount of NIS 39 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         



Company’s
share in earnings of equity-accounted investees, net



The
increase of NIS 161 million, or 5,367%, in the Company’s share in earnings of equity-accounted investees, net, for the year
ended December 31, 2015 compared to the year ended December 31, 2014 is comprised mainly due to:



| | ● | an
                                         increase due to the Group’s share in the earnings of the equity-accounted investees
                                         of Citycon, First Capital and Atrium. In 2014, this item also comprised, among other
                                         things, the Company’s share in Atrium’s losses, in the amount of NIS 98 million;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ● | a
                                         recorded gain of NIS 43 million from Atrium’s acquisition of a 75% interest in
                                         the Arkády Pankrác shopping center in Prague;                                                                                                                                                                       
| | ● | an
                                         increase of NIS 26 million due to earnings from Luzon Group’s equity-accounted
                                         investees; and                                                                                                                                                                                                     
| | ● | an
                                         increase of NIS 13 million due to earnings from Citycon’s equity-accounted investees,
                                         including in connection with the acquisition of Sektor during 2015.                                                                                                                                         



Finance
expenses



The
decrease of NIS 249 million, or 14%, in finance expenses, for the year ended December 31, 2015 compared to the year ended December
31, 2014, was due primarily to:



| | ● | a
                                         loss of NIS 190 million on the revaluation of derivatives (primarily with respect to
                                         currency swap hedging transactions) recognized in 2014;                                     
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ● | a
                                         decrease of NIS 70 million from liabilities that are linked to the Israeli consumer price
                                         index in the year ended December 31, 2015 compared to the year ended December 31, 2014;
| | ● | a
                                         decrease of NIS 94 million in the loss from early redemption of interest bearing liabilities
                                         and financial derivatives; and                                                      
| | ● | a
                                         decrease due to decrease in the average nominal annual interest on the interest-bearing
                                         debt of the Company and its subsidiaries, 4.3% in 2015 compared with 4.8% in 2014;       



partially
offset by an increase due to NIS 181 million of interest expenses on the interest-bearing debt resulting from the initial consolidation
of Atrium.



Finance
income



The
increase of NIS 705 million, or 490%, in finance income, for the year ended December 31, 2015 compared to the year ended December
31, 2014, was due primarily to:



| | ● | an
                                         increase of NIS 696 million gain from the revaluation of financial derivatives, primarily
                                         with respect to currency hedging transactions; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ● | an
                                         increase of NIS 15 million in interest income;                                                                                                                                       



52









partially
offset by a decrease of NIS 7 million from the realization of securities and from dividend income.



Taxes
on income





Tax benefit amounted
to NIS 79 million in the year ended December 31, 2015 compared to a tax on income expenses of NIS 282 million in the year ended
December 31, 2014. The decrease of NIS 361 million, or 128%, was due mainly to deferred tax income of NIS 257 million in 2015 arising
primarily from the net changes in the temporary differences between the tax base for the fair value of investment property and
investment property under development, including due to the disposal of properties, structural changes at subsidiaries and tax
losses and the estimate of the tax asset created with respect thereto compared with deferred tax expenses of NIS 98 million in
2014. In 2015, the Group’s current tax expenses totaled NIS 78 million, which included current tax income of NIS 73 million
that was recorded against tax expenses carried directly to capital reserves, compared with current tax expenses of NIS 175 million
(of which NIS 155 million was with respect to disposal of properties) in 2014. In addition, tax expenses of NIS 100 million were
recognized by the Group in 2015 with respect to prior years compared with NIS 9 million in 2014.



| | B. | Liquidity
                                         and Capital Resources
| | -- | ------------------------------------------------------------------------



We
conduct the substantial majority of our income producing property operations in the United States, Canada, Northern Europe and
Central and Eastern Europe through our public subsidiaries and other investees. We also conduct our real estate development. We
conduct the remainder of our operations, including our shopping center business in Israel, Brazil and Germany, through privately
owned subsidiaries.



Our
public investees have traditionally satisfied their own short-term liquidity and long-term capital requirements in their local
markets. We or our wholly-owned investees have from time to time purchased their equity when they have issued equity in their
local public markets. In addition, while Gazit-Globe has not generally made shareholder loans to our principal public investees,
Gazit-Globe has in the past invested in convertible debentures issued by First Capital, Citycon and Atrium.



The
short-term liquidity requirements of our public investees and of Gazit-Globe and its wholly-owned subsidiaries consist primarily
of normal recurring operating expenses, regular debt service requirements (including debt service relating to additional or replacement
debt, as well as scheduled debt maturities), recurring company expenditures, such as general and administrative expenses, non-recurring
company expenditures (such as tenant improvements and tenant-specific redevelopment) and dividends payable by our public investees
to their shareholders and by Gazit-Globe to our shareholders. Historically, these requirements have been satisfied principally
through cash generated from operations and, where necessary, short-term borrowings under credit facilities. Due to the nature
of our business, we and our investees typically generate significant amounts of cash from operations.



The
long-term capital requirements of Gazit-Globe, its public subsidiaries and certain of its other investees consist primarily of
maturities under long-term debt, development and redevelopment costs and the costs related to growing our business, including
acquisitions. Historically, these requirements have been funded through a combination of sources, including additional and replacement
secured and unsecured credit facilities, mortgages, proceeds from the issuance of additional debt, equity and convertible securities
and proceeds from the recycling of capital.



Gazit-Globe
and its wholly-owned subsidiaries also finance their operations from, among other things, dividends received from Equity One,
First Capital, Citycon, and Atrium. In the year ended December 31, 2016, we received dividend payments of NIS 1,002 million (U.S.$
260 million) from these investees, compared to NIS 832 million (U.S.$ 197 million) in 2015 and NIS 764 million (U.S.$ 213 million)
in 2014.



Because
we conduct a significant portion of our operations through public investees, we believe that the most meaningful way to present
our sources of liquidity and our capital resources is by referring on a separate basis to Gazit-Globe and its private subsidiaries,
and to each of our principal public investees.





As of December 31,
2016, our available liquid assets on a consolidated basis, including short term investments, totaled NIS 1.8 billion (U.S.$ 475
million). As of December 31, 2016, we had revolving credit lines on a consolidated basis in the total amount of NIS 14.1 billion
(U.S.$ 3.7 billion), of which we had drawn a total of NIS 3.9 billion (U.S.$ 1.0 billion) and had NIS 10.2 billion (U.S.$ 2.7 billion)
available for immediate drawdown. In total, our liquid assets and approved unutilized credit facilities as of December 31, 2016
amounted to NIS 12.1 billion (U.S.$ 3.1 billion) on a consolidated basis. As of December 31, 2016, we held on a consolidated basis
unencumbered investment property with a total fair value of NIS 65.1 billion (U.S.$ 16.9 billion) on a consolidated basis. Our
interest-bearing debt on a consolidated basis was NIS 44.5 billion (U.S.$ 11.6 billion) (excluding NIS 0.6 billion (U.S.$ 154 million)
of convertible debentures) as of December 31, 2016.





As
of December 31, 2016, we had a working capital balance of NIS 10,411 million (U.S.$ 2.7 billion) on a consolidated basis. After
excluding assets and liabilities of discontinued operations, we had a negative working capital balance of NIS 3.0 billion (U.S.$
0.8 billion). We believe that the above-mentioned sources, including our revolving, approved credit lines (under which NIS 10.2
billion (U.S.$ 2.7 billion) was available for immediate drawdown as of December 31, 2016) on which we may draw to pay down our
current liabilities if we do not refinance them, together with the positive cash flow generated from operating activities, will
allow us to repay current liabilities when due.



53









As
of December 31, 2016, the available liquid assets of Gazit-Globe and its private subsidiaries on a consolidated basis, including
short term investments, totaled NIS 722 million (U.S.$ 188 million). As of December 31, 2016, Gazit-Globe and its private subsidiaries
had revolving credit lines on a consolidated basis in the total amount of NIS 4.8 billion (U.S.$ 1.2 billion), of which they had
drawn a total of NIS 2.6 billion (U.S.$ 0.7 billion) and had NIS 2.2 billion (U.S.$ 0.6 billion) available for immediate drawdown.
In total, the liquid assets and approved unutilized credit facilities of Gazit-Globe and its private subsidiaries as of December
31, 2016, amounted to NIS 3.2 billion (U.S.$ 0.8 billion) on a consolidated basis. As of December 31, 2016, Gazit-Globe and its
private subsidiaries also had on a consolidated basis unencumbered investment property with a fair value of NIS 3.0 billion (U.S.$
0.8 billion). The interest-bearing debt of Gazit-Globe and its private subsidiaries on a consolidated basis was NIS 15.1 billion
(U.S.$ 3.9 billion) as of December 31, 2016.



Credit
Facilities and Indebtedness of Gazit-Globe and its Private Subsidiaries



We
have set forth below information regarding the credit facilities and other indebtedness of Gazit-Globe and its private subsidiaries.
As of December 31, 2016, Gazit-Globe and its private subsidiaries had outstanding debentures in the aggregate amount of NIS 10.9
billion (U.S.$ 2.8 billion) and indebtedness to financial institutions in the aggregate amount of NIS 4.3 billion (U.S.$ 1.1 billion).



The
following table sets forth information regarding the credit facilities and other indebtedness to which Gazit-Globe and its private
subsidiaries are party as of December 31, 2016:



|Facilities              |  | Denomination    |  | Carrying Amount of Liability (NIS in millions) |       |  | Maturity (Years) |  |     | Aggregate Availability (NIS in millions) |  |  | Amount Outstanding (NIS in millions) |  |  | Weighted Average Interest Rate |      
|----------------------- |  | --------------- |  | ---------------------------------------------- | ----- |  | ---------------- |  | --- | ---------------------------------------- |  |  | ------------------------------------ |  |  | ------------------------------ | -----
|Revolving Credit        |  | Various(1)      |  |                                                | 2,554 |  |                  |  | 2.6 |                                          |  |  | 2,199                                |  |  |                                | 4,753
|Term Loan               |  | EUR             |  |                                                | 404   |  |                  |  | 2.1 |                                          |  |  | N/A                                  |  |  |                                | N/A  
|Term Loan               |  | U.S.$           |  |                                                | 679   |  |                  |  | 7.6 |                                          |  |  | N/A                                  |  |  |                                | N/A  
|Floating-Rate Mortgages |  | NIS             |  |                                                | 94    |  |                  |  | 4.7 |                                          |  |  | N/A                                  |  |  |                                | N/A  
|Fixed-Rate Mortgages    |  | NIS+Israeli CPI |  |                                                | 531   |  |                  |  | 3.1 |                                          |  |  | N/A                                  |  |  |                                | N/A  
|Total                   |  |                 |  |                                                | 4,262 |  |                  |  |     |                                          |  |  |                                      |  |  |                                |      



|(1) | NIS
                                         175 million is denominated in EUR, NIS 70 million is denominated in C$ and NIS 2,012
                                         million is denominated in U.S.$ and the remainder is denominated in NIS, net of NIS 28
                                         million of deferred expenses.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The
following table sets forth information regarding Gazit-Globe’s outstanding debentures as of December 31, 2016:





|Series             |  | Par Value
Outstanding |       |  | Balance in
the Financial
Statements |  |        | Type of
Interest and
Annual Rate |  |  | Effective
Interest
Rate |   |  | Final
Maturity |      |   | Linkage Basis Terms/ Denominations
|------------------ |  | --------------------- | ----- |  | ----------------------------------- |  | ------ | -------------------------------- |  |  | ----------------------- | - |  | -------------- | ---- | - | ----------------------------------
|                   |  | (NIS in millions)     |       |  | (NIS in millions)                   |  |        |                                  |  |  |                         |   |  |                |      |   |                                   
|Series A           |  |                       | 44    |  |                                     |  | 35     |                                  |  |  | 6.50                    | % |  |                | 6.18 | % |                                   
|Series C           |  |                       | 501   |  |                                     |  | 616    |                                  |  |  | 4.95                    | % |  |                | 4.88 | % |                                   
|Series D           |  |                       | 2,069 |  |                                     |  | 2,431  |                                  |  |  | 5.10                    | % |  |                | 5.02 | % |                                   
|Series E           |  |                       | 556   |  |                                     |  | 553    |                                  |  |  | 0.80                    | % |  |                | 1.32 | % |                                   
|                   |  |                       |       |  |                                     |  |        |                                  |  |  | TELBOR+0.7%             |   |  |                |      |   |                                   
|Series I           |  |                       | 479   |  |                                     |  | 557    |                                  |  |  | 5.30                    | % |  |                | 5.58 | % |                                   
|Series J (Secured) |  |                       | 698   |  |                                     |  | 794    |                                  |  |  | 6.50                    | % |  |                | 5.76 | % |                                   
|Series K           |  |                       | 2,654 |  |                                     |  | 2,860  |                                  |  |  | 5.35                    | % |  |                | 4.35 | % |                                   
|Series L           |  |                       | 2,958 |  |                                     |  | 3,038  |                                  |  |  | 4.00                    | % |  |                | 3.67 | % |                                   
|Total              |  |                       |       |  |                                     |  | 10,884 |                                  |  |  |                         |   |  |                |      |   |                                   



54









Gazit-Globe’s
revolving credit facilities and its term loans are secured by pledges of its shares of its public investees. Gazit-Globe’s
series J notes are secured by interests in properties owned by Gazit Development. For further information on the debentures’
terms and maturity table, see Note 20 to our audited consolidated financial statements included elsewhere in this annual report.



As
of December 31, 2016, the Company has pledged in favor of its revolving credit facilities 24.2 million shares of Equity One (representing
16.7% of its share capital), 87.3 million shares of First Capital (representing 35.8% of its share capital), 320 million shares
of Citycon (representing 36.0% of its share capital) and 111.8 million shares of Atrium (representing 29.7% of its share capital).
After March 2017, due to the Regency Merger, the Company’s credit facilities are no longer secured by a pledge of Equity
One shares, and is instead secured by a pledge of Regency shares.



The
revolving credit facility agreements include cross-default and acceleration provisions (including with respect to the debt of
certain investees), such as: change in control in such investees, certain material legal proceedings (including, but not limited
to, liquidation, receivership and asset sale), discontinuation/suspension of trading in the pledged shares and a sharp drop in
their quoted price.



The
terms of certain of the debt instruments set forth in the tables above also contain covenants, including requirements for Gazit-Globe
and certain investees to maintain certain financial ratios. As of December 31, 2016, Gazit-Globe was in compliance with all of
such covenants that were in effect at such time. See Note 22 to our audited consolidated financial statements included elsewhere
in this annual report.



In
October 2016, the Company and certain wholly owned subsidiaries of the Company signed an amendment to a credit facility agreement
with Citibank, which provides the Company a credit facility in the amount of US$ 360 million and extends the term of the facility
until October 2019. The credit facility bears a floating interest rate with the addition of a fixed margin and is secured by a
pledge of shares of the Company and of First Capital, Citycon and Equity One. After March 2017, due to the Regency Merger, the
credit facility is no longer secured by a pledge of Equity One shares, and is instead secured by a pledge of Regency shares.



The
Company’s debentures also include certain covenants, including requirements for Gazit-Globe to maintain certain financial
ratios and credit ratings. As of the reporting date, the Company is in compliance with the such covenants.



During
2016, the Company repurchased debentures with a par value of NIS 77 million (series A, B, C, F and I) through market trades for
consideration of NIS 88 million. The repurchase had no material impact on the Company’s financial statements. The repurchased
debentures were cancelled and delisted.



We
believe, based on currently proposed plans and assumptions relating to Gazit-Globe’s operations, that its existing financial
arrangements will be sufficient to satisfy its cash requirements for at least the next twelve months.



Credit
Facilities and Other Indebtedness of Other Group Entities



We
have set forth below information regarding the indebtedness of other group entities.



Equity
One





The
following table sets forth information regarding Equity One’s indebtedness as of December 31, 2016:



|Debt Instrument                                                     |  | Denomination |       |  | Average Interest Rate (%) |  |      | Average Effective Interest Rate (%) |  |  | Carrying Amount of Liability (U.S.$ in thousands) |  |  | Maturity (years) |          
|------------------------------------------------------------------- |  | ------------ | ----- |  | ------------------------- |  | ---- | ----------------------------------- |  |  | ------------------------------------------------- |  |  | ---------------- | ---------
|Unsecured debentures                                                |  |              | U.S.$ |  |                           |  | 3.79 |                                     |  |  | 4.79                                              |  |  |                  | 496,653  
|Mortgages                                                           |  |              | U.S.$ |  |                           |  | 4.92 |                                     |  |  | 5.29                                              |  |  |                  | 254,145  
|Unsecured term loans (U.S.$ 550 million) (1)                        |  |              | U.S.$ |  |                           |  | 2.12 |                                     |  |  | 2.12                                              |  |  |                  | 548,167  
|Unsecured credit facilities: Bank Syndicate (U.S.$ 850 million) (2) |  |              | U.S.$ |  |                           |  | 1.77 |                                     |  |  | 1.77                                              |  |  |                  | 114,015  
|Total                                                               |  |              |       |  |                           |  |      |                                     |  |  |                                                   |  |  |                  | 1,412,980












|(1) | Includes two unsecured term loans pursuant to which
Equity One may borrow up to the principal amount of U.S.$250 million and U.S.$300 million respectively. The interest rate of the U.S.$250
million term loan as described above represents the effective fixed interest rate according to interest rate swap transactions
entered into by Equity One.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | As of December 31, 2016, had a maximum availability
of approximately U.S.$ 850 million, of which U.S.$ 118 million had been drawn.
|--- | ----------------------------------------------------------------------------------------------------------------------------------



Effective
as of March 1, 2017, Equity One completed the Regency Merger, and Equity One is presented in our audited consolidated financial
statements included elsewhere in this annual report as a discontinued operation. We will not consolidate Regency into our financial
statements and instead we will present the investment as an available-for-sale financial asset.



55









First
Capital





The
following table sets forth information regarding First Capital’s indebtedness as of December 31, 2016:





|Debt Instrument                                 |  | Denomination |    |  | Average Interest Rate (%) |  |      | Average Effective Interest Rate (%) |  |  | Carrying Amount of Liability (C$ in thousands) |  |  | Maturity (years) |          
|----------------------------------------------- |  | ------------ | -- |  | ------------------------- |  | ---- | ----------------------------------- |  |  | ---------------------------------------------- |  |  | ---------------- | ---------
|Unsecured debentures                            |  |              | C$ |  |                           |  | 4.57 |                                     |  |  | 4.63                                           |  |  |                  | 2,546,442
|Unsecured convertible debentures (1)            |  |              | C$ |  |                           |  | 4.96 |                                     |  |  | 6.12                                           |  |  |                  | 207,633  
|Mortgages                                       |  |              | C$ |  |                           |  | 4.50 |                                     |  |  | 4.40                                           |  |  |                  | 997,165  
|Unsecured credit facilities (C$ 950 million)(2) |  |              | C$ |  |                           |  | 2.01 |                                     |  |  | 2.01                                           |  |  |                  | 183,451  
|Secured credit facilities (C$ 142 million)(2)   |  |              | C$ |  |                           |  | 2.11 |                                     |  |  | 2.11                                           |  |  |                  | 68,030   
|                                                |  |              |    |  |                           |  |      |                                     |  |  |                                                |  |  |                  | 4,002,721










|(1) | After
                                         the reporting date, First Capital redeemed C$ 106.3 million (NIS 306 million) convertible
                                         debentures (series E and F) at their par value plus accrued interest.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | As
                                         of December 31, 2016, the total availability for immediate drawdown amounted to C$ 796.2
                                         million, net of letter of credits provided.                              



The
terms of certain of the debt instruments set forth in the table above contain covenants, including requirements for First Capital
to maintain certain financial ratios. As of December 31, 2016, First Capital was in compliance with all of such covenants that
were in effect at such time. See Note 22 to our audited consolidated financial statements included elsewhere in this annual report.



In
light of the resources that are available to First Capital as of December 31, 2016, mainly unused and committed credit facilities
available for immediate drawdown in the amount of C$ 796.2 million (NIS 2,270 million), and cash and cash equivalents in the amount
of C$ 12.2 million (NIS 34.8 million), in addition to the positive cash flows from operating activities, we believe that First
Capital has sufficient cash and resources to cover its contractual obligations for the next year.



Citycon





The
following table sets forth information regarding Citycon’s indebtedness as of December 31, 2016:





|Debt Instrument(1)                          |  | Denomination |     |  | Average Interest Rate (%) |  |      | Average Effective Interest Rate (%) |  |  | Carrying Amount of Liability (EUR in thousands) |  |  | Maturity (years) |          
|------------------------------------------- |  | ------------ | --- |  | ------------------------- |  | ---- | ----------------------------------- |  |  | ----------------------------------------------- |  |  | ---------------- | ---------
|Unsecured debentures                        |  |              | EUR |  |                           |  | 2.74 |                                     |  |  | 2.81                                            |  |  |                  | 1,625,850
|Unsecured debentures - variable interest(2) |  |              | NOK |  |                           |  | 2.70 |                                     |  |  | 2.72                                            |  |  |                  | 136,900  
|Unsecured debentures - fixed interest       |  |              | NOK |  |                           |  | 3.90 |                                     |  |  | 3.90                                            |  |  |                  | 153,200  
|Term loan                                   |  |              | NOK |  |                           |  | 2.47 |                                     |  |  | 2.47                                            |  |  |                  | 110,106  
|Total                                       |  |              |     |  |                           |  |      |                                     |  |  |                                                 |  |  |                  | 2,026,056












|(1) | Excluding
                                         commercial papers amounting to EUR 142.2 million.                                                                                                                                                           
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Citycon
                                         has entered into interest rate swap transactions to pay fixed interest rates with respect
                                         of a notional amount of EUR 247.6 million of these variable interest loans.



The
terms of certain of the debt instruments set forth in the table above contain covenants, including requirements for Citycon to
maintain certain financial ratios. As of December 31, 2016, Citycon was in compliance with all of such covenants that were in
effect at such time. See Note 22 to our audited consolidated financial statements included elsewhere in this annual report.



Since
Citycon’s strategy is based on expansion, Citycon will need both equity capital and borrowings. Its goal is to arrange financing
on a long term basis and to avoid any large concentration of maturity dates for its indebtedness. Citycon aims to guaranty the
availability and flexibility of financing through unused lines of credit and by using several banks and financing methods.



As
of December 31, 2016, the resources available to Citycon mainly consist of unused and committed credit facilities in the amount
of EUR 533.0 million (NIS 2,155 million), unutilized cash pools in the amount of EUR 17.9 million (NIS 73 million), and cash and
cash equivalents in the amount of EUR 9.3 million (NIS 37.8 million), together with the addition of the positive cash flows from
operating activities. In light of these resources, we believe that Citycon has sufficient cash and resources to cover its contractual
obligations for the next year. In the long-term, Citycon may consider debt refinancing, new bond issues, or disposals of investment
properties.



56









Atrium





The
following table sets forth information regarding Atrium’s indebtedness as of December 31, 2016:





|Debt Instrument                  |  | Denomination |     |  | Average Interest Rate (%) |  |      | Average Effective Interest Rate (%) |  |  | Carrying Amount of Liability (EUR in thousands) |  |  | Maturity (years) |        
|-------------------------------- |  | ------------ | --- |  | ------------------------- |  | ---- | ----------------------------------- |  |  | ----------------------------------------------- |  |  | ---------------- | -------
|Floating rate secured debentures |  |              | EUR |  |                           |  | 4.00 |                                     |  |  | 4.35                                            |  |  |                  | 3,838  
|Fixed rate unsecured debentures  |  |              | EUR |  |                           |  | 3.77 |                                     |  |  | 3.78                                            |  |  |                  | 834,246
|Secured loan at floating rate    |  |              | EUR |  |                           |  | 4.1  |                                     |  |  | 4.30                                            |  |  |                  | 109,320
|                                 |  |              |     |  |                           |  |      |                                     |  |  |                                                 |  |  |                  | 947,404



The
terms of certain of the debt instruments set forth in the table above contain covenants, including requirements for Atrium to
maintain certain financial ratios. As of December 31, 2016, Atrium was in compliance with all of such covenants that were in effect
at such time. See Note 22 to our audited consolidated financial statements included elsewhere in this annual report.



As
of December 31, 2016, the financing sources available to Atrium mainly consist of unused and committed credit facilities in the
amount of EUR 175 million (NIS 708 million) and cash and cash equivalents of EUR 103.6 million (NIS 419 million). Atrium management
plans to meet its contractual obligations to repay its debt through a combination of sources, including replacement secured and
unsecured credit facilities, proceeds from the issuance of equity, convertible securities, proceeds from property dispositions
and available cash.



Cash
Flows





The
following summary discussion of our cash flows is based on the consolidated statements of cash flows.





|                                                    |  | Year Ended December 31, |       |   | Increase (Decrease) | 
|--------------------------------------------------- |  | ----------------------- | ----- | - | ------------------- | 
|                                                    |  | 2014                    |       |   | 2015                | 
|                                                    |  | (NIS in millions)       |       |   | (%)                 | 
|Net cash provided by operating activities           |  |                         | 1,026 |   |                     | 
|Net cash used in investing activities               |  |                         | (768  | ) |                     | 
|Net cash provided by (used in) financing activities |  |                         | (701  | ) |                     | 
|Cash and cash equivalents, end of period            |  |                         | 650   |   |                     | 



Net
Cash Provided by Operating Activities



Net
cash provided by operating activities consists primarily of net operating income from our income producing properties (rental
and other revenues less property operating expenses) and dividends from jointly-controlled entities less cash flows used in general
and administrative expenses and net interest expense.



Net
cash provided by operating activities totaled NIS 1,909 million (U.S.$ 496 million) for the year ended December 31, 2016 compared
to NIS 1,514 million for the year ended December 31, 2015. The increase of NIS 395 million, or 26%, was due primarily to negative
operating activities from Luzon Group recognized in 2015 and due to timing differences especially in interest payments.



Net
cash provided by operating activities totaled NIS 1,514 million for the year ended December 31, 2015 compared to NIS
1,026 million for the year ended December 31, 2014. The increase of NIS 488 million, or 48%, was due to the initial
consolidation of Atrium and the acquisition of a Norwegian operation and to a reduction of the negative cash flows from
construction works activity in the 2015, compared with 2014.



Net
Cash Used in Investing Activities



Net
cash used in investing activities consists primarily of property acquisitions and dispositions, costs incurred with respect to
developments, investment in shares of investees and investments in (disposals of) available-for-sale and other financial assets.



Net
cash used in investing activities totaled NIS 3,306 million (U.S.$ 860 million) for the year ended December 31, 2016 compared
with NIS 4,437 million used in investing activities for the year ended December 31, 2015. The decrease of NIS 1,131 million in
cash used for investing activities, or 25%, was due primarily to the initial consolidation of Atrium and the acquisition of a
Norwegian operation for NIS 1,088 million recognized in 2015, a decrease of NIS 1,107 million in investments and loans to investees
for 2016 compared with 2015, offset by an increase of NIS 955 million with respect to the acquisition of investment properties,
net of cash flows from disposition, for 2016 compared with 2015.



57









Net
cash used in investing activities totaled NIS 4,437 million for the year ended December 31, 2015 compared with NIS 768 million
used in investing activities for the year ended December 31, 2014. The increase of NIS 3,669 million, or 478%, was due primarily
to the initial consolidation of Atrium and the acquisition of a Norwegian operation in the amount of NIS 1,088 million, increase
of NIS 1,552 million with respect to the acquisition of investment properties, net of cash flows from disposition, for 2015 compared
with 2014 and an increase of NIS 880 million in investments and loans to investees for 2015 compared with 2014.



Net
Cash Provided by (Used for) Financing Activities



Net
cash provided by (used for) financing activities consists primarily of capital issuance by Gazit-Globe and its subsidiaries, proceeds
from obtaining loans, proceeds from credit facilities and the issuance of debentures and convertible debentures, less repayment
and redemption of debt, acquisition of non-controlling interests and dividends paid to shareholders.



Net
cash provided by financing activities totaled NIS 927 million (U.S.$ 241 million) for the year ended December 31, 2016 compared
with NIS 4,665 million net cash provided by financing activities for the year ended December 31, 2015. The decrease of NIS 3,738
million, or 80%, is due primarily to a decrease of NIS 2,493 million in net debenture issuance compared to the year ended December
31, 2015 and a decrease of NIS 1,067 million due to proceeds from obtaining long-term and short-term credit from banks and others,
net of repayments to the year ended December 31, 2016 compared to the year ended December 31, 2015 and NIS 586 million in capital
issuance recognized in 2015 and a decrease of NIS 1,092 million due to capital issuance to non-controlling interests and sale
of shares to non-controlling interests to the year ended December 31, 2016 compared to the year ended December 31, 2015 and an
increase of dividend payments of NIS 140 million to the equity holders of the company and to non-controlling interests, offset
by an increase of NIS 727 million in repayment and early redemption of debentures and convertible debentures and an increase of
NIS 1,062 million due to proceed from obtaining loans, net of loans repayment to the year ended December 31, 2016 compared to
the year ended December 31, 2015.



Net
cash provided by financing activities totaled NIS 4,665 million for the year ended December 31, 2015 compared with NIS 701 million
net cash used in financing activities for the year ended December 31, 2014. The increase of NIS 5,366 million, or 765%, is due
primarily to an increase of NIS 1,856 million in net debenture issuance compared to the year ended December 31, 2014 and an increase
of NIS 3,618 million due to proceeds from obtaining loans, net of loans repayment to the year ended December 31, 2015 compared
to the year ended December 31, 2014, increase of NIS 743 million due to proceeds from a long term credit facility in the year
ended December 31, 2015 compared to the year ended December 31, 2014, increase of NIS 482 million from the sale of Equity One’s
shares and increase of NIS 468 million in capital issuance, offset by a decrease of NIS 1,298 million in repayment and early redemption
of debentures and convertible debentures and a decrease of NIS 348 million due to dividend paid to non-controlling interests.



2016.
During the year ended December 31, 2016, we financed our activities primarily by:



| | ● | the
                                         issuance of equity amounting to NIS 1,348 million, comprised of the issuance of C$ 291
                                         million of equity securities by First Capital and U.S.$ 120 million of equity securities
                                         by Equity One;                                                                                                                                                                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ● | the
                                         issuance of debentures, net of repayments, amounting to NIS 1,276 million, comprised
                                         of the net issuance of C$ 237 million of debentures by First Capital, net issuance of
                                         EUR 347 million by Citycon, net repayment of debentures of EUR 18 million by Atrium,
                                         and net repayment of debentures by Equity One in the amount of U.S.$ 30 million and net
                                         repayment of debentures by Gazit-Globe in the amount of NIS 691 million; and
| | ● | the
                                         sale of First Capital’s shares amounting to C$ 117 million;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             



partially
offset by:



| | ● | acquisition
                                         of non-controlling interests amounting to NIS 349 million;                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ● | repayments
                                         of long-term loans and credit facilities, net of loans and proceeds from credit facilities,
                                         amounting to NIS 122 million, comprised of NIS 761 million received by Gazit-Globe and
                                         its private subsidiaries, U.S.$ 61 million received by Equity One, C$ 12 million repaid
                                         by First Capital, EUR 201 million repaid by Citycon, EUR 50 million repaid by Atrium;
                                         and
| | ● | dividend
                                         distributions to holders other than Gazit-Globe amounting to NIS 1,555 million mainly
                                         comprised of NIS 295 million paid by Gazit-Globe, U.S.$ 82 million paid by Equity One,
                                         C$ 127 million paid by First Capital, EUR 75 million paid by Citycon and EUR 66 million
                                         paid by Atrium.                                                                                                                           



58









2015.
During the year ended December 31, 2015, we financed our activities primarily by:



| | ● | the
                                         issuance of equity amounting to NIS 2,870 million, comprised of the issuance of equity
                                         amounting to NIS 586 million in Gazit-Globe, C$ 105 million of equity securities by First
                                         Capital, U.S.$ 109 million of equity securities by Equity One, EUR 345 million of equity
                                         securities by Citycon and EUR 3 million of equity securities by Atrium;                                                                                                                                                                                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ● | the
                                         issuance of debentures, net of repayments, amounting to NIS 3,042 million, comprised
                                         of the net issuance of C$ 81 million of debentures and convertible debentures by First
                                         Capital, net issuance of debentures by Gazit-Globe and its private subsidiaries in the
                                         amount of NIS 1,194 million, net issuance of EUR 578 million by Citycon, net issuance
                                         of EUR 37 million by Atrium, and net repayment of debentures by Equity One in the amount
                                         of U.S.$ 220 million, net repayment of debentures by Luzon Group and its subsidiary in
                                         the amount of NIS 193 million; and
| | ● | the
                                         sale of Equity One’s shares amounting to NIS 482 million;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        



partially
offset by:



| | ● | acquisition
                                         of non-controlling interests amounting to NIS 197 million;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ● | repayments
                                         of long-term loans and credit facilities, net of loans and proceeds from credit facilities,
                                         amounting to NIS 117 million, comprised of NIS 1,705 million received by Gazit-Globe
                                         and its private subsidiaries, U.S.$ 229 million received by Equity One, C$ 99 million
                                         received by First Capital, NIS 55 million received by Luzon Group, EUR 584 million repaid
                                         by Citycon, EUR 109 million repaid by Atrium and NIS 77 million repaid by Gazit Development;
                                         and
| | ● | dividend
                                         distributions to holders other than Gazit-Globe amounting to NIS 1,415 million mainly
                                         comprised of NIS 328 million paid by Gazit-Globe, U.S.$ 77 million paid by Equity One,
                                         C$ 110 million paid by First Capital and EUR 51 million paid by Citycon and EUR 46 million
                                         paid by Atrium.                                                                                                                                                                                                                                                              



2014.
During the year ended December 31, 2014, we financed our activities primarily by:



| | ● | the
                                         issuance of equity amounting to NIS 2,483 million, comprised of the issuance of equity
                                         amounting to NIS 118 million in Gazit- Globe, C$ 120 million of equity securities by
                                         First Capital, U.S.$ 145 million of equity securities by Equity One, EUR 313 million
                                         of equity securities by Citycon and NIS 4 million of equity securities by Gazit Development;
                                         and                                                                            
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ● | the
                                         issuance of debentures, net of repayments, amounting to NIS 2,484 million, comprised
                                         of the net issuance of C$ 277 million of debentures and convertible debentures by First
                                         Capital, net issuance of debentures by Gazit-Globe and its private subsidiaries in the
                                         amount of NIS 167 million, net issuance of EUR 327 million by Citycon, and net repayment
                                         of debentures by Luzon Group and its subsidiary in the amount of NIS 96 million;



partially
offset by:



| | ● | acquisition
                                         of non-controlling interests amounting to NIS 325 million;                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ● | repayments
                                         of long-term loans and credit facilities, net of loans and proceeds from credit facilities,
                                         amounting to NIS 4,529 million, comprised of NIS 585 million repaid by Gazit-Globe and
                                         its private subsidiaries, U.S.$ 187 million repaid by Equity One, C$ 177 million repaid
                                         by First Capital, and EUR 572 million repaid by Citycon; and
| | ● | dividend
                                         distributions to holders other than Gazit-Globe amounting to NIS 1,057 million mainly
                                         comprised of NIS 318 million paid by Gazit-Globe, U.S.$ 67 million paid by Equity One,
                                         C$ 95 million paid by First Capital and EUR 34 million paid by Citycon.                                                                                                                              



Distributions



In
November 1998, Gazit-Globe’s board of directors adopted a policy of distributing a quarterly cash dividend, pursuant to
which each year it announces the amount of the minimum dividend it will pay in the four quarters of the coming year. Our distribution
policy is subject to the existence of adequate amounts of distributable profits at the relevant dates, and is subject to our discretion,
including concerning the appropriation of our profits for other purposes and/or the revision of this dividend distribution policy.
On April 20, 2016, Gazit-Globe paid a quarterly cash dividend of NIS 0.46 (U.S.$ 0.12) per share. On June 16, 2016, Gazit-Globe
paid a quarterly cash dividend of NIS 0.35 (U.S.$ 0.09) per share. On September 12, 2016, Gazit-Globe paid a quarterly cash dividend
of NIS 0.35 (U.S.$ 0.09) per share. On December 13, 2016, Gazit-Globe paid a quarterly cash dividend of NIS 0.35 (U.S.$ 0.09)
per share.



In
March 2017, we announced that our dividend to be declared in 2017 will be NIS 0.35 (U.S.$ 0.09) per share per quarter (NIS 1.40
(U.S.$ 0.36) per annum).



Our
ability to pay dividends is dependent on dividends distributed to us by our investees and funds distributed by our private subsidiaries.
In the event that our investees are restricted from distributing dividends due to their earnings, financial condition or results
of operations or they determine not to distribute dividends, including as a result of taxes that may be payable with respect to
such distribution, and in the event that our debt or equity financing is restricted or limited, we may not be able to pay dividends
in the amounts otherwise anticipated or at all. If we decrease or discontinue our dividend payments, the market price of our ordinary
shares may decrease.



59









For
our discussion of the use of financial instruments for hedging purposes, see “Item 11—Quantitative and Qualitative
Disclosures About Market Risk.”



For
our discussion of our material commitments for capital expenditures, see “—Cash Flows” above in this section
and Note 26(c) to our audited consolidated financial statements included elsewhere in this annual report.



Additional
Supplemental Investor Information Concerning Our Assets and Liabilities



The
following table presents additional information summarizing our assets as of December 31, 2016. The table presents information
on the assets of Gazit-Globe and its private subsidiaries, with each of our public subsidiaries being presented according to the
equity method under IFRS. This table presents the book value attributable to our private subsidiaries on a gross asset basis.



A
significant proportion of our consolidated assets are held through our public subsidiaries, the results of each of which are either
fully consolidated or accounted for using the equity method in accordance with IFRS in our consolidated financial statements.
The securities in our public subsidiaries presented in the table below are publicly traded. We believe this additional disclosure
together with the net liabilities presented in the following table is valuable to investors in analyzing and understanding our
net asset value, or NAV, also referred to as equity attributable to equity holders of the Company, in addition to our EPRA NAV
and EPRA NNNAV presented below. In particular, we believe the tables provide investors with information that can be used to compute
our NAV (for example, by calculating NAV based on the market price of the securities of our public subsidiaries).



We
present our investment in public subsidiaries net of liabilities in the following table because our public subsidiaries have traditionally
satisfied their own short-term liquidity and long-term capital requirements through cash generated from their respective operations
and through debt and equity financings in their respective local markets. The liquidity and available borrowings of each of our
public subsidiaries are not available to support the others’ operations. We present the book value attributable to our private
subsidiaries on a gross asset basis in the following table because traditionally the short-term liquidity and long-term capital
requirements of our private subsidiaries have been funded through a combination of sources, primarily from Gazit-Globe. The liquidity
and available borrowings of Gazit-Globe and its private subsidiaries are generally available to support of all of our private
subsidiaries’ operations (as well as investments in our public subsidiaries).



Assets
Summary Table



|Name of Company/Region |  | Type of Security/Property           |  | Holding (Number of Shares) |       |  | Book Value(1)(2) |  |        | Market Value(3) | 
|---------------------- |  | ----------------------------------- |  | -------------------------- | ----- |  | ---------------- |  | ------ | --------------- | 
|                       |  |                                     |  |                            |       |  | NIS              |  |        | U.S.$           | 
|                       |  |                                     |  |                            |       |  | In millions      | 
|Equity One (4)         |  | Shares (NYSE)                       |  |                            | 49.6  |  |                  |  | 3,814  |                 | 
|First Capital (5)      |  | Shares (TSX)                        |  |                            | 88.6  |  |                  |  | 4,356  |                 | 
|Citycon                |  | Shares (OMX)                        |  |                            | 390.6 |  |                  |  | 4,094  |                 | 
|Atrium                 |  | Shares (Euronext,VSX)               |  |                            | 224.3 |  |                  |  | 4,510  |                 | 
|Property in Europe     |  | Income-producing property           |  |                            | -     |  |                  |  | 414    |                 | 
|Land in Europe         |  | Property under development and land |  |                            | -     |  |                  |  | 182    |                 | 
|Brazil                 |  | Income-producing property and land  |  |                            | -     |  |                  |  | 2,156  |                 | 
|Israel                 |  | Income-producing property           |  |                            | -     |  |                  |  | 2,467  |                 | 
|Land in Israel         |  | Property under development and land |  |                            | -     |  |                  |  | 244    |                 | 
|Total book value       |  |                                     |  |                            |       |  |                  |  | 22,237 |                 | 














| | (1) | With
                                         respect to the book value of securities, this represents the investment in such securities
                                         as of December 31, 2016 according to the equity method under IFRS. The presentation of
                                         our investment in securities of our public subsidiaries and equity-accounted investees
                                         is according to the equity method under IFRS. The table presents the book value of such
                                         investment with each public subsidiary and equity-accounted investee on an unconsolidated
                                         basis. As a consequence, the value of assets in this table less net liabilities presented
                                         in the following table results in a net asset value equal to the equity attributable
                                         to equity holders of the Company in our audited consolidated financial statements.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | With
                                         respect to the book value of properties, this represents the fair value of such properties
                                         as of December 31, 2016 as determined in accordance with IAS 40 and as such investments
                                         are presented in our audited consolidated financial statements.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | Represents
                                         the market value of the applicable securities based on the closing price of such securities
                                         on the applicable securities exchange on December 31, 2016.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (4) | Effective
                                         as of March 1, 2017, Equity One completed the Regency Merger, and Equity One is presented
                                         in our audited consolidated financial statements included elsewhere in this annual report
                                         as a discontinued operation. We will not consolidate Regency into our financial statements
                                         and instead we will present the investment as an available-for-sale financial asset.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (5) | In
                                         March 2017, the Company sold 9 million shares of First Capital on the TSX for consideration
                                         of approximately C$ 185 million (NIS 500 million; U.S.$ 137 million). As a result of
                                         the aforementioned sale, the Company will deconsolidate First Capital from its financial
                                         statements and present the investment on an equity method basis.                                



60







The
following table presents information on the assets of Gazit-Globe and its investees as of December 31, 2016, with each of our
operating investees presented according to the equity method under IFRS.



|Name of Company/Region |  | Type of Security |                       |  | Holding (Number of Shares) |  |       | Book Value(1) |  |  | Market Value(2) | 
|---------------------- |  | ---------------- | --------------------- |  | -------------------------- |  | ----- | ------------- |  |  | --------------- | 
|                       |  |                  |                       |  |                            |  |       | NIS           |  |  | U.S.$           | 
|                       |  |                  |                       |  | In millions                | 
|Equity One             |  |                  | Shares (NYSE)         |  |                            |  | 49.6  |               |  |  | 3,814           | 
|First Capital          |  |                  | Shares (TSX)          |  |                            |  | 88.6  |               |  |  | 4,356           | 
|Citycon                |  |                  | Shares (OMX)          |  |                            |  | 390.6 |               |  |  | 4,094           | 
|Atrium                 |  |                  | Shares (Euronext,VSX) |  |                            |  | 224.3 |               |  |  | 4,510           | 
|Gazit Germany          |  |                  | Shares                |  |                            |  | -     |               |  |  | 141             | 
|Gazit Development      |  |                  | Shares                |  |                            |  | -     |               |  |  | 111             | 
|Brazil                 |  |                  | Shares                |  |                            |  | -     |               |  |  | 2,276           | 
|Total book value       |  |                  |                       |  |                            |  |       |               |  |  | 19,302          | 














| | (1) | Represents
                                         the book value of the investments as of December 31, 2016 according to the equity method
                                         under IFRS. The table presents the book value of such investments on an unconsolidated
                                         basis.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Represents
                                         the market value of the applicable securities based on the closing price of such securities
                                         on the applicable securities exchange on December 31, 2016.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The
following table presents the liabilities of Gazit-Globe and its wholly-owned, non-operating private subsidiaries, Gazit-Globe
and its private subsidiaries and our consolidated liabilities as of December 31, 2016. This table does not present the liabilities
of our public investees as the table above presents the investment in public investees according to the equity method (i.e., net
of liabilities). We believe that this presentation of liabilities of Gazit-Globe and its private subsidiaries is consistent with
the presentation of our assets in the Assets Summary Table above.



Liabilities
Summary Table



|                                                |  | Gazit-Globe(1) |        |      | Gazit-Globe and its Private Subsidiaries |  |       | Consolidated | 
|----------------------------------------------- |  | -------------- | ------ | ---- | ---------------------------------------- |  | ----- | ------------ | 
|In millions                                     |  | NIS            |        |      | U.S.$                                    |  |       | NIS          | 
|Debentures                                      |  |                | 11,564 | (2)  |                                          |  | 3,008 |              | 
|Debts to financial institutions                 |  |                | 2,838  | (4)  |                                          |  | 738   |              | 
|Other liabilities                               |  |                | 316    | (7)  |                                          |  | 82    |              | 
|Total liabilities and non-controlling interests |  |                | 14,718 |      |                                          |  | 3,828 |              | 
|Less—monetary assets and other investments (10) |  |                | 3,574  | (11) |                                          |  | 929   |              | 
|Liabilities, net                                |  |                | 11,144 |      |                                          |  | 2,899 |              | 












| | (1) | Includes
                                         Gazit-Globe’s wholly-owned, non-operating private subsidiaries.
| | --- | -----------------------------------------------------------------------------------------------------------------

| | (2) | Represents
                                         NIS 27,319 million of debentures recorded as non-current liabilities and NIS 2,047 million
                                         of debentures recorded as current liabilities, in each case on our consolidated statements
                                         of financial position as of December 31, 2016, minus NIS 18,481 million of debentures
                                         issued by our public subsidiaries, plus NIS 679 million of Gazit-Globe’s loan from
                                         a financial institution. No debentures of our wholly-owned, operating private subsidiaries
                                         are recorded on our audited consolidated financial statements as of December 31, 2016.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | Represents
                                         NIS 27,319 million of debentures recorded as non-current liabilities and NIS 2,047 million
                                         of debentures recorded as current liabilities, in each case on our consolidated statements
                                         of financial position as of December 31, 2016.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (4) | Represents
                                                                                                                                                                                                                               NIS 8,183 million of debt to financial institutions recorded as non-current liabilities
                                                                                                                                                                                                                               and NIS 1,154 million of debt to financial institutions recorded as current liabilities,
                                                                                                                                                                                                                               in each case on our consolidated statements of financial position as of December 31,
                                                                                                                                                                                                                               2016, minus NIS 5,076 million of public subsidiary debt to financial institutions, minus
                                                                                                                                                                                                                               NIS 744 million of our operating private subsidiaries debt to financial institutions, and minus NIS 679 million of
                                                                                                                                                                                                                               Gazit-Globe’s loan from a financial institution.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



61









| | (5) | Represents
                                         NIS 8,183 million of debt to financial institutions recorded as non-current liabilities
                                         and NIS 1,154 million of debt to financial institutions recorded as current liabilities,
                                         in each case on our consolidated statements of financial position as of December 31,
                                         2016, minus NIS 5,076 million of public subsidiary debt to financial institutions, and minus
                                         NIS 679 million of Gazit-Globe’s loan from a financial institution.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (6) | Represents
                                         NIS 8,183 million of debt to financial institutions recorded as non-current liabilities
                                         and NIS 1,154 million of debt to financial institutions recorded as current liabilities,
                                         in each case on our consolidated statements of financial position as of December 31,
                                         2016.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (7) | Represents
                                         NIS 2,337 million of financial derivatives, trade payables, other accounts payable and
                                         current tax payable recorded as current liabilities, NIS 4,127 million of financial derivatives,
                                         other financial liabilities, employee benefit liability, net, and deferred taxes recorded
                                         as non-current liabilities net of deferred taxes recorded as non-current assets and NIS
                                         25,610 million of non-controlling interests, in each case on our consolidated statements
                                         of financial position as of December 31, 2016, minus NIS 5,942 million of such liabilities
                                         of our public subsidiaries and our operating private subsidiaries, minus NIS 25,807 million
                                         of non-controlling interests of our public subsidiaries and our operating private subsidiaries
                                         and minus NIS 9 million of other adjustments attributable to our public subsidiaries.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (8) | Represents
                                         NIS 2,337 million of financial derivatives, trade payables, other accounts payable and
                                         current tax payable recorded as current liabilities, NIS 4,127 million of financial derivatives,
                                         other financial liabilities, employee benefit liability, net, and deferred taxes recorded
                                         as non-current liabilities net of deferred taxes recorded as non-current assets and NIS
                                         25,610 million of non-controlling interests, in each case on our consolidated statements
                                         of financial position as of December 31, 2016, minus NIS 5,142 million of such liabilities
                                         of public subsidiaries, minus NIS 25,807 million of non-controlling interests of our
                                         public subsidiaries, and minus NIS 12 million of other adjustments attributable to our
                                         public subsidiaries.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (9) | Represents
                                         NIS 2,337 million of financial derivatives, trade payables, other accounts payable and
                                         current tax payable recorded as current liabilities, NIS 4,127 million of financial derivatives,
                                         other financial liabilities, employee benefit liability, net, and deferred taxes recorded
                                         as non-current liabilities net of deferred taxes recorded as non-current assets and NIS
                                         25,610 million of non-controlling interests, in each case on our consolidated statements
                                         of financial position as of December 31, 2016.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (10) | Monetary
                                         assets and other investments consists of cash and cash equivalents, marketable securities,
                                         bank and other deposits, accounts receivable, financial derivatives, and other long term
                                         investments and loans.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (11) | Represents
                                         NIS 2,444 million of monetary assets recorded as current assets and NIS 2,123 million
                                         of monetary assets recorded as non-current assets, in each case on our consolidated statements
                                         of financial position as of December 31, 2016, minus NIS 2,921 million of such assets
                                         of our public subsidiaries and our operating private subsidiaries, plus NIS 2,249 million
                                         of loans to our operating private subsidiaries and minus NIS 321 million current maturities
                                         of fully redeemed debentures. See Note 17 to our audited consolidated financial statements
                                         included elsewhere in this annual report.
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (12) | Represents
                                         NIS 2,444 million of monetary assets recorded as current assets and NIS 2,123 million
                                         of monetary assets recorded as non-current assets, in each case on our consolidated statements
                                         of financial position as of December 31, 2016, minus NIS 2,066 million of assets of our
                                         public subsidiaries and minus NIS 321 million current maturities of fully redeemed debentures.
                                         See Note 17 to our audited consolidated financial statements included elsewhere in this
                                         annual report.
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (13) | Represents
                                         NIS 2,444 million of monetary assets recorded as current assets and NIS 2,123 million
                                         of monetary assets recorded as non-current assets, in each case on our consolidated statements
                                         of financial position as of December 31, 2016.
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The
following table presents the aggregate book value of investments according to the equity method under IFRS in the Assets Summary
Table above, the Liabilities, net of Gazit-Globe (and wholly-owned, non-operating private subsidiaries) in the Liabilities Summary
Table above and equity attributable to equity holders of the Company in our audited consolidated financial statements as of December
31, 2016:





|                                                                                              |  | NIS in millions |         |   | U.S.$ in millions | 
|--------------------------------------------------------------------------------------------- |  | --------------- | ------- | - | ----------------- | 
|Book value according to the equity method under IFRS in the table above:                      |  |                 | 19,302  |   |                   | 
|Liabilities, net                                                                              |  |                 | (11,144 | ) |                   | 
|Net Asset Value (NAV)                                                                         |  |                 | 8,158   |   |                   | 
|Equity attributable to equity holders of the Company in our consolidated financial statements |  |                 | 8,158   |   |                   | 



62







The
following table presents the aggregate book value of investments in public subsidiaries (according to the equity method under
IFRS) and fair value of properties of private subsidiaries in the Assets Summary Table above, the Liabilities, net of Gazit-Globe
and its private subsidiaries in the Liabilities Summary Table above and equity attributable to equity holders of the Company in
our audited consolidated financial statements as of December 31, 2016:







|                                                                                              |  | NIS in millions |         |   | U.S.$ in millions | 
|--------------------------------------------------------------------------------------------- |  | --------------- | ------- | - | ----------------- | 
|Book value according to the equity method under IFRS in the table above:                      |  |                 | 22,237  |   |                   | 
|Liabilities, net                                                                              |  |                 | (14,079 | ) |                   | 
|Net Asset Value (NAV)                                                                         |  |                 | 8,158   |   |                   | 
|Equity attributable to equity holders of the Company in our consolidated financial statements |  |                 | 8,158   |   |                   | 





Additional
information is presented below regarding our share in the income-producing properties owned by us as of December 31, 2016, based
on capitalized NOI (rental income, net of property operating expenses, other than depreciation expenses) methodology. NOI based
on our proportionate share in the NOI of our subsidiaries and other investees is a non-IFRS financial measure that is intended
to provide additional information, based on methodology that is generally accepted in the regions in which we operate, and might
serve as an additional method in analyzing the value of our properties on the basis of our financial results for the reporting
period. We emphasized that this information in no way represents our estimate of the present or future value of our assets. It
should only be used as an alternative measure of our financial performance.



In calculating the NOI, we took the following assumptions
into account:



| | ● | the
                                         NOI for the period for each of our subsidiaries and other investees; and
| | - | ---------------------------------------------------------------------------------------------------------------------
| | ● | our
                                         proportionate share in the NOI of our subsidiaries and other investees. 





|                                                                                                     |  | Year Ended December 31, |        |   | Three Months Ended December 31, | 
|---------------------------------------------------------------------------------------------------- |  | ----------------------- | ------ | - | ------------------------------- | 
|                                                                                                     |  | 2015                    |        |   | 2016                            | 
|                                                                                                     |  | NIS in millions         |        |   | U.S.$ in millions               | 
|Rental income                                                                                        |  |                         | 4,809  |   |                                 | 
|Property operating expenses                                                                          |  |                         | (1,613 | ) |                                 | 
|NOI for the period                                                                                   |  |                         | 3,196  |   |                                 | 
|Less—minority’s share in NOI                                                                         |  |                         | (1,592 | ) |                                 | 
|Add—Company’s share in NOI of jointly-controlled companies and discontinued operations               |  |                         | 446    |   |                                 | 
|NOI for the period—our proportionate share                                                           |  |                         | 2,050  |   |                                 | 
|NOI based on our proportionate share in the NOI of our subsidiaries and affiliates for the period(1) |  |                         | 2,050  |   |                                 | 








|(1) | NOI
                                         for the fourth quarter of 2016 or 2015, as applicable, multiplied by four. Results for
                                         interim periods are not necessarily indicative of results that may be expected for the
                                         entire year and this number does not equal our actual NOI based on our proportionate
                                         share in the NOI of our subsidiaries and affiliates for the year ended December 31, 2016
                                         and 2015, as applicable.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The
sensitivity analyses shown in the table below describe the implied value of our income-producing properties using the aforesaid
methodology according to the range of different capitalization rates, or cap rates, generally accepted in the regions in which
we operate, as of December 31, 2016. This presentation does not take into account income from premises that have not been leased
and additional building rights that exist with respect to our income-producing properties.



The
following table presents the value of proportionately consolidated income-producing property based on NOI for the three months
ended December 31, 2016:



|Capitalization Rate:                                     |  |  | 5.50   | % |  |  | 5.75   | % |  |  | 6.00   | % |  |  | 6.25   | % |  |  | 6.50   | %
|-------------------------------------------------------- |  |  | ------ | - |  |  | ------ | - |  |  | ------ | - |  |  | ------ | - |  |  | ------ | -
|Value of income-producing property (NIS in millions) (1) |  |  | 35,705 |   |  |  | 34,152 |   |  |  | 32,729 |   |  |  | 31,420 |   |  |  | 30,212 |  
|(U.S.$ in millions)                                      |  |  | 9,286  |   |  |  | 8,882  |   |  |  | 8,512  |   |  |  | 8,172  |   |  |  | 7,857  |  












| | (1) | NOI
                                         divided by the capitalization rate.
| | --- | --------------------------------------------------------------------------------



63









Properties
under development, not yet operating or whose development has not yet been completed, which includes land for future development
and which we present at their fair values in our books (according to the proportionate consolidation method) as of December 31,
2016, amounted to NIS 1,657 million (U.S.$ 431 million). The following table presents a reconciliation to the amount of investment
property under development presented in our statement of financial position as of December 31, 2016:





|                                                                                            |  |  | NIS in millions |       |   | U.S.$ in millions
|------------------------------------------------------------------------------------------- |  |  | --------------- | ----- | - | -----------------
|Investment property under development and land (1)                                          |  |  |                 | 2,212 |   |                  
|Adjustments to properties under development(2)                                              |  |  |                 | 95    |   |                  
|Non-controlling interests’ portion of such properties                                       |  |  |                 | (650  | ) |                  
|Investment property under development (according to the proportionate consolidation method) |  |  |                 | 1,657 |   |                  










| | (1) | Including
                                         land held for sale in amount of NIS 99 million.
| | --- | --------------------------------------------------------------------------------------------------

| | (2) | Adjustments
                                         to exclude the operating portion of properties under development and to include properties
                                         which began to operate at the end of 2016 and thus have not yet produced income.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Our
liabilities, net of monetary assets (according to the proportionate consolidation method) as of December 31, 2016, amounted to
NIS 25,343 million (U.S.$ 6,591 million). The following table presents our liabilities, net of monetary assets (according to the
proportionate consolidation method) and our consolidated liabilities as of December 31, 2016:





|                                               |  | Proportionate Consolidation |        |     | Consolidated | 
|---------------------------------------------- |  | --------------------------- | ------ | --- | ------------ | 
|In millions                                    |  | NIS                         |        |     | U.S.$        | 
|Debentures                                     |  |                             | 20,465 | (1) |              | 
|Debts to financial institutions                |  |                             | 7,152  | (3) |              | 
|Other liabilities                              |  |                             | 167    | (5) |              | 
|Total liabilities and non-controlling interest |  |                             | 27,784 |     |              | 
|Less—monetary assets and other investments (7) |  |                             | 2,441  | (8) |              | 
|Liabilities, net                               |  |                             | 25,343 |     |              | 










| | (1) | Represents
                                         NIS 27,319 million of debentures recorded as non-current liabilities and NIS 2,047 million
                                         of debentures recorded as current liabilities, in each case on our consolidated statements
                                         of financial position as of December 31, 2016, minus NIS 10,232 million of debentures
                                         which we do not proportionately consolidate, plus NIS 679 million Gazit-Globe’s
                                         loan from a financial institution and plus NIS 652 million of debentures, which are presented
                                         as discontinued operations.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Represents
                                         NIS 27,319 million of debentures recorded as non-current liabilities and NIS 2,047 million
                                         of debentures recorded as current liabilities, in each case on our consolidated statements
                                         of financial position as of December 31, 2016.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | Represents
                                         NIS 8,183 million of debt to financial institutions recorded as non-current liabilities
                                         and NIS 1,154 million of debt to financial institutions recorded as current liabilities,
                                         in each case on our consolidated statements of financial position as of December 31,
                                         2016, minus NIS 2,705 million of debt to financial institutions which we do not proportionately
                                         consolidate, minus NIS 679 million Globe’s loan from a financial institution and
                                         plus NIS 1,199 million of debts to a financial institution, which are presented as discontinued
                                         operations.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (4) | Represents
                                         NIS 8,183 million of debt to financial institutions recorded as non-current liabilities
                                         and NIS 1,154 million of debt to financial institutions recorded as current liabilities,
                                         in each case on our consolidated statements of financial position as of December 31,
                                         2016.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (5) | Represents
                                         NIS 2,337 million of financial derivatives, trade payables, other accounts payable and
                                         current tax payable recorded as current liabilities, NIS 4,127 million of financial derivatives,
                                         other financial liabilities, employee benefit liability, net, and deferred taxes recorded
                                         as non-current liabilities net of deferred taxes recorded as non-current assets and NIS
                                         25,610 million of non-controlling interests, in each case on our consolidated statements
                                         of financial position as of December 31, 2016, minus NIS 25,679 million of non-controlling
                                         interests plus our proportionately consolidated portion of convertible debentures in
                                         the amount of NIS 217 million, plus our proportionately consolidated portion of liabilities
                                         attributed to assets held for sale in the amount of NIS 19 million and excluding NIS
                                         2,337 million of financial derivatives, trade payables, other accounts payable, current
                                         tax payable and dividends payable recorded as current liabilities and NIS 4,127 million
                                         of financial derivatives, other financial liabilities, employee benefit liability, net,
                                         and deferred taxes recorded as non-current liabilities net of deferred taxes recorded
                                         as non-current assets.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (6) | Represents
                                         NIS 2,337 million of financial derivatives, trade payables, other accounts payable and
                                         current tax payable recorded as current liabilities, NIS 4,127 million of financial derivatives,
                                         other financial liabilities, employee benefit liability, net, and deferred taxes recorded
                                         as non-current liabilities net of deferred taxes recorded as non-current assets and NIS
                                         25,610 million of non-controlling interests, in each case on our consolidated statements
                                         of financial position as of December 31, 2016.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



64









| | (7) | Monetary
                                         assets and other investments consists of cash and cash equivalents, marketable securities,
                                         bank and other deposits, accounts receivable, financial derivatives, and other long term
                                         investments and loans.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (8) | Represents
                                         NIS 2,444 million of monetary assets recorded as current assets and NIS 2,123 million
                                         of monetary assets recorded as non-current assets, in each case on our consolidated statements
                                         of financial position as of December 31, 2016, minus NIS 1,321 million consisting of
                                         cash and cash equivalents, marketable securities, bank and other deposits, financial
                                         derivatives, and other long term investments and loans which we do not proportionately
                                         consolidate, minus NIS 518 million of trade and accounts receivables, and minus NIS 321
                                         million current maturities of fully redeemed debentures (see Note 17 to our audited consolidated
                                         financial statements included elsewhere in this annual report) and plus NIS 34 million
                                         of other investments.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (9) | Represents
                                         NIS 2,444 million of monetary assets recorded as current assets and NIS 2,123 million
                                         of monetary assets recorded as non-current assets, in each case on our consolidated statements
                                         of financial position as of December 31, 2016.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Capitalization
Rates



The
following table presents the average cap rates implied in the valuations of our operating investment properties in our principal
areas of operations:





|                  |  |  | USA (*) |     |  | Canada |  |     | Northern and Western Europe |  |     | Central- Eastern Europe (*) |  |  | Israel |        
|----------------- |  |  | ------- | --- |  | ------ |  | --- | --------------------------- |  | --- | --------------------------- |  |  | ------ | -------
|                  |  |  |         |     |  |        |  |     |                             |  | (%) |                             |  | 
|December 31, 2016 |  |  |         | 5.5 |  |        |  | 5.5 |                             |  |     | 5.5                         |  |  |        | (**)7.0
|December 31, 2015 |  |  |         | 5.8 |  |        |  | 5.7 |                             |  |     | 5.7                         |  |  |        | (**)7.3








|(*)  | Market rent, as customary in these markets, excludes management fees.                
|---- | -------------------------------------------------------------------------------------
|(**) | Excluding property
under joint venture and assets held for sale – 7.2% (2015 – 7.4%).





Non-IFRS
Financial Measures



Net
Operating Income



This
annual report includes a discussion of property net operating income, or NOI. NOI is a non-IFRS financial measure that we define
as rental income less property operating expenses, net of depreciation expense. This measure provides an operating perspective
not immediately apparent from IFRS operating income or loss. NOI is most comparable to gross profit. We use NOI to evaluate our
performance on a property-by-property basis because NOI allows us to evaluate the impact that factors such as lease structure,
lease rates and tenant base, which vary by property, have on our operating results. However, NOI should only be used as an alternative
measure of our financial performance.



The
following table presents the calculation of NOI for the periods presented:





|                            |  | Year Ended December 31, |       
|--------------------------- |  | ----------------------- | ------
|                            |  | 2012                    |       
|                            |  | (NIS in millions)       |       
|Rental income               |  |                         | 3,988 
|Property operating expenses |  |                         | (1,363
|Net operating income        |  |                         | 2,625 





65







The
following table shows the reconciliation between gross profit and NOI for the periods presented:





|                                                                           |  | Year Ended December 31, |      
|-------------------------------------------------------------------------- |  | ----------------------- | -----
|                                                                           |  | 2012                    |      
|                                                                           |  | (NIS in millions)       |      
|Reconciliation of gross profit to NOI:                                     |  |                         |      
|Gross Profit                                                               |  |                         | 2,625
|Revenues from sale of buildings, land and construction works performed (1) |  |                         | -    
|Cost of buildings sold, land and construction works performed (1)          |  |                         | -    
|NOI                                                                        |  |                         | 2,625














|(1) |  | Revenues from sale of buildings, comprises revenue from First Capital. Cost of buildings
sold comprises related costs incurred by First Capital.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------





Adjusted EBITDA



Adjusted EBITDA
represents net income (loss) before depreciation and amortization, income taxes and net finance expense or income, excluding valuation
gains or losses from investment property, gain from bargain purchase, our share in earnings or losses of equity-accounted investees,
net, and increase or decrease in value of financial investments, adjusted to include our share in the adjusted EBITDA of equity-accounted
investees, as further adjusted to eliminate the impact of certain items that we do not consider indicative of our ongoing performance.
Our management believes that adjusted EBITDA is useful to investors because it allows investors to evaluate and compare our performance
from period to period in a meaningful and consistent manner in addition to the standard financial measurements under IFRS. Adjusted
EBITDA is not a measurement of financial performance under IFRS and should not be considered as an alternative to net income, as
an indicator of operating performance or as a measure of performance derived in accordance with IFRS.



The following table
shows the reconciliation between net income and adjusted EBITDA for the periods presented:









|                                                                 |  | Year Ended December 31, |       
|---------------------------------------------------------------- |  | ----------------------- | ------
|                                                                 |  | 2012                    |       
|                                                                 |  | (NIS in millions)       |       
|Reconciliation of net income to adjusted EBITDA:                 |  |                         |       
|Net income                                                       |  |                         | 2,413 
|Depreciation                                                     |  |                         | 34    
|Non-recurring items (1)                                          |  |                         | 36    
|Valuation gains from investment property                         |  |                         | (1,400
|Other income                                                     |  |                         | (157  
|Other expenses                                                   |  |                         | 30    
|share in earnings of equity-accounted investees, net             |  |                         | (238  
|Company’s share in adjusted EBITDA of equity-accounted investees |  |                         | 276   
|Finance expenses                                                 |  |                         | 1,760 
|Finance income                                                   |  |                         | (82   
|Taxes on income                                                  |  |                         | 476   
|Amount attributed to discontinued operations                     |  |                         | 109   
|Adjusted EBITDA                                                  |  |                         | 3,257 










| | (1) | Includes
                                         adjustments related to incremental leasing costs not capitalized to properties, adjustments
                                         related to transaction costs in relation to acquisitions and investments executed or
                                         evaluated, adjustments of expenses arising from the termination of the engagement of
                                         senior officers, and extraordinary legal proceedings not related to the reporting periods.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



66











EPRA
Earnings and Adjusted EPRA Earnings



In
countries in which companies prepare their financial statements under IFRS, it is customary for companies with income-producing
property to publish their EPRA Earnings. EPRA Earnings is a measure for presenting the operating results of a company that are
attributable to its equity holders. We believe that these measures are consistent with the position paper of the European Public
Real Estate Association (“EPRA”) which states as its objective the promotion of greater transparency, uniformity and
comparability of the financial information reported by property companies. EPRA Earnings is calculated as the net income attributable
to equity holders with certain adjustments for non-operating items, which are affected by the fair value revaluation of assets
and liabilities, as well as adjustments to the fair value of investment property, investment property under development and other
investments, various capital gains and losses, gains (losses) from early redemption of debentures and unwinding of financial derivatives,
gains from bargain purchase, goodwill impairment, changes in the fair value through profit or loss with respect to financial instruments
including derivatives, deferred taxes and our share in equity-accounted investees, as well as non-controlling interests’
share with respect to the above items.



In
the United States, where financial statements are prepared in conformity with United States generally accepted accounting principles,
it is customary for companies with income-producing property to publish their funds from operations, or FFO, results (which is
the net income attributable to its equity holders, reported after neutralizing income and expenses of a capital nature and with
the addition of the company’s share in property depreciation and other amortization), in accordance with the position paper
issued by the U.S.-based National Association of Real Estate Investment Trusts (“NAREIT”).



We
believe that EPRA Earnings is similar in substance to FFO, with adjustments primarily for the results reported under IFRS. We
believe that publication of EPRA Earnings, which is computed according to the directives of EPRA, and Adjusted EPRA Earnings are
more useful to investors than FFO because our financial statements are prepared in conformity with IFRS. In addition, publication
of Adjusted EPRA Earnings provides a better basis for the comparison of our operating results in a particular period to those
of previous periods and strengthens the uniformity and the comparability of this financial measure to that published by other
European property companies.



As
clarified in the EPRA and NAREIT position papers, the EPRA Earnings and FFO measures do not represent cash flows from current
operations according to accepted accounting principles, they do not reflect the cash held by a company or its ability to distribute
such cash, they are not a substitute for the reported net income and they are unaudited.



67









The
tables below present the calculation of our Adjusted EPRA Earnings which is what management uses to evaluate the performance of
our company, as well as EPRA Earnings computed according to the directives of EPRA, for the stated periods:





|                                                                                                                          |  | Year Ended December 31, |        
|------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | -------
|                                                                                                                          |  | 2014                    |        
|In millions (except for per share data)                                                                                   |  | (NIS )                  |        
|Net income attributable to equity holders of the Company                                                                  |  |                         | 73     
|Adjustments:                                                                                                              |  |                         |        
|Fair value gain on investment property and investment property under development, net (including discontinued operation)  |  |                         | (1,053 
|Capital loss (gain) on sale of investment property                                                                        |  |                         | 65     
|Changes in the fair value of financial instruments, including derivatives, measured at fair value through profit and loss |  |                         | 156    
|Adjustments with respect to equity-accounted investees                                                                    |  |                         | 324    
|Loss on disposal of investees                                                                                             |  |                         | 1      
|Deferred taxes and current taxes with respect to disposal of properties                                                   |  |                         | 399    
|Acquisition costs recognized in profit or loss                                                                            |  |                         | 6      
|Gain from bargain purchase, net of goodwill impairment                                                                    |  |                         | (47    
|Loss from early redemption of interest-bearing liabilities and financial derivatives                                      |  |                         | 154    
|Non-controlling interests’ share in the above adjustments                                                                 |  |                         | 267    
|Total adjustments                                                                                                         |  |                         | 272    
|                                                                                                                          |  |                         |        
|EPRA Earnings                                                                                                             |  |                         | 345    
|Additional adjustments (1):                                                                                               |  |                         |        
|CPI linkage differences                                                                                                   |  |                         | (5     
|Depreciation and amortization                                                                                             |  |                         | 13     
|Adjustments with respect to equity-accounted investees                                                                    |  |                         | (3     
|Other adjustments (2)                                                                                                     |  |                         | 248    
|Total additional adjustments                                                                                              |  |                         | 253    
|Adjusted EPRA Earnings                                                                                                    |  |                         | 598    
|Basic net income per share                                                                                                |  |                         | 0.41   
|Diluted net income per share                                                                                              |  |                         | 0.39   
|EPRA Earnings per share (basic and diluted)                                                                               |  |                         | 1.96   
|Adjusted EPRA Earnings per share (basic and diluted)                                                                      |  |                         | 3.39   
|Weighted average number of shares used to calculate:                                                                      |  |                         |        
|Basic net income per share, EPRA Earnings per share and adjusted EPRA Earnings per share (in thousands of shares) (3)     |  |                         | 176,459
|Diluted Net Income per share, EPRA Earnings per share and adjusted EPRA Earnings per share (in thousands of shares) (3)   |  |                         | 176,546










| | (1) | Additional
                                         adjustments are presented net of non-controlling interest share.
| | --- | --------------------------------------------------------------------------------------------------------------------

| | (2) | Income
                                         and expenses adjustments including expenses arising from non-recurring expenses related
                                         to the termination of the engagements with senior Group officers; extraordinary legal
                                         proceedings not related to the reporting periods (including a provision for legal proceedings);
                                         income and expenses from operations not related to income producing property (including
                                         the results of Luzon Group in the years ended December 31, 2014 and 2015) and the cost
                                         of debt with respect thereto; non-recurring restructuring expenses; and internal costs
                                         (mainly salary) incurred in the leasing of properties.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | Weighted
                                         average for each applicable period.
| | --- | -------------------------------------------------------------------------------------



68









|                                                                                                                          |  | Year Ended December 31, |      
|------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | -----
|                                                                                                                          |  | 2014                    |      
|Per share                                                                                                                 |  | NIS                     |      
|Net income attributable to equity holders of the Company                                                                  |  |                         | 0.41 
|Adjustments:                                                                                                              |  |                         |      
|Fair value gain on investment property and investment property under development, net (including discontinued operation)  |  |                         | (5.97
|Capital loss (gain) on sale of investment property                                                                        |  |                         | 0.37 
|Changes in the fair value of financial instruments, including derivatives, measured at fair value through profit and loss |  |                         | 0.88 
|Adjustments with respect to equity-accounted investees                                                                    |  |                         | 1.84 
|Loss on disposal of investees                                                                                             |  |                         | 0.01 
|Deferred taxes and current taxes with respect to disposal of properties                                                   |  |                         | 2.27 
|Acquisition costs recognized in profit or loss                                                                            |  |                         | 0.03 
|Gain from bargain purchase, net of goodwill impairment                                                                    |  |                         | (0.27
|Loss from early redemption of interest-bearing liabilities and financial derivatives                                      |  |                         | 0.87 
|Non-controlling interests’ share in the above adjustments                                                                 |  |                         | 1.52 
|Total adjustments                                                                                                         |  |                         | 1.55 
|EPRA Earnings                                                                                                             |  |                         | 1.96 
|Additional adjustments (1):                                                                                               |  |                         |      
|CPI linkage differences                                                                                                   |  |                         | (0.03
|Depreciation and amortization                                                                                             |  |                         | 0.07 
|Adjustments with respect to equity-accounted investees                                                                    |  |                         | (0.02
|Other adjustments (2)                                                                                                     |  |                         | 1.41 
|Total additional adjustments                                                                                              |  |                         | 1.43 
|Adjusted EPRA Earnings                                                                                                    |  |                         | 3.39 










| | (1) | Additional
                                         adjustments are presented net of non-controlling interest share.
| | --- | --------------------------------------------------------------------------------------------------------------------

| | (2) | Income
                                         and expenses adjustments including expenses arising from non-recurring expenses related
                                         to the termination of the employment of senior Group officers, extraordinary legal proceedings
                                         not related to the reporting periods (including a provision for legal proceedings); income
                                         and expenses from operations not related to income producing property (including the
                                         results of Luzon Group in the years ended December 31, 2014 and 2015) and the cost of
                                         debt with respect thereto; non-recurring restructuring expenses; and internal costs (mainly
                                         salary) incurred in the leasing of properties.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



EPRA
NAV and EPRA NNNAV



As
is customary in the European countries in which we operate and consistent with EPRA’s position paper, we disclose net asset
value data (“EPRA NAV”). EPRA NAV is a non-IFRS financial measure that reflects our net asset value adjusted to remove
the impact of (1) revaluation adjustments with respect to the fair value of financial derivatives (except financial derivatives
used for currency hedging), which are treated as hedging instruments from an economic perspective, but which do not qualify for
hedge accounting and (2) deferred tax adjustments with respect to the revaluation of properties to their fair value. We also disclose
EPRA triple net asset value data (“EPRA NNNAV”), which is also a non-IFRS financial measure based on EPRA NAV (1)
readjusted for revaluation adjustments with respect to the fair value of financial instruments of the kind referred to above and
(2) adjusted to reflect the impact of changes in the fair value of financial liabilities and certain adjustments to the provision
for deferred taxes.



According
to EPRA, shareholders’ equity, also referred to as net asset value, or NAV, reported in the financial statements under IFRS
does not provide investors with the most relevant information on the fair value of the assets and liabilities within an ongoing
real estate investment company with a long-term investment strategy. The purpose of EPRA NAV is to highlight the fair value of
net assets on an ongoing, long-term basis. Assets and liabilities that are not expected to crystallize in normal circumstances,
such as the fair value of financial derivatives and deferred taxes on property valuation surpluses are therefore excluded. Similarly,
properties acquired exclusively with a view to subsequent disposal in the near future or for development and resale are adjusted
to their fair value under EPRA NAV.



69









While
EPRA NAV is designed to provide a consistent measure of the fair value of a company’s net assets on a going concern basis,
some investors like to use a “spot” measure of NAV which shows all assets and liabilities at their fair value. The
objective of EPRA NNNAV is to report net asset value including fair value adjustments in respect of all material balance sheet
items which are not reported at their fair value as part of EPRA NAV.



These
data do not constitute a valuation of our assets and do not replace the data presented in our financial statements. Rather they
provide an additional way of viewing our results in accordance with the recommendations of EPRA. In addition, these measures enable
our results to be compared with those of other European property companies. We calculate EPRA NAV and EPRA NNNAV in accordance
with EPRA’s Best Practices Recommendations.



The
following tables present a calculation of EPRA NAV and EPRA NNNAV for the periods presented:





|                                                                                                        |  | As of December 31, |        
|------------------------------------------------------------------------------------------------------- |  | ------------------ | -------
|                                                                                                        |  | 2014               |        
|In millions                                                                                             |  | NIS                |        
|EPRA NAV                                                                                                |  |                    |        
|Equity attributable to the equity holders of the Company, per the financial statements                  |  |                    | 8,023  
|Adjustments for neutralization of fair value of derivatives (1)                                         |  |                    | (9     
|Provision for tax on revaluation of investment property to fair value (net of minority’s share) (2) (3) |  |                    | 2,363  
|Adjustments with respect to affiliates                                                                  |  |                    | 363    
|Net asset value—EPRA NAV                                                                                |  |                    | 10,740 
|EPRA NAV per share (in NIS)                                                                             |  |                    | 60.2   
|Number of shares used to calculate EPRA NAV per share (in thousands of shares) (4)                      |  |                    | 178,485










| | (1) | Represents
                                         the fair value less the intrinsic value of financial derivatives that are not accounted
                                         for as hedges from an accounting perspective. We determine the fair value of investments
                                         traded in active markets is by referencing to quoted market prices at each reporting
                                         date. For investments for which there is no active market, we determine fair value using
                                         appropriate valuation techniques. For more details regarding valuation techniques used
                                         to determine the fair value of derivatives see Notes 2(n) and 36(b) to our audited consolidated
                                         financial statements included elsewhere in this annual report, EPRA recommends this adjustment
                                         because, under normal circumstances, these derivatives are held until maturity and therefore
                                         the theoretical gain or loss at the balance sheet date may not materialize. We reinstate
                                         the fair value of these derivatives in calculating EPRA NNNAV.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | EPRA
                                         recommends this adjustment because taxes with respect to the difference between fair
                                         value and book value of investment property, development property held for investment
                                         or other non-current investments would only become payable if the assets were sold. Therefore,
                                         in accordance with EPRA’s Best Practices Recommendations, we add back the provision
                                         of these taxes to shareholders’ equity, or NAV, reported in the financial statements
                                         under IFRS in order to calculate EPRA NAV.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | Net
                                         of goodwill generated in business combinations against deferred tax liability.
| | --- | ---------------------------------------------------------------------------------------------------------------------------

| | (4) | Represents
                                         the number of issued shares (in thousands), excluding treasury shares held by the Company,
                                         on a fully diluted basis.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                                                                        |  | As of December 31, |     
|------------------------------------------------------------------------------------------------------- |  | ------------------ | ----
|                                                                                                        |  | 2014               |     
|                                                                                                        |  | NIS                |     
|EPRA NAV—Per Share                                                                                      |  |                    |     
|Equity attributable to the equity holders of the Company, per the financial statements                  |  |                    | 45.0
|Adjustments for neutralization of fair value of derivatives (1)                                         |  |                    | (0.1
|Provision for tax on revaluation of investment property to fair value (net of minority’s share) (2) (3) |  |                    | 13.3
|Adjustments with respect to affiliates                                                                  |  |                    | 2.0 
|Net asset value—EPRA NAV                                                                                |  |                    | 60.2










| | (1) | Represents
                                         the fair value less the intrinsic value of financial derivatives that are not accounted
                                         for as hedges from an accounting perspective. We determine the fair value of investments
                                         traded in active markets by referencing quoted market prices at each reporting date.
                                         For investments for which there is no active market, we determine fair value using appropriate
                                         valuation techniques. For more details regarding valuation techniques used to determine
                                         the fair value of derivatives, see Notes 2(n) and 36(b) to our audited consolidated financial
                                         statements included elsewhere in this annual report. EPRA recommends this adjustment
                                         because, under normal circumstances, these derivatives are held until maturity and therefore
                                         the theoretical gain or loss at the balance sheet date may not materialize. We reinstate
                                         the fair value of these derivatives in calculating EPRA NNNAV.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



70









| | (2) | EPRA
                                         recommends this adjustment because taxes with respect to the difference between fair
                                         value and book value of investment property, development property held for investment
                                         or other non-current investments would only become payable if the assets were sold. Therefore,
                                         in accordance with EPRA’s Best Practices Recommendations, we add back the provision
                                         of these taxes to shareholders’ equity, or NAV, reported in the financial statements
                                         under IFRS in order to calculate EPRA NAV.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | Net
                                         of goodwill generated in business combinations against deferred tax liability.
| | --- | ---------------------------------------------------------------------------------------------------------------------------



|                                                                                     |  | As of December 31, |        
|------------------------------------------------------------------------------------ |  | ------------------ | -------
|                                                                                     |  | 2014               |        
|In millions                                                                          |  | NIS                |        
|EPRA NNNAV                                                                           |  |                    |        
|EPRA NAV                                                                             |  |                    | 10,740 
|Adjustment for addition of fair value of derivatives (1)                             |  |                    | 9      
|Adjustments of financial liabilities to fair value (2)                               |  |                    | (1,833 
|Other adjustments to provision for deferred taxes (3)                                |  |                    | (1,266 
|Adjustments with respect to affiliates                                               |  |                    | (441   
|“Adjusted” net asset value—EPRA NNNAV                                                |  |                    | 7,209  
|EPRA NNNAV per share (in NIS)                                                        |  |                    | 40.4   
|Number of shares used to calculate EPRA NNNAV per share (in thousands of shares) (4) |  |                    | 178,485








| | (1) | Represents
                                         the fair value less the intrinsic value of financial derivatives that are not accounted
                                         for as hedges from an accounting perspective. We determine the fair value of investments
                                         traded in active markets by referencing quoted market prices at each reporting date.
                                         For investments for which there is no active market, we determine fair value using appropriate
                                         valuation techniques. For more details regarding valuation techniques used to determine
                                         the fair value of such derivatives, see Notes 2(n) and 36(b) to our audited consolidated
                                         financial statements included elsewhere in this annual report.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Represents
                                         the difference between interest-bearing financial liabilities included in the balance
                                         sheet at amortized costs, and the fair value of interest-bearing financial liabilities.
                                         We determine the fair value of financial instruments quoted in an active market (such
                                         as marketable securities and debentures) by referencing quoted market prices at the close
                                         of business on the balance sheet date. We estimate the fair value of financial instruments
                                         that are not quoted in an active market using standard pricing valuation models. For
                                         more details regarding valuation techniques used to determine the fair value of financial
                                         liabilities, see Notes 2(n) and 36(b) to our audited consolidated financial statements
                                         included elsewhere in this annual report.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | Represents
                                         the add back of provisions for deferred tax with respect to revaluation of investment
                                         property, excluding such deferred tax in regions where it is customary to defer the payment
                                         of capital gains tax. The fair value of the deferred tax is based on the expected method
                                         of realization of the underlying assets and liabilities and is calculated based on gross
                                         liabilities without discounting.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (4) | Represents
                                         the number of issued shares (in thousands), excluding treasury shares held by the Company,
                                         on a fully diluted basis.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





|                                                         |  | As of December 31, |      
|-------------------------------------------------------- |  | ------------------ | -----
|EPRA NNNAV—Per Share                                     |  | 2014               |      
|                                                         |  | NIS                |      
|EPRA NAV                                                 |  |                    | 60.2 
|Adjustment for addition of fair value of derivatives (1) |  |                    | 0.1  
|Adjustments of financial liabilities to fair value (2)   |  |                    | (10.3
|Other adjustments to provision for deferred taxes (3)    |  |                    | (7.1 
|Adjustments with respect to affiliates                   |  |                    | (2.5 
|“Adjusted” net asset value—EPRA NNNAV                    |  |                    | 40.4 












| | (1) | Represents
                                         the fair value less the intrinsic value of financial derivatives that are not accounted
                                         for as hedges from an accounting perspective. We determine the fair value of investments
                                         traded in active markets by referencing quoted market prices at each reporting date.
                                         For investments for which there is no active market, we determine fair value using appropriate
                                         valuation techniques. For more details regarding valuation techniques used to determine
                                         the fair value of such derivatives, see Notes 2(n) and 36(b) to our audited consolidated
                                         financial statements included elsewhere in this annual report.                                                                                                                                                                                                                                     
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (2) | Represents
                                         the difference between interest-bearing financial liabilities included in the balance
                                         sheet at amortized costs and the fair value of interest-bearing financial liabilities.
                                         We determine the fair value of financial instruments quoted in an active market (such
                                         as marketable securities and debentures) by referencing quoted market prices at the close
                                         of business on the balance sheet date. We estimate the fair value of financial instruments
                                         that are not quoted in an active market using standard pricing valuation models. For
                                         more details regarding valuation techniques used to determine the fair value of financial
                                         liabilities, see Notes 2(n) and 36(b) to our audited consolidated financial statements
                                         included elsewhere in this annual report.
| | (3) | Represents
                                         the add back of provisions for deferred tax with respect to revaluation of investment
                                         property excluding such deferred tax in regions where it is customary to defer the payment
                                         of capital gains tax. The fair value of the deferred tax is based on the expected method
                                         of realization of the underlying assets and liabilities and is calculated based on gross
                                         liabilities without discounting.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        



71







Critical
Accounting Policies



Our
accounting policies and their effect on our financial condition and results of operations are more fully described in our audited
consolidated financial statements included elsewhere in this annual report. The preparation of financial statements in conformity
with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB,
requires management to make estimates and assumptions that in certain circumstances affect the reported amounts of assets and
liabilities, revenues and expenses and disclosure of contingent assets and liabilities. We prepare these estimates using our best
judgment, after considering past and current events and economic conditions. While management believes the factors evaluated provide
a meaningful basis for establishing and applying sound accounting policies, management cannot guarantee that the estimates will
always be consistent with actual results. In addition, certain information relied upon by us in preparing such estimates includes
internally generated financial and operating information, external market information, when available, and when necessary, information
obtained from consultations with third party experts. Actual results could differ from these estimates and could have a material
adverse effect on our reported results. See “Item 3—Key Information—Risk Factors” for a discussion of
the possible risks which may affect these estimates.



We
believe that the accounting policies discussed below are critical to our financial results and to the understanding of our past
and future performance, as these policies relate to the more significant areas involving management’s estimates and assumptions.
We consider an accounting estimate to be critical if: (1) it requires us to make assumptions because information was not
available at the time or it included matters that were highly uncertain at the time we were making our estimate; and (2) changes
in the estimate could have a material impact on our financial condition or results of operations.



Principles
of Consolidation



Our
financial statements reflect the consolidation of the financial statements of companies that we control based on legal control
or effective control. Legal control exists when we are exposed to, or have the rights to, variable returns from our involvement
with the entity and the ability to affect those returns through our power over the entity. When assessing legal control, we consider
our potential voting rights as well as potential voting rights held by other parties, to determine whether we have the requisite
power over the entity. We only consider potential voting rights if the rights are substantive and we have a practical ability
to exercise such rights.



In
the absence of legal control, as required by accounting standards, we consolidate on the basis of effective control. The determination
of whether effective control exists involves significant judgment. We consider the following factors in determining whether we
have effective control of an investee:



| | ● | whether we hold a significant voting interest (even if less than half of the voting rights);                                                                                                                                                                              
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ● | whether we have the majority of the participating voting power (quorum) according to historical records of the general meetings of shareholders and voting agreements with other shareholders, granting it in fact the right to appoint the majority of the board members;
| | ● | wide diversity of public holdings of the remaining shares conferring voting rights and the absence of another single entity besides us that holds a significant portion of the investee's shares; and                                                                     
| | ● | whether the non-controlling interests have participation rights or other preferential rights, excluding traditional shareholder protective rights.                                                                                                                        



We
fully consolidate entities we control in our financial statements. All significant intercompany balances and transactions are
eliminated in consolidation. Non-controlling interests of subsidiaries represent the non-controlling shareholders’ proportionate
interest in the comprehensive income (loss) of the subsidiaries and fair value of the net assets or the net identifiable assets
upon the acquisition of the subsidiaries.



For
the year ended December 31, 2016, Equity One, First Capital and Citycon were consolidated based on our determination of effective
control and Atrium was consolidated based on legal control. See Note 2(c) to our audited consolidated financial statements included
elsewhere in this annual report for a discussion of the determinations regarding consolidation of our other subsidiaries and investees.



72









Transactions
with Non-Controlling Interests



Non-controlling
interests represent the equity in subsidiaries that are not attributable, directly or indirectly, to us. Profit or loss and each
component of other comprehensive income are attributed both to us and to non-controlling interests. Losses are attributed to non-controlling
interests even if the non-controlling interests balance reported in the consolidated statement of financial position is negative.



In
cases where we provide loans and/or guarantees for a subsidiary’s debts in excess of our holding interest therein, we recognize
our equity in the comprehensive income/loss of the subsidiary in accordance with the holding interest in the subsidiary. This
notwithstanding, in the Statement of Changes in Equity, we make a “reattribution” of the losses generated, so that
the non-controlling interests are not presented at an amount that is less than the amount of financing to which they have committed.



When
we acquire non-controlling interests, we record the difference between the consideration and the carrying amount of the acquired
interest as a reduction or increase in equity under transactions with non-controlling interests. Upon disposal of rights in a
subsidiary that does not result in a loss of control, we recognize an increase or decrease in equity as the difference between
the consideration we received and the carrying amount of the non-controlling interests in the subsidiary, adjusted for the disposal
of goodwill in the subsidiary, if any, and for amounts recognized in other comprehensive income, if any. We also record transaction
costs with respect to transactions with non-controlling interests in equity.



Functional
and Foreign Currencies



The
presentation currency of our financial statements and our functional currency is the NIS. When the functional currency of an entity
in which we own an equity interest (other than securities held for sale), which we refer to as an investee, differs from our functional
currency, that investee represents a foreign operation whose financial statements we translate as follows: (1) assets and liabilities
we translate at the closing rate at the date of that balance sheet, (2) income and expenses we translate at average exchange rates
for the presented periods and (3) share capital and capital reserves we translate at the exchange rate prevailing at the date
of incurrence. We recognize all resulting translation differences in a separate component in equity - “adjustments from
translation of financial statements”, as other comprehensive income (loss).



Investment
Property and Investment Property Under Development



Under
IAS 40 “Investment Property,” investment property is initially valued at cost, including costs directly attributable
to the acquisition. Thereafter, IAS 40 allows us to measure the value of our investment property (i) at cost less depreciation
and impairment or (ii) at fair value. We measure the value of investment property at fair value. Gains or losses arising
from changes in fair value of our investment property are recognized in profit or loss when they arise. Accordingly, such changes
can have a significant impact on our profit or loss. For example, in the year ended December 31, 2016, we wrote up the value
of our properties on a consolidated basis by NIS 885 million (of which Gazit-Globe’s share was NIS 392 million), as
compared to a write down in 2015 of NIS 372 million (of which Gazit-Globe’s share was NIS 263 million) and a write up in
2014 of NIS 400 million (of which Gazit-Globe’s share was NIS 266 million). Investment properties are not systematically
depreciated.



Investment
property under development, designated for future use as investment property, is also measured at fair value, provided that fair
value can be reliably determined. However, when fair value is not reliably determinable, such property is measured at cost, less
any impairment losses, if any, until either development is completed, or its fair value becomes reliably determinable, whichever
is earlier. The cost of investment property under development includes the cost of land, construction costs, as well as borrowing
costs and used to finance the land and the construction, direct incremental planning and development costs, brokerage fees relating
to agreements to lease the property and other incremental lease-up costs. As of December 31, 2016, we measured 98.0% of our
investment property under development and land held for future development were measured at fair value.



Fair
value of investment property was determined by accredited independent appraisers with respect to 68.6% of such investment properties
for the year ended December 31, 2016 in fair value terms (of which 53.1% were performed at December 31, 2016). Fair
values of investment property under development and land were determined by accredited independent appraisers with respect to
67.6% of such investment properties as of December 31, 2016. The remainder of the valuations were performed by the management
of our subsidiaries and internal professional appraisers. based on market conditions using either (1) the Comparative Method
(i.e. based on comparison data for similar properties in the vicinity with similar uses, including required adjustments for location,
size or quality), (2) the Discounted Cash Flow Method (less cost to complete and developer profit in the case of investment
property under development, also referred to as the Residual Method) or (3) the Income Capitalization Method. When using
the Comparative Method we and the accredited independent appraisers rely on market prices, applying necessary adjustments, to
the extent that such information is available (during 2016, 65.4% of land valuations in fair value terms). However, when such
information is not available, we use valuation techniques (Discounted Cash Flow including Residual Method, or Income Capitalization)
based on current market yields to which necessary adjustments are applied. In order to estimate future cash flows and the appropriate
discount rate, the Discounted Cash Flow Method requires assumptions regarding the required yield rates on our properties, future
rental prices, occupancy levels, renewal of leases, probability of lease of vacant space, property operating expenses, the financial
strength of tenants and future capital expenditure projections. Changes in these assumptions may lead to a change in the fair
value estimates of the investment property. See Note 12(c) to our audited consolidated financial statements included elsewhere
in this annual report for the capitalization rates implied in the valuations and the market rent of the investment property. See
Notes 12(c) and 13(d) to our audited consolidated financial statements included elsewhere in this annual report for a sensitivity
analysis regarding changes in the most significant assumptions used in our fair value estimates.



73









Financial
Derivatives



We
utilize financial derivatives, principally cross-currency swaps, interest rate swaps and currency forward contracts to manage
our exposure to fluctuations in interest rates, changes in the Israeli consumer price index and changes in foreign exchange rates.
We have established policies and procedures for risk assessment, and the approval, reporting and monitoring of financial derivatives
activities. We have not entered into, and do not plan to enter into, financial derivative transactions for trading or speculative
purposes. Additionally, we have a policy of entering into derivative contracts only with major financial institutions.



Such
financial derivatives are initially recognized at fair value and attributed transaction costs are reflected in our income statement
when incurred. Any gains or losses arising from changes in fair value of derivatives that do not qualify for hedge accounting
are recognized in profit or loss. At the inception of a hedge relationship, we formally designate and document the hedge relationship
to which we wish to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. We regularly
assess the hedge effectiveness at each reporting period. The fair value of the derivatives is determined based on the estimation
of the applicable yield curves, expected exchange rates, inter-currency liquidity gaps, inflation expectations and the credit
risk of the parties. Changes in these valuation assumptions could result in a significant change in the value of the derivatives.
Any gains or losses arising from changes in the fair value of derivatives that qualify for hedge accounting are recognized in
the statement of other comprehensive income.



On
unwinding hedging transactions, whether or not they are designated as an accounting hedge, when the transaction includes a cash
flows hedge with respect to principal and interest, the cash flows received or paid are classified in the statement of cash flows
under financing activity, with respect to the cash flows representing the hedge of the principal component, and under operating
activity, with respect to the cash flows representing the hedge of the interest component.



Fair
Value Measurements



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 fair value of financial instruments that are traded in active markets is determined
by reference to quoted market prices at each reporting date. For investments where there is no active market, fair value is determined
using appropriate valuation techniques. Such techniques include using recent arm's length market transactions; reference to the
current market value of another instrument that is substantially the same; and a discounted cash flow analysis or other valuation
models. See Note 36(b) to our audited consolidated financial statements included elsewhere in this annual report.



We
categorize all assets and liabilities that are measured at fair value or whose fair value is disclosed into the following categories
within a fair value hierarchy, based on the lowest level input that is significant to the entire fair value measurement:



| | ● | Level
                                         1: Prices quoted (un-adjusted) on active markets of similar assets and liabilities.                                                                                                                                                                                                                                                                                                                                                                                            
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ● | Level
                                         2: Data other than quoted prices included in level 1, which may be directly or indirectly
                                         observed.                                                                                                                                                                                                                                                                                                                                   
| | ● | Level
                                         3: Data not based on observable market information (valuation techniques not involving
                                         use of observable market data). Such techniques include using recent arm’s length
                                         market transactions; reference to the current market value of another instrument that
                                         is substantially the same; a discounted cash flow analysis or other valuation models.



Changes
in the underlying assumptions could result in significant changes in the values of our assets and liabilities and our results
of operations.



Business
Combinations and Goodwill



We
account for business combinations by applying the acquisition method. Under this method, we identify the assets and liabilities
of the acquired business at fair value on the acquisition date. The cost of the acquisition is the aggregate fair value of the
identified assets granted, identified liabilities assumed and equity rights issued by the acquirer on the date of acquisition.
With respect to all business combinations, we measure non-controlling interests either at fair value on the acquisition date or
at the relative share of the non-controlling interests in the acquired entity’s net identifiable assets. We recognize the
direct costs relating to the acquisition immediately as an expense in profit or loss and are not part of the acquisition cost.



On
the acquisition date, we reclassify and redesignate the existing assets and liabilities are reclassified and redesignated in accordance
with the contractual terms, economic circumstances and other pertinent conditions that exist at the acquisition date, including
a separation of embedded derivatives from the host contract by the acquiree.



74









In
a business combination achieved in stages, we measure equity rights in the acquired entity that had been previously held by the
acquirer prior to obtaining control at the acquisition date at fair value and we include such equity rights in the acquisition
consideration by recognizing in the income statement the gain or loss resulting from the fair value measurement. In addition,
we reclassify amounts previously recorded in other comprehensive income to profit or loss.



We
initially measured goodwill at cost which represents the excess acquisition consideration and non-controlling interests over the
net identifiable assets acquired and liabilities assumed as measured on the acquisition date. If the excess is negative, we recognize
the difference as a gain from bargain purchase in profit or loss upon acquisition. After initial recognition, we measure goodwill
at cost less, if appropriate, any accumulated impairment losses.



Acquisitions
of Subsidiaries and Properties that are not Business Combinations



Upon
the acquisition of subsidiaries and properties that do not constitute a business, we only allocate the acquisition consideration
between the acquired identifiable assets and liabilities based on their relative fair values on the acquisition date without attributing
any amount to goodwill or to deferred taxes, whereby the non-controlling interests, if any, participate at their relative share
of the fair value of the net identifiable assets on the acquisition date. We recognize directly attributed costs as part of the
acquisition cost. For details regarding an amendment to IAS 40 - Investment Property, see “—Recently Issued Accounting
Pronouncements” below.



Investments
in Associates and Joint Ventures



Associates
are companies in which we have significant influence over the financial and operating policies without having control, according
to IAS 28. Joint ventures are entities owned by us and other parties, in which we have a contractual arrangement for joint control
with such other parties, according to IFRS 11.



An
investment in associates or joint ventures is accounted for using the equity method. Under the equity method, the investment in
associates or joint ventures is accounted for in the financial statements at cost plus changes in our share in the net assets,
including other comprehensive income (loss), of the associates or joint ventures. We apply the equity method until we lose significant
influence or joint control or when we classify the investment as non-current asset held-for-sale.



Goodwill
relating to the acquisition of associates or joint ventures and to the increase in holding rate is initially measured as the difference
between the acquisition cost and our share in the net fair value of the associates’ or joint ventures’ net identifiable
assets. After initial recognition, goodwill is measured at cost less, if applicable, any accumulated impairment loss and is not
systematically amortized. Goodwill is examined for impairment as part of the investment in the associate or joint venture as a
whole. In the event the acquisition cost is lower than the net fair value of the associated net identified assets the difference
is recognized as a gain from bargain purchase in profit or loss.



We
examine whether it is necessary to recognize any additional impairment loss with respect to investments in the associates or joint
ventures. The recoverable amount is the higher of fair value and value in use which is determined based on the estimated net cash
flows to be generated by the associate or joint venture. Impairment loss, as above, is not attributed specifically to goodwill.
Therefore, it may be reversed in full in subsequent periods, up to the recognized impairment loss, if the recoverable amount of
the investment increases. For additional information, refer to Note 9(a) to our audited consolidated financial statements included
elsewhere in this annual report.



Profits
and losses resulting from transactions between the Group and associates or joint ventures are eliminated to the extent of the
interest in the investees. The financial statements of the Company and of the associates or joint ventures are prepared as of
the same dates and periods. The accounting policy in the financial statements of the associates and joint ventures has been applied
consistently and uniformly with the policy applied in the financial statements of the Group.



Rental
Income



Our
management determined that all of the leases with our various tenants are operating leases since we retain substantially all risks
and rewards incidental to ownership of such properties. Rental income with scheduled rent increases is recognized using the straight-line
method over the respective terms of the leases commencing when the tenant takes possession of the premises. Similarly, lease incentives
granted to tenants, in cases where the tenants are the primary beneficiary of such incentives, are deducted and considered as
an integral part of total rental income and recognized on a straight-line average basis over the lease term. Leases also generally
contain provisions under which the tenants reimburse us for a portion of property operating expenses and real estate taxes incurred;
such income is recognized in the periods earned. Management considers whether we are acting as a principal or as an agent in the
transaction. In cases where we operate as a broker or agent without retaining the risks and rewards associated with the transaction,
revenues are presented on a net basis. However, in cases where we operate as a main supplier and retain the risks and rewards
associated with the transaction, revenues are presented on a gross basis. In addition, certain operating leases contain contingent
rent provisions under which tenants are required to pay, as additional rent, a percentage of their sales in excess of a specified
amount. We recognize contingent rental income only when those specified sales targets are met and notification is received from
the tenant.



75











Income
Taxes



We
recognize the tax results with respect to current or deferred taxes in the statement of income except to the extent that the tax
arises from items which we recognize in other comprehensive income or directly in equity.



We
measure current tax liability using the tax rates and tax laws that have been enacted or substantively enacted by the reporting
date as well as adjustments required in connection with the tax liability with respect to previous years . Significant estimates
are required to determine the amount of deferred tax assets that can be recognized based upon the availability of offsetting deferred
tax liability, likely timing and level of future taxable profits together with future tax planning strategies.



We
measure deferred tax assets and liabilities at the tax rates that we expect to apply in the year when the asset is realized or
the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at the reporting date.
We present all deferred tax assets and deferred tax liabilities on the balance sheet as non-current assets and non-current liabilities,
respectively. Deferred tax assets are reviewed at each reporting date and reduced to the extent that it is not probable that the
related tax benefit will be realized. Similarly, temporary differences (such as carry-forward tax losses) for which deferred tax
assets have not been recognized are reviewed, and deferred tax assets are recognized to the extent that their utilization has
become probable. We recognize any resulting reduction or reversal is recognized in the statement of income, unless related to
an item recognized in equity. As of December 31, 2016, we had NIS 15 million (U.S.$ 4 million) of deferred tax assets
and NIS 3,809 million (U.S.$ 991 million) of deferred tax liabilities as compared to NIS 105 million of deferred tax
assets and NIS 4,661 million of deferred tax liabilities as of December 31, 2015.



In
situations where we hold single asset entities and where we expect to realize the investment by selling the shares of the single
asset entity rather than by disposing of the asset itself, we recognize deferred taxes both in relation to the temporary inside
differences arising from the gap between the tax basis of the asset and its book value and, if relevant, also in relation to the
temporary outside differences arising from the gap between the tax basis of the shares of the single asset entity and the shares
of the company that holds the net assets of the single asset entity in the consolidated financial statements.



Taxes
that would apply in the event of the sale of investments in subsidiaries have not been taken into account in recognizing deferred
taxes, as long as the realization of the investments in investees is not expected in the foreseeable future. Also, deferred tax
liabilities that may arise with respect to distribution of earnings by investee companies as dividends have not been taken into
account in recognizing deferred taxes, since it is our policy not to initiate dividend distributions that trigger additional tax
liability. For further information and the impact of the Concentration Law on deferred taxes, refer to Note 25(a) to our audited
consolidated financial statements included elsewhere in this annual report.



We
recognize deferred taxes for the undistributed earnings of a subsidiary that qualifies as a REIT for tax purposes, such as Equity
One, due to the REIT’s policy to distribute most of its taxable income to its shareholders. We recognize these deferred
taxes based on our interests in the REIT. For additional information refer to Note 25(b) to our audited consolidated financial
statements included elsewhere in this annual report.



Recently
Issued Accounting Pronouncements



IFRS
15, Revenue from Contracts with Customers



The
Standard introduces the following five-step model that applies to revenue from contracts with customers:



| | ● | Step
                                         1: Identify the contract with a customer, including reference to contract consolidation
                                         and accounting for contract modifications.                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ● | Step
                                         2: Identify the distinct performance obligations in the contract.                                                                                                                                                                                                                                    
| | ● | Step
                                         3: Determine the transaction price, including reference to variable consideration, financing
                                         components that are significant to the contract, non-cash consideration and any consideration
                                         payable to the customer.
| | ● | Step
                                         4: Allocate the transaction price to the separate performance obligations on a relative
                                         stand-alone selling price basis using observable information, if it is available, or
                                         by making estimates and assessments.  
| | ● | Step
                                         5: Recognize revenue when (or as) the entity satisfies a performance obligation over
                                         time or at a point in time.                                                                                                                                            



The
Amendment will be adopted retrospectively from the financial statements for annual periods beginning on January 1, 2018 or thereafter.
Earlier application is permitted. The Company is evaluating the effect of the adoption of IFRS 15. The Company does not expect
the adoption to have a material effect on the consolidated financial statements.



IFRS
9, Financial Instruments



In
July 2014, the IASB published the full and final text of IFRS 9 Financial Instruments, which replaces IAS 39 Financial Instruments:
Recognition and Measurement. IFRS 9 (the “Standard”) focuses primarily on the classification and measurement of financial
assets and applies to all the financial assets in the scope of IAS 39.



76









The
Standard prescribes that, at initial recognition, all the financial assets are to be measured at fair value. In subsequent periods,
investments in debt instruments are to 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 arising therefrom; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ● | in
                                         accordance with the contractual terms of the financial asset, the company is entitled,
                                         on specified dates, to receive cash flows that are solely payments of principal and interest
                                         on the principal amount outstanding.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The
subsequent measurement of all other debt instruments and other financial assets will be at fair value. The Standard distinguishes
between debt instruments to be measured at fair value through profit or loss and debt instruments to be measured at fair value
through other comprehensive income.



Financial
assets that are equity instruments are to be measured in subsequent periods at fair value.



With
regard to derecognition and financial liabilities, the Standard prescribes the same provisions as are required under IAS 39 with
regard to derecognition and financial liabilities for which the fair value option has not been elected.



The
Standard is effective for periods beginning on or after January 1, 2018, with early adoption permitted. The Company is studying
the effects of the Standard, The Company believes does not expect the adoption to have a material effect on the consolidated financial
statements.



IFRS
16, Leases



In
January 2016, the IASB issued IFRS 16, “Leases”, (“the new Standard”). According to the new Standard,
a lease is a contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time
in exchange for consideration.



According
to the new Standard:



| | ● | With
                                         respect to all leases, lessees are required to recognize an asset against a liability
                                         in the statement of financial position (except in certain cases) similarly to the accounting
                                         treatment of finance leases according to the existing IAS 17, “Leases”.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ● | Lessees
                                         are required to initially recognize a lease liability for the obligation to make lease
                                         payments and a right-of-use asset for the right to use the underlying asset for the lease
                                         term. Interest expenses and depreciation expenses will be recognized separately.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ● | Variable
                                         lease payments that are not CPI or interest dependent based on performance or use (such
                                         as percentage of turnover) will be recognized as expenditure by the lessees or as income
                                         by the lessors as incurred.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ● | In
                                         the event of change in variable lease payments that are CPI-linked, lessees will reevaluate
                                         the lease liability and the effect of the change will be carried to the right-of-use
                                         asset.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ● | The
                                         new Standard prescribes two exceptions according to which lessees are permitted to make
                                         an election, on a lease-by-lease basis, to apply a method similar to current operating
                                         lease accounting to leases for which the underlying asset is of low value or leases with
                                         a lease term of 12 months or less.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ● | Lessors’
                                         accounting treatment remains substantially unchanged, namely classification of the lease
                                         as finance lease or operating lease.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The
new Standard is effective for annual periods beginning on or after January 1, 2019. Earlier application is permitted provided
that IFRS 15, “Revenue from Contracts with Customers”, is simultaneously applied.



The
new Standard permits lessees to use either a full retrospective or a modified retrospective approach on transition for leases
existing at the date of transition, with options to use certain transition reliefs whereby no restatement of comparative figures
is required.



The
Company is studying the possible effect of the new Standard. At this stage, the Company is unable to quantify the impact of adoption
on the consolidated financial statements.



| | C. | Research
                                         and Development, Patents and Licenses, Etc.
| | -- | ---------------------------------------------------------------------------------------------



Not
applicable.



| | D. | Trend
                                         Information
| | -- | ----------------------------------------------------------



See
“Item 5—Operating and Financial Review and Prospects—Operating Results—Shopping Centers.”



| | E. | Off-Balance
                                         Sheet Arrangements
| | -- | -----------------------------------------------------------------------



We
do not have any material off-balance sheet arrangements.



77









| | F. | Tabular
                                         Disclosure of Contractual Obligations
| | -- | --------------------------------------------------------------------------------------



The
following table summarizes the contractual obligations of Gazit-Globe and its private subsidiaries as of December 31, 2016:





|                         |  | Payments Due by Period |           
|------------------------ |  | ---------------------- | ----------
|Contractual Obligations  |  | Total                  |           
|                         |  | (NIS in thousands)     |           
|Credit facilities/loans  |  |                        | 3,550,775 
|Mortgages                |  |                        | 738,616   
|Unsecured debentures (1) |  |                        | 10,964,498
|Leases                   |  |                        | 1,760     
|Interest obligations     |  |                        | 2,844,775 
|Financial guarantees     |  |                        | 32,175    
|Total                    |  |                        | 18,132,599








| | (1) | Includes
                                         a secured series amounting to NIS 794 million
| | --- | -----------------------------------------------------------------------------------------------



The
following table summarizes First Capital’s contractual obligations as of December 31, 2016:



|                          |  | Payments Due by Period |           
|------------------------- |  | ---------------------- | ----------
|Contractual Obligations   |  | Total                  |           
|                          |  | (NIS in thousands)     |           
|Credit facilities/loans   |  |                        | 762,371   
|Mortgages                 |  |                        | 2,839,482 
|Unsecured debentures      |  |                        | 7,270,305 
|Convertible debentures(1) |  |                        | 606,243   
|Leases                    |  |                        | 57,332    
|Construction commitments  |  |                        | 239,724   
|Interest obligations      |  |                        | 2,384,877 
|Financial guarantees      |  |                        | 137,423   
|Total                     |  |                        | 14,297,757












| | (1) | Consistent
                                         with existing practice, it is First Capital’s intention to continue to satisfy
                                         its obligations of principal and interest payments with respect to all of its outstanding
                                         convertible debentures by the issuance of common shares.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The
following table summarizes Citycon’s contractual obligations as of December 31, 2016:





|                         |  | Payments Due by Period |           
|------------------------ |  | ---------------------- | ----------
|Contractual Obligations  |  | Total                  |           
|                         |  | (NIS in thousands)     |           
|Credit facilities/loans  |  |                        | 612,152   
|Mortgages                |  |                        | 445,044   
|Unsecured debentures     |  |                        | 7,804,728 
|Leases                   |  |                        | 164,147   
|Construction commitments |  |                        | 1,030,414 
|Interest obligations     |  |                        | 1,395,414 
|Financial guarantees     |  |                        | 625,244   
|Total                    |  |                        | 12,077,143



78









The
following table summarizes Atrium’s contractual obligations as of December 31, 2016:





|                        |  | Payments Due by Period |          
|----------------------- |  | ---------------------- | ---------
|Contractual Obligations |  | Total                  |          
|                        |  | (NIS in thousands)     |          
|Mortgages               |  |                        | 444,692  
|Unsecured debentures(1) |  |                        | 3,386,230
|Leases                  |  |                        | 706,409  
|Interest obligations    |  |                        | 739,560  
|Total                   |  |                        | 5,276,891










| | (1) | Includes
                                         a secured series amounting to NIS 16 million
| | --- | ----------------------------------------------------------------------------------------------



The
following table summarizes our contractual obligations on a consolidated basis as of December 31, 2016:





|                           |  | Payments Due by Period |           
|-------------------------- |  | ---------------------- | ----------
|Contractual Obligations    |  | Total                  |           
|                           |  | (NIS in thousands)     |           
|Credit facilities/loans    |  |                        | 4,925,298 
|Mortgages                  |  |                        | 4,467,835 
|Unsecured debentures(*)    |  |                        | 29,425,761
|Convertible debentures(**) |  |                        | 606,243   
|Leases                     |  |                        | 929,647   
|Construction commitments   |  |                        | 1,270,138 
|Interest obligations       |  |                        | 7,364,625 
|Financial guarantees       |  |                        | 794,842   
|Total                      |  |                        | 49,784,390








|(*)  | Refer
    to footnote (1) in Gazit-Globe and its private subsidiaries table of this section.
|---- | --------------------------------------------------------------------------------------------
|(**) | Refer
    to footnote (1) in First Capital’s contractual obligations table above.           





79











|ITEM
    6 | DIRECTORS,
    SENIOR MANAGEMENT AND EMPLOYEES
|---------- | ----------------------------------------------



| | A. | Directors
                                         and Senior Management
| | -- | ------------------------------------------------------------------------



The
following table sets forth information for our directors and senior management.





|Name                           |  | Age |  | Position                                               |  | Current Term Ends
|------------------------------ |  | --- |  | ------------------------------------------------------ |  | -----------------
|Chaim Katzman (2)              |  | 67  |  | Chairman of the Board                                  |  | 2017             
|Dor J. Segal (2)               |  | 55  |  | Chief Executive Officer and Vice Chairman of the Board |  | 2017             
|Adi Jemini                     |  | 39  |  | Executive Vice President and Chief Financial Officer   |  | 2018             
|Rami Vaisenberger              |  | 44  |  | Vice President and Controller                          |  | 2018             
|Yair Orgler (1)(2)(3)(4)(5)(6) |  | 77  |  | Director, Chairman of the Audit Committee              |  | November 2019    
|Haim Ben-Dor (1)(3)(4)(6)      |  | 78  |  | Director                                               |  | 2017             
|Zehavit Cohen(1)(3)            |  | 53  |  | Director                                               |  | 2017             
|Noga Knaz (1)(3)(4)(5)(6)      |  | 50  |  | Director                                               |  | September 2017   
|Douglas Sesler                 |  | 55  |  | Director                                               |  | 2017             
|Ronnie Bar-On (1)(3)(4)(5)     |  | 68  |  | Director, Chairman of the Compensation Committee       |  | May 2019         








| | (1) | Member
                                         of our audit committee.
| | --- | -----------------------------------------------------------------------

| | (2) | Member
                                         of our investment committee.
| | --- | ----------------------------------------------------------------------------

| | (3) | Member
                                         of our compensation committee.
| | --- | ------------------------------------------------------------------------------

| | (4) | Member
                                         of our nominating and corporate governance committee.
| | --- | -----------------------------------------------------------------------------------------------------

| | (5) | External
                                         directors under Israeli law are subject to different rules than other directors as discussed
                                         below under “External Directors.”
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (6) | Member
                                         of our corporate responsibility committee.
| | --- | ------------------------------------------------------------------------------------------



Chaim
Katzman has served as the chairman of our board of directors since May 1995, and currently also serves as the chairman
of the board of directors of Citycon and Atrium, non-executive vice chairman of the board of directors of Regency (which merged
with Equity One on March 1, 2017, with Regency as the surviving entity), and as a director of First Capital. Additionally, Mr.
Katzman currently serves as the chairman of the board of directors of Norstar, our controlling shareholder, and he also serves
as director of various private subsidiaries of the Company and Norstar. Mr. Katzman has been involved in the acquisition, development,
and management of commercial and residential real estate in the United States since 1980. Mr. Katzman holds an LL.B. from Tel
Aviv University.



Dor
J. Segal has served as our Chief Executive Officer since January 2017 and vice chairman of our board of directors since
February 2008 and as a director since December 1993. Mr. Segal previously served as our Chief Executive Officer from 1998 to 2008.
From August 2000 until February 2015, Mr. Segal served as Chief Executive Officer, President and vice chairman of the board of
First Capital. Mr. Segal currently serves as chairman of the board of First Capital, CEO of Norstar Israel Ltd., vice chairman
of Norstar Holdings Inc., and as a director of various private subsidiaries owned by Norstar and the Company.



Adi
Jeminiserved as Chief Financial Officer from January 2016 to January 2017, when Mr. Jemini became our Executive Vice
President and Chief Financial Officer. Mr. Jemini joined Gazit-Globe in 2013 and previously served as Chief of Staff to the Company’s
chairman, Mr. Chaim Katzman. Prior to serving as Chief of Staff, Mr. Jemini served for almost three years as Regional Controller
of Equity One. Before joining Equity One, Mr. Jemini worked for seven years at a US affiliate of the global accounting firm Deloitte,
where his last position was as an Audit Manager for international companies active mainly in the real estate sector. Mr. Jemini
holds a Bachelor of Science degree in Accounting and Information Systems from Virginia Polytechnic Institute and State University
(Virginia Tech), graduating summa cum laude in 2003. He has been a certified public accountant in the U.S.



Rami
Vaisenbergerjoined Gazit-Globe in July 2004 as Controller and since such time, Mr. Vaisenberger has served as the head
of our controlling and reporting departments and related projects and processes. From 2000 through 2004, Mr. Vaisenberger served
as an auditor at Ernst & Young. Mr. Vaisenberger holds a Bachelor’s Degree in Business Management from the College of
Management in Tel-Aviv and is a certified public accountant.





80









Dr. Yair Orgler
has served as a director since November 2007, and is the chairman of our audit committee. Dr. Orgler is Professor Emeritus at the
Leon Recanati Graduate School of Business Administration, Tel Aviv University. Dr. Orgler serves as a board member of Ceragon Networks,
Ltd., a company developing high capacity wireless backhaul solutions, and until September 2015 he served as a director at Israel
Chemicals Ltd. Dr. Orgler’s shares in Ceragon Networks, Ltd. and Israel Chemicals Ltd. are listed on the Tel Aviv Stock Exchange.
Israel Chemicals Ltd. is also listed on the New York Stock Exchange and Ceragon is also listed on the Nasdaq Global Market. He
also serves as a director in Atidim Ltd. Other public positions previously held by Dr. Orgler include his service as the chairman
of the Tel-Aviv Stock Exchange from 1996 to 2006, and as a director at Discount Investment Corporation Ltd., Bank Hapoalim, B.M.
and founder and chairman of “Maalot,” Israel’s first securities rating company. Previous academic positions held
by Dr. Orgler include vice rector of Tel-Aviv University and before that dean of the Recanati Graduate School of Business Administration.
For over 20 years he was the incumbent Goldreich Chair in International Banking at Tel-Aviv University and served frequently as
a Visiting Professor of Finance at the Kellogg Graduate School of Management at Northwestern University. Dr. Orgler holds a Ph.D.
in Industrial Administration (finance) from Carnegie Mellon University, an M.Sc. in industrial engineering from University of Southern
California and a B.Sc. in Management and Industrial Engineering from the Technion, Israel Institute of Technology.





Haim
Ben Dor has served as a director since January 1999. Mr. Ben-Dor is a business advisor to public and private companies
in the areas of capital markets and investments (including pension funds and mutual funds). Mr. Ben-Dor is also a lecturer at
various academic institutions and a corporate consultant in the field of finance and investments. He also currently serves as
a member of the Dan Investments Committee and the Teachers Association. Mr. Ben-Dor holds a degree in accounting from the College
of Management, Jerusalem and an Auditor’s Certificate from the Ministry of Justice.



Zehavit
Cohenhas served as a director since March 2016. Ms. Cohen is a managing partner and the Office Head of Apax Partners
Israel Ltd. She also serves as a board member on a number of Apax portfolio companies and previously chaired both the Tnuva and
Psagot boards of directors. In addition, Ms. Cohen serves as a director for several corporations, including Israel Corporation
Ltd, Golden Pages Group Ltd. and Zap Group Ltd. Prior to joining Apax Partners, Ms. Cohen was Deputy Director General of IDB Holdings
and Chief Financial Officer of the IDB Group. In the past, she has served as a vice president at Chase Manhattan Bank and was
a part of the International Department of Mergers and Acquisitions at the international accounting firm Coopers & Lybrand.
Ms. Cohen has lectured in Finance and Accounting at the Wharton School, University of Pennsylvania since 1988 and holds a BA in
Accounting from Duquesne University, an MBA from the University of Pittsburgh, and an MA from the Wharton School, University of
Pennsylvania.



Noga
Knaz has served as a director since August 2008. Ms. Knaz is currently the vice-chairman of Rosario Capital Ltd., an investment
banking firm, where she previously served as Chief Executive Efficer from September 2007 until May 2013. From July 2006 until
August 2007, Ms. Knaz served as the Chief Executive Officer of Dash Underwriting Ltd. and Chief Investment Officer of Dash Securities
and Investments Ltd. Previously, she served in various positions with Migdal Capital Markets and as co-Chief Executive Officer
of Madanes Financial Services Ltd. She also serves as a director of Pointer Telocation Ltd., a company that provides mobile resource
management products and services for the automotive and insurance industries and whose shares are listed on the Nasdaq Capital
Market. Ms. Knaz holds a B.A. in Economics and Business Administration from Haifa University, and has an investment portfolio
management license.



Douglas
Sesler has served as a director since January 2012. Mr. Sesler currently serves as Executive Vice President of Real Estate
at Macy’s, Inc. and as a director of Baypoint Navigation, Inc. From March 2011 until 2016, Mr. Sesler was a business consultant.
From January 2009 through February 2011, Mr. Sesler served as head of global real estate principal investments of Bank of America,
Merrill Lynch. From 2007 until December 2008, Mr. Sesler served as co-head of real estate investment banking at Merrill Lynch.
Prior to that, Mr. Sesler was a managing partner in the real estate investment banking group of Merrill Lynch since April 2005.
Mr. Sesler received a B.A. in Government from Cornell University.





Ronnie Bar-On
has served as a director since May 2013, and is the chairman of our compensation committee. In addition, since August 2015, Mr.
Bar-On has served as a member of the Advisory Board of Gazit Brasil. From 2003 to 2013, Mr. Bar-On served in a variety of governmental
positions in Israel, including as Minister of Finance, Minister of the Interior, Minister of National Infrastructure, Minister
of Science and Technology, Chairman of the State Control Committee, Chairman of the Foreign Affairs and Defense Committee, and
as a member of the Knesset. Mr. Bar-On has also served as a board member of Alrov Properties and Lodging since 2013, and since
2015 he has served as a board member of Delek Drilling Limited Partnership; both corporations are publicly listed on the TASE.
Prior to entering public service, Mr. Bar-On practiced law for 27 years in a private law firm where he was also the founding partner.
Mr. Bar-On has a law degree from the Hebrew University of Jerusalem.





81







| | B. | Compensation
| | -- | ------------



The
following table presents information for the year ended December 31, 2016 regarding compensation accrued in our financial statements
for our chairman, vice chairman, former deputy chairman, CEO, CFO and former executive officers, as well as certain officers of
two of our investees as of December 31, 2016.





|Name and Position                                                                                                                                                                                         |  | Salary             |             |     | Bonus                |  |             | Share-Based Payment |  |  | Consultancy fees |     |  | Other Compensation |       |  | Total |  |       | Total | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ----------- | --- | -------------------- |  | ----------- | ------------------- |  |  | ---------------- | --- |  | ------------------ | ----- |  | ----- |  | ----- | ----- | 
|                                                                                                                                                                                                          |  | (NIS in thousands) |             |     | (U.S.$ in thousands) | 
|Rachel Lavine                                                                                                                                                                                             |  |                    | 1,541       |     |                      |  | 2,700       |                     |  |  | 6,760            | (1) |  |                    | 2,018 |  |       |  | 2,060 | (2)   | 
|Former CEO and Director of the Company, Vice Chairperson of the Board of Atrium, Director of Citycon                                                                                                      |  |                    |             |     |                      |  |             |                     |  |  |                  |     |  |                    |       |  |       |  |       |       | 
|David Lukes - executive of public investee                                                                                                                                                                |  |                    | 3,519       |     |                      |  | 3,265       |                     |  |  | 7,482            |     |  |                    | —     |  |       |  | —     |       | 
|CEO of Equity One                                                                                                                                                                                         |  |                    |             |     |                      |  |             |                     |  |  |                  |     |  |                    |       |  |       |  |       |       | 
|Chaim Katzman                                                                                                                                                                                             |  |                    | 982         |     |                      |  | —           |                     |  |  | 6,937            |     |  |                    | 2,337 |  |       |  | —     |       | 
|Chairman of the Board, Equity One, Citycon and Atrium, and Director at First Capital                                                                                                                      |  |                    |             |     |                      |  |             |                     |  |  |                  |     |  |                    |       |  |       |  |       |       | 
|Thomas Caputo - executive of public investee                                                                                                                                                              |  |                    | 3,578       |     |                      |  | 3,265       |                     |  |  | 1,940            |     |  |                    | —     |  |       |  | —     |       | 
|President of Equity One                                                                                                                                                                                   |  |                    |             |     |                      |  |             |                     |  |  |                  |     |  |                    |       |  |       |  |       |       | 
|Adi Jemini                                                                                                                                                                                                |  |                    | 1,382       |     |                      |  | 882         |                     |  |  | 1,052            |     |  |                    | -     |  |       |  | -     |       | 
|Executive Vice President and CFO of the Company                                                                                                                                                           |  |                    |             |     |                      |  |             |                     |  |  |                  |     |  |                    |       |  |       |  |       |       | 
|Adam Paul(4) – executive of public investee                                                                                                                                                               |  |                    | 2,300-2,460 |     |                      |  | 2,170-2,320 |                     |  |  | Approx. 2,900    |     |  |                    | -     |  |       |  | -     |       | 
|CEO of First Capital                                                                                                                                                                                      |  |                    |             |     |                      |  |             |                     |  |  |                  |     |  |                    |       |  |       |  |       |       | 
|Dor J. Segal                                                                                                                                                                                              |  |                    | 3,078       | (5) |                      |  | -           |                     |  |  | 767              |     |  |                    | -     |  |       |  | -     |       | 
|CEO
                                 and Vice Chairman of the Board, Chairman of the Board of First Capital, former Vice Chairman of the Board of Equity One and
                                 Citycon |  |                    |             |     |                      |  |             |                     |  |  |                  |     |  |                    |       |  |       |  |       |       | 
|Liad Barziali                                                                                                                                                                                             |  |                    | 1,205       |     |                      |  | 627         |                     |  |  | 345              |     |  |                    | -     |  |       |  | -     |       | 
|Former Vice President
of Investments                                                                                                                                                                      |  |                    |             |     |                      |  |             |                     |  |  |                  |     |  |                    |       |  |       |  |       |       | 
|Arie Mientkavich                                                                                                                                                                                          |  |                    | 1,569       |     |                      |  | 235         |                     |  |  | 314              |     |  |                    | -     |  |       |  | -     |       | 
|Former Deputy Chairman of the Board                                                                                                                                                                       |  |                    |             |     |                      |  |             |                     |  |  |                  |     |  |                    |       |  |       |  |       |       | 










| | (1) | The
                                         share-based payment to Rachel Lavine includes NIS 2,979 thousand relating to the acceleration
                                         of the vesting periods of Ms. Lavine’s long-term equity compensation component
                                         following the termination of her employment. NIS 1,146 thousand of such amount relates
                                         to restricted share units that are conditioned on the performance of the share. These
                                         are conditional upon the Company’s share achieving, during the vesting period,
                                         a target yield of at least 20% in relation to the share price on the date of grant, which
                                         was NIS 40.3 per share. Ms. Lavine’s PSU’s that were conditioned on share
                                         performance expired on March 31, 2017.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Amounts
                                         granted to Ms. Lavine in connection with the termination of her employment.
| | --- | ----------------------------------------------------------------------------------------------------------------------------

| | (3) | Mr.
                                         Katzman did not receive compensation from the Company in 2016.
| | --- | -----------------------------------------------------------------------------------------------------------

| | (4) | Since,
                                         to the date of issue of the report, the Company is not the controlling shareholder in
                                         First Capital, the data presented in the table is based on the public reports of First
                                         Capital concerning the compensation to which Mr. Paul was entitled in 2015, as published
                                         in April 2016.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (5) | The
                                         amounts include the directors’ fees paid to Mr. Segal in his capacity as a director
                                         of each of the Company, Citycon and Equity One.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



There
are no other amounts for pension, retirement or similar benefits set aside by Gazit-Globe or its subsidiaries for members of management
beyond what is included in their gross compensation as disclosed above. Directors are not entitled to such benefits and are entitled
only to what is disclosed in “Directors Compensation” below.





82







Employment
and Consultant Agreements



Chaim
Katzman



Mr.
Katzman does not currently have an employment agreement with and does not receive any compensation from Gazit-Globe. However,
Mr. Katzman serves as chairman of the Gazit-Globe’s board of directors and is entitled to use the Company’s resources
in order to fulfill his duties.



Compensation
from Equity One



For
Mr. Katzman’s service as the chairman of the board of directors of Equity One, Mr. Katzman was entitled to an annual equity
grant, which was determined at the discretion of Equity One’s compensation committee, as well as annual fee of U.S.$ 15,000
and reimbursement of expenses incurred in connection with his position. Mr. Katzman received U.S.$ 35,877 in compensation from
Equity One in 2016.



Effective
as of March 1, 2017, Equity One completed the Regency Merger. In connection with such merger, Mr. Katzman was appointed by the
Company to serve as non-executive vice chairman and a director on Regency’s board of directors.



Mr.
Katzman’s employment agreement with Equity One provided for termination of employment, including the amounts to which Mr.
Katzman was entitled upon termination of the agreement and acceleration of all vesting periods of restricted equity compensation
that was due to vest within a year from the date of termination, which was approximately 85 thousand restricted shares, as well
as in reimbursement of health insurance expenses.



Compensation
from First Capital



For
Mr. Katzman’s service as a director of First Capital, he received annual compensation of C$ 30,000, a quarterly allotment
of 600 deferred share units and fees of C$ 1,500 per board meeting. The total consideration paid to Mr. Kaztsman for his services
as a director of First Capital in 2016 was C$ 49,450 (including the value of deferred restricted units).



Atrium
Consultant Agreement



Mr.
Katzman and a wholly-owned subsidiary of Atrium are party to an agreement pursuant to which Mr. Katzman provides Atrium and its
subsidiaries with consulting services. The consulting agreement automatically renews for successive one-year periods, unless either
party gives the other written notice of termination. Mr. Katzman was entitled to annual fees in the amount of EUR 550,000 in 2016
and to the payment of his expenses in relation to the provision of the consultancy services under the agreement. Commencing January
2017, the annual fees payable to Mr. Katzman pursuant to the consulting agreement increased to EUR 750,000. Mr. Katzman is not
entitled to directors’ fees from Atrium.



Compensation
from Citycon



For
Mr. Katzman’s service as chairman of the board of directors of Citycon, he received annual compensation of EUR 165,000 in
2016.



Dor
J. Segal



As
of December 31, 2016, Mr. Segal did not have an employment agreement with Gazit-Globe. In January 2016, the board of Gazit-Globe
approved the grant of director’s fees to Mr. Segal.



In
January 2017, Mr. Segal was appointed as the Company’s CEO. The terms of Mr. Segal’s employment with respect to his
service as CEO of the Company were approved in a special general meeting of the Company’s shareholders on March 23, 2017,
effective as of January 2017. The term of Mr. Segal’s employment is three years, commencing from January 19, 2017, subject
to the right of each of the parties to terminate it with 180 days advance notice. Mr. Segal’s monthly salary is NIS 166,667
(gross) per month, which reflects an annual cost (comprising his base salary, a vehicle and customary social benefits) of NIS
2 million, net of any compensation paid to Mr. Segal by the Company’s investees (other than First Capital). The salary will
be adjusted once every calendar year, for the rate of increase in the Israeli CPI compared with the index for January 2017. In
addition to his fixed salary, Mr. Segal is entitled to customary ancillary benefits as set forth in the compensation policy for
the Company’s officers (the “Compensation Policy”). Mr. Segal is also entitled to indemnification, exemption
and insurance under terms identical to those that apply to the other officers of the Company.



Mr.
Segal will not be entitled to an annual cash bonus. During the term of his employment, Mr. Segal will be entitled up to an aggregate
of 2,965,505 performance-based options for the purchase of the Company’s ordinary shares, in an amount that reflects a total
cost to the Company, as of March 23, 2017, of NIS 12.9 thousand for the duration of Mr. Segal's employment agreement. The options
will vest over a period of three years from January 19, 2017 in equal annual portions and will have fully vested at the end of
Mr. Segal’s three year employment term.



In the event the agreement
terminates without a new agreement being signed, Mr. Segal will be entitled to an additional payment in a total amount equivalent
to his full salary and ancillary social benefits for an additional six months. In the event the agreement is terminated by the
Company without cause before three years have elapsed (except under circumstances that entitle the employer to terminate the agreement
without an obligation to pay severance compensation), or in the event of resignation under circumstances in which the resignation
would be viewed by law as dismissal, or in the case of death or loss of work capacity, Mr. Segal (or his estate) would be entitled
to the following: (a) 180 days’ advance notice; (b) fixed salary and all ancillary social benefits for an additional six
months; and (c) an acceleration of the vesting period for the full equity compensation components granted to him that had not
yet vested.



83







Furthermore, in the event
of termination of Mr. Segal’s employment (except under circumstances of termination with cause that entitle the employer
to terminate the agreement without the obligation to pay severance compensation), by either party, during the 12 months after
a change of control in the Company (as such term is defined in the agreement), Mr. Segal will be entitled, immediately upon termination
of his employment, and in place of the terms stipulated above, to the following: (a) an acceleration of the vesting period for
the full equity compensation components granted to him that had not yet vested and (b) a grant in an amount equal to 200% of a
reduced aggregate monthly salary of NIS 125,000 in the year in which the change of control was completed, provided that such grant
would not exceed an amount reflecting a reduced aggregate monthly salary of NIS 125,000 for the remaining period until the end
of the term of his employment agreement, plus an additional six months.



Commencing
January 2016, Mr. Segal was entitled to receive fees as a director of the Company and, in 2016, received NIS 265,778 of such fees.
However, in connection with Mr. Segal’s appointment as CEO of the Company in January 2017, he is no longer entitled to directors’
fees.



First
Capital Employment Agreement



In
December 2014, Mr. Segal was appointed as executive vice chairman of the board of directors of First Capital. Under the terms
of his employment agreement with First Capital, Mr. Segal was entitled to annual compensation of C$ 700 thousand, as well as an
annual grant of restricted share units in the amount of C$ 300 thousand, the number of which is calculated every year at their
grant date according to First Capital’s RSUs plan and which First Capital has the right to redeem in shares or in cash,
at its discretion. Mr. Segal is also entitled to participation in First Capital’s benefit plan.



On
May 4, 2015, Mr. Segal was appointed as chairman of the board of directors of First Capital, under the same terms as his employment
agreement described above.



In
February 2017, the parties signed an amended agreement that extends the period of Mr. Segal’s employment agreement with
First Capital for an additional three years, commencing in February 2017, subject to the right of First Capital to terminate the
agreement on an earlier date (without cause) and the provision of an advance notice (or payment in lieu of an advance notice)
for the shorter of one year and the period remaining to the end-date of the agreement. Additionally, First Capital may terminate
the agreement without further compensation in the event of dismissal for cause or change of control.



According
to the amended agreement, commencing in February 2017, Mr. Segal is entitled to an annual compensation of C$ 500,000 and to an
annual allotment of RSUs with a value of C$ 500,000. The number of RSUs that Mr. Segal would be allotted will be calculated annually
on the date of their allotment, based on First Capital’s RSU plan.



Compensation
from Equity One



For
Mr. Segal’s service as the vice chairman of the board of directors of Equity One, Mr. Segal received 3,500 restricted shares
and directors’ fees in cash of U.S.$ 71,500 in 2016.



Effective
as of March 1, 2017, Equity One completed the Regency Merger. In connection with the merger, Mr. Segal’s employment agreement
with Equity One was terminated.



Compensation
from Citycon



For
Mr. Segal’s service as vice chairman of the board of directors of Citycon, he received annual compensation of EUR 75,000
in 2016 as well as a per-meeting fee of EUR 600. In March 2017, Mr. Segal terminated his position as a director of Citycon.



Rachel
Lavine



Compensation
from the Company



In
September 2015, Ms. Lavine and the Company entered into in an employment agreement with respect to her service as CEO of the Company.
The term of the engagement between the Company and Ms. Lavine was three years, commencing from September 1, 2015, subject to the
right of each of the parties to terminate it with 180 days’ advance notice. Ms. Lavine’s salary was NIS 225,000 (gross)
per month, which reflects an annual cost (comprising her base salary, a vehicle and customary social benefits) of NIS 3.5 million,
net of any compensation paid to Ms. Lavine by the Company’s public subsidiaries (as further described below). The salary
was adjusted once every calendar year, at the rate of increase in the Israeli CPI compared with the index for August 2015. In
addition to the fixed salary, Ms. Lavine was entitled to customary ancillary benefits as set forth in the Compensation Policy.
Ms. Lavine was also entitled to indemnification, exemption and insurance under terms identical to those that apply to the other
officers of the Company. In 2016, Ms. Lavine’s compensation (less the compensation paid to her by the aforementioned subsidiaries)
was NIS 1,277 thousand.





84







Ms.
Lavine was entitled to an annual cash bonus in a total amount not exceeding 100% of the base annual salary to which Ms. Lavine
was entitled for any year. The annual bonus was prescribed in the Compensation Policy and calculated based on the extent to which
the Company met measurable goals set in advance for the year and based on an evaluation of Ms. Lavine’s performance conducted
by the compensation committee and the board of directors, at their discretion, provided that such discretion did not account for
more than 20% of the total annual bonus. The mechanism according to which the annual bonus was paid was identical to the mechanism
that was in place in relation to the other officers of the Company, which was approved at the Company’s general meeting.
For her service in the Company in 2016, Ms. Lavine was granted a bonus of NIS 2.7 million.



On
January 19, 2017, Ms. Lavine stepped down as CEO of the Company, and her termination became effective on March 31, 2017. On such
date, Ms. Lavine received the following compensation from the Company: (a) NIS 1,445,000, representing the difference between
the total payments by the Company to Ms. Lavine from March 31, 2017 pursuant to the terms of her employment agreement and future
amounts payable to Ms. Lavine by Atrium and Citycon, if any, during the 17-month period from March 31, 2017 to August 30, 2018
(the original end-date of the employment agreement between Ms. Lavine and the Company) (subject to adjustments to the extent that
the services that Ms. Lavine provides to Citycon and Atrium are discontinued prior to August 30, 2018); (b) an annual grant for
2016 (as described above); and (c) acceleration of all components of equity compensation granted to Ms. Lavine under her employment
agreement.



Compensation
from Atrium



For
Ms. Lavine’s service as vice chairman of the board of directors of Atrium, she received consulting fees of EUR 475 thousand
in 2016 (which, as previously mentioned, was offset from the compensation she was entitled to receive from the Company).



Ms.
Lavine has agreed to continue serving as vice chairman of the board of directors of Atrium.



Compensation
from Citycon



For
Ms. Lavine’s service as a director on the board of Citycon, she received compensation of EUR 62.5 thousand in 2016 (which
was offset from the compensation she was entitled to receive from the Company).



Ms.
Lavine has agreed to continue serving on the board of directors of Citycon.



David
Lukes



On
April 2, 2014, Equity One and Mr. David Lukes entered into an employment agreement (in effect commencing on May 12, 2014), according
to which Mr. Lukes served as Equity One’s CEO and director. The employment agreement terminated in March 2017 following
the completion of the Regency Merger. Mr. Lukes’s base annual salary was U.S.$ 850 thousand, in addition to customary benefits.
In 2016, the cost of his salary, including related costs, was U.S.$ 916 thousand. In addition, Mr. Lukes was entitled to an annual
bonus. For 2016, Mr. Lukes was granted an annual bonus in the amount of U.S.$ 1,700 thousand.



Upon
his termination, Mr. Lukes was entitled to an aggregate amount of approximately U.S.$16 million, which was to be paid in full
by Regency, and included U.S.$ 800 thousand for the acceleration of all of the equity components of Mr. Luke’s compensation.



Thomas
Caputo



In
June 2014, Mr. Caputo and Equity One entered into an employment agreement, which terminated on December 31, 2016. Pursuant to
such agreement, Mr. Caputo was entitled to an annual base salary of U.S.$ 750 thousand, as well as to the customary ancillary
benefits. In addition, Mr. Caputo was entitled to a cash annual bonus. For 2016, the salary cost of Mr. Caputo amounted to U.S.$
932 thousand and he was granted an annual bonus of U.S.$ 850 thousand.



Adi
Jemini



Mr.
Adi Jemini has served Chief Financial Officer of the Company since September 2015 and, in January 2017, he was also appointed
as Executive Vice President of the Company. Mr. Jemini’s employment agreement has a term of three years commencing in September
2015, and is subject to his and the Company’s right to terminate with 180 days advance notice. Until December 31, 2016,
Mr. Jemini was entitled to a gross monthly salary of NIS 85 thousand (linked to the annual increase in the CPI). Mr. Jemini is
also entitled to customary social and related benefits as well as to indemnification, exemption and insurance, as is the practice
in the Company. The Company paid NIS 1,382 thousand in 2016 for costs related to Mr. Jemini’s employment.



Mr.
Jemini’s employment agreement entitles him to an annual bonus in an amount that is not to exceed 75% of his annual salary.
The bonus is determined on the basis of measurable targets and based on the discretion of the Company’s compensation committee
and board of directors, which discretionary component may not exceed 50% of such bonus, in accordance with the Compensation Policy.
Mr. Jemini was granted an annual bonus of NIS 882 thousand for 2016. In January 2017, Mr. Jemini’s employment agreement
was amended, and subsequently his gross monthly salary was increased to NIS 115 thousand.





85







Under
the amended employment agreement, Mr. Jemini may be entitled to a retention bonus, provided that he remains in the employ of the
Company for the duration of 20 months from January 2017. This bonus will be payable to Mr. Jemini in three equal intervals over
such period, the amount of each interval equaling 1.11 of Mr. Jemini’s monthly salary. Should Mr. Jemini decide to terminate
his employment prior to the end of the agreement period, he will be required to refund to the Company in full the amounts paid
to him on account of the retention bonus until such date. The employment agreement amendment also entitles Mr. Jemini to the reimbursement
of special expenses with respect to his relocation to Israel and residence in Israel in the (grossed up) amount of NIS 325 thousand
a year. Mr. Jemini is also entitled to equity compensation as set forth in the table above.



In
the event that the employment agreement with Mr. Jemini is not renewed, he shall be entitled to payment in the amount of his salary
with the addition of the ancillary benefits for an additional three months. Additionally, should the Company seek to terminate
the employment of Mr. Jemini (other than termination for cause), Mr. Jemini shall be entitled to the following: (a) advance-notice
period of 180 days, during which he shall be entitled to receive his full salary and all accompanying benefits, with the addition
of an amount equal to four monthly salaries including ancillary benefits; (b) if on the date of termination of his employment,
Mr. Jemini has completed five years of service in the Company, he shall be entitled to an additional payment in an amount that
is the lower of: his monthly salary (excluding ancillary benefits) for 12 additional months or his monthly salary (excluding ancillary
benefits) for the period remaining to the end of the agreement period, with the addition of three months; (c) the proportionate
share of the annual bonus to which he is entitled under the Compensation Policy; and (d) acceleration of the vesting period of
all equity compensation components allotted to him that have not yet vested.



In
the event of the termination of Mr. Jemini’s employment with the Company during a 12-month period following an event of
change of control in the Company (as defined in the employment agreement), Mr. Jemini shall be entitled to the following compensation
(in lieu of the compensation described above): acceleration of the vesting period of all components of equity compensation granted
to him that have not yet vested, as well as a grant in a total amount that is equal to 200% of his base annual salary in the year
of completion of the change of control, provided that such grant does not exceed his base salary for the period remaining under
the term the employment agreement, increased three months.



Liad
Barzilai



Mr.
Barzilai served as the Company’s Vice President of Investments until December 2016. Pursuant to his employment agreement,
Mr. Barzilai received a monthly salary of NIS 70 thousand and other customary benefits, reflecting an annual cost to the Company
of NIS 1,155 thousand. Mr. Barzilai was also entitled to indemnification, exemption and insurance, under terms that are identical
to those of the other officers in the Company.



Mr.
Barzilai’s employment agreement also included an annual cash bonus in a total amount not to exceed 75% of his base annual
salary. Mr. Barzilai was granted an annual bonus of NIS 627 thousand for 2016. Mr. Barzilai was also entitled to equity compensation.
Upon termination of Mr. Barzilai’s employment, his unvested options and RSUs were forfeited, his PSUs expired. In addition,
his vested options expired in March 2017.



Arie
Mientkavich



Mr.
Arie Mientkavich served as the deputy chairman of the board of directors of the Company from April 19, 2015 to September 6, 2016,
at which time his term as a director of the Company expired.



Under
the terms of Mr. Mientkavich’s compensation agreement with the Company, Mr. Mientkavich was entitled to a monthly salary
of NIS 80,000, which was adjusted annually in accordance with the percentage increase in the Israeli CPI. Mr. Mientkavich received
a salary of NIS 80,000 for his service up until September 2016. Mr. Mientkavich was also entitled to an annual bonus not to exceed
NIS 500,000 calculated based on weighted measurable targets set forth for the Company’s performance. Up to 20% of Mr. Mientkavich’s
total annual bonus was at the discretion of the compensation committee and board of directors. For 2016, Mr. Mientkavich was granted
a bonus of NIS 235,000. In addition, under the compensation agreement, Mr. Mientkavich was entitled to customary social and related
benefits, including managerial insurance (including for loss of working capacity) and contributions to a further studies fund.
Mr. Mientkavich received refunds of the amounts needed to gross up certain related benefits for tax purposes (with respect to
provisions that exceed the income tax ceilings).



Mr.
Mientkavich was entitled to 60 days' advance notice of termination, during the course of which he was entitled to receive the
full terms provided under the employment agreement as well as an adaptation grant in an amount equivalent to six months' salary.



Mr.
Mientkavich also received options, restricted stock units (“RSUs”) and performance stock units (“PSUs”)
pursuant to the terms of the compensation agreement.



Adam
Paul



On
November 3, 2014, First Capital and Mr. Adam Paul entered into an employment agreement, under which, effective from February 2015,
Mr. Paul has been serving as the CEO of First Capital and as a director. Mr. Paul is entitled to an annual base salary, customary
ancillary benefits, an annual bonus and the right to participate in First Capital’s target- and performance-based compensation
plan for senior officers in First Capital. Additionally, he may be entitled to the allotment of option warrants or restricted
share units of First Capital. According to the assessments of the Company, the base salary of Mr. Paul is in the range of C$ 750
thousand (his salary in 2015) to C$ 800 thousand, and the cost of his salary with the addition of related costs is in the range
of C$ 802.5 (the cost of his salary in 2015 to C$ 850 thousand). In 2015, Mr. Paul received an annual bonus of C$ 750 thousand.
The Company assesses that Mr. Paul will receive an annual bonus of up to C$ 800 thousand for 2016. Additionally, Mr. Paul was
allotted First Capital securities and is entitled to equity compensation.





86







The
agreement also includes termination provisions, pursuant to which (depending on the circumstances of termination of the agreement)
Mr. Paul’s compensation upon the end of his employment may amount to: (a) an amount equal to two times his annual salary;
(b) an amount equal to two times the average annual bonus granted in the two years that preceded the date of termination of the
agreement; (c) an amount equal to two times the premium costs with respect to employee benefit plans; and (d) vehicle expenses
and costs and pension contributions over a period of 24 months from the date of termination of vesting periods of option warrants
(that are in-the-money on the date of termination of employment) and restricted shares of First Capital that he holds.



Director
Compensation



For
the year ended December 31, 2016, other than our chairman, deputy chairman, vice chairman and CEO, our external and non-external
directors who did not meet the expertise criteria of expert external directors received annual compensation of U.S.$42,000, and
such directors who did meet such criteria received annual compensation of U.S.$56,000. Each of our external and non-external directors,
other than our chairman, deputy chairman, vice chairman and CEO, also received during the year ended December 31, 2016, and continue
to receive, U.S.$1,100 (in case of external and non-external directors who did not meet the expertise criteria of expert external
directors) or U.S.$1,480 (in case of external and non-external directors who did meet the expertise criteria of expert external
directors), as applicable, per board meeting and per committee meeting, 60% of such amount in the case of telephonic participation,
or 50% of such amount in the case of written resolution. For further information regarding our director fees, see “–Compensation
of Directors and Officers” below.



| | C. | Board
                                         Practices
| | -- | --------------------------------------------------------



As
an Israeli corporation we are subject to various corporate governance requirements under Israeli law relating to such matters
as external directors, independent directors, the audit committee and an internal auditor. These requirements are in addition
to the corporate governance requirements imposed by the NYSE Listed Company Manual and other applicable provisions of U.S. securities
laws to which we are subject. Under the NYSE Listed Company Manual, a foreign private issuer may generally follow its home country
rules of corporate governance in lieu of the comparable requirements of the NYSE Listed Company Manual, except for the composition
and responsibilities of the audit committee and the independence of its members within the meaning of the rules and regulations
of the SEC. In addition, we are not currently obligated to follow additional corporate governance practices promulgated by the
TSX provided that no more than 25% of the trading volume of our ordinary shares over any six-month period occurs on the TSX and
provided that another stock exchange will review the action in question. We may follow home country practice in Israel with regard
to the other corporate governance standards otherwise imposed by the NYSE Listed Company Manual for U.S. domestic issuers.



Following
our home country governance practices as opposed to the requirements that would otherwise apply to a U.S. company listed on the
NYSE may provide less protection than is accorded to investors under the NYSE corporate governance standards applicable to domestic
issuers. For further information, see “Item 3—Key Information—Risk Factors”.



Under
the Israeli Companies Law and our articles of association, the supervision of the management of our business is vested in our
board of directors. Our board of directors may exercise all powers and may take all actions that are not specifically granted
to our shareholders or to executive management. Our CEO (referred to as a “general manager” under the Israeli Companies
Law) is responsible for our day-to-day management. Our CEO is appointed by, and serves at the discretion of, our board of directors,
subject to the employment agreement that we have entered into with him. All other executive officers are appointed by our CEO,
and are subject to the terms of any applicable employment agreements that we may enter into with them.



On
April 20, 2016, an extraordinary general meeting of shareholders approved an amendment to our articles of association such that
terms of service of all directors, other than the external directors, shall be for approximate one-year periods, until the end
of the first annual general meeting following their nomination. All non-external directors will be eligible for election and re-election
annually.



In
addition, our articles of association allow our board of directors to appoint directors to fill vacancies on our board of directors
or to appoint additional directors, so long as the total number of directors does not exceed 11. Removal of any director at a
general meeting shall be upon the vote of 75% of the shares of shareholders who are present and voting (in person or by proxy),
except as provided by applicable law with respect to external directors, as described below.



Our
articles of association furthermore require that at least one-third of the members of our board of directors shall be independent
directors (including the external directors who are considered independent under the Israeli Companies Law).



External
directors are elected for an initial term of three years and may be elected for additional three-year terms under the circumstances
described below. External directors may be removed from office only under very narrow circumstances set forth in the Israeli Companies
Law. See “—External Directors” below. There are no family relationships among any of our directors or executive
officers.



87







Chairman
of the Board



Our
articles of association provide that the chairman of the board is appointed by the members of the board of directors and serves
as chairman of the board throughout his term as a director. Under the Israeli Companies Law, the general manager or a relative
of the general manager may not serve as the chairman of the board of directors, and the chairman or a relative of the chairman
may not be vested with authorities of the general manager without shareholder approval (including a special majority requirement).
In addition, a person subordinated, directly or indirectly, to the general manager may not serve as the chairman of the board
of directors; the chairman of the board may not be vested with authorities that are granted to those subordinated to the general
manager; and the chairman of the board may not serve in any other position in the company or a controlled company, but he may
serve as a director or chairman of a subsidiary.



External
Directors



Under
the Israeli Companies Law, the boards of directors of companies whose shares are publicly traded are required to include at least
two members who qualify as external directors. Each of Yair Orgler, who was elected on November 27, 2007 and re-elected in 2010,
2013 and 2016, Noga Knaz, who was elected August 12, 2008, re-elected in 2011 and again in 2014, and Ronnie Bar-On who was elected
on May 1, 2013 and re-elected in April 2016, qualifies and was elected to serve as an external director, with terms ending on
November 26, 2019, September 13, 2017, and May 1, 2019, respectively. The principal requirements with respect to external directors
are set forth below.



The
Israeli Companies Law provides for special approval requirements for the election of external directors. External directors must
be elected by a majority vote of the shares present and voting at a shareholders’ meeting, provided that either:



| | ● | such
                                         majority includes at least a majority of the shares held by all shareholders who are
                                         not controlling shareholders and do not have a personal interest in such election (other
                                         than a personal interest which is not derived from a relationship with a controlling
                                         shareholder), present and voting at such meeting; or                                             
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ● | the
                                         total number of shares of non-controlling shareholders and shareholders that do not have
                                         a personal interest in such election (other than a personal interest which is not derived
                                         from a relationship with a controlling shareholder) voting against the election of an
                                         external director does not exceed two percent of the aggregate voting rights in the company.



After
an initial term of three years, external directors may be reelected to serve in that capacity for two additional terms of three
years under one of three alternatives. Under the first alternative, the external director may be proposed to be re-elected for
another term by a shareholder(s) holding 1% or more of the voting power and at the general meeting of shareholders such reelection
is approved by a majority of those shares present and voting that are held by shareholders that are non-controlling shareholders
and do not have a personal interest in the reelection, provided that such shares represent at least 2% of the total voting power
in the company. Under the second alternative, the external director may be proposed to be re-elected for another term by the board
of directors, and such external director’s reelection is approved by the same majority of shareholders that was required
to elect such external director, in such director’s initial election. Under the third alternative, the external director
may propose him- or herself for nomination, and such external director’s reelection is approved by the same majority of
shareholders required under the first alternative. The term of office for external directors for Israeli companies traded on certain
foreign stock exchanges, including the NYSE, may be extended indefinitely in increments of additional three-year terms, in each
case provided that the audit committee and the board of directors of the company confirm that, in light of the external director’s
expertise and special contribution to the work of the board of directors and its committees, the reelection for such additional
period(s) is beneficial to the company (and provided that the external director is reelected subject to the same approval method
as if elected for the first time). External directors may be removed from office by a special general meeting of shareholders
called by the board of directors, which approves such dismissal by the same shareholder vote percentage required for their election
or by a court, in each case, only under limited circumstances, including ceasing to meet the statutory qualification for appointment,
or violating their duty of loyalty to the company. If an external directorship becomes vacant and there are less than two external
directors on the board of directors at the time, then the board of directors is required under the Israeli Companies Law to call
a shareholders’ meeting as soon as practicable to appoint a replacement external director. Each committee of the board of
directors that exercises the powers of the board of directors must include at least one external director, except that the audit
committee must include all external directors then serving on the board of directors. Under the Israeli Companies Law, external
directors of a company are prohibited from receiving, directly or indirectly, any compensation from the company other than for
their services as external directors pursuant to the provisions and limitations set forth in regulations promulgated under the
Israeli Companies Law, which compensation is determined prior to their appointment and may not be changed throughout the term
of their service as external directors (except for certain exemptions as set forth in the regulations).



The
Israeli Companies Law provides that a person is not qualified to serve as an external director if, as of the appointment date
or at any time during the two years preceding his or her appointment, that person or a relative, partner or employer of that person,
any person to which that person is subordinate (whether directly or indirectly), or any entity under that person’s control,
had any affiliation or business relationship with the company, any controlling shareholder or relative of a controlling shareholder
or an entity that, as of the appointment date is, or at any time during the two years preceding that date was, controlled by the
company or by any entity controlling the company.





88







The
term affiliation for that purpose includes (subject to certain exemptions):



| | ● | an
                                         employment relationship;
| | - | --------------------------------------------------------------------

| | ● | a
                                         business or professional relationship maintained on a regular basis;
| | - | ---------------------------------------------------------------------------------------------------------------

| | ● | control;
                                         and
| | - | -----------------------------------------------------

| | ● | service
                                         as an office holder, excluding service as a director in a private company prior to the
                                         first offering of its shares to the public if such director was appointed as a director
                                         of the private company in order to serve as an external director following the public
                                         offering.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The
Israeli Companies Law defines the term “office holder” of a company to include a director, general manager (i.e.,
chief executive officer) chief business manager, deputy general manager, vice general manager, other manager directly subordinate
to the general manager or any other person assuming the responsibilities of any of these positions other than the position of
director, regardless of such person’s title.



The
following additional qualifications apply to an external director:



| | ● | a
                                         person may not be elected as an external director if he or she is a relative of a controlling
                                         shareholder;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ● | if
                                         a company does not have a controlling shareholder or a holder of 25% or more of the voting
                                         power, then a person may not be elected as an external director if he or she or his or
                                         her relative, partner, employer or any entity under his or her control has, as of the
                                         date of the person’s election to serve as an external director, any affiliation
                                         with the then chairman of the board of directors, Chief Executive Officer, a holder of
                                         5% or more of the issued share capital or voting power, or the most senior financial
                                         officer in the company;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ● | a
                                         person may not serve as an external director if he or she or his or her relative, partner,
                                         employer, a person to whom he or she is subordinated or any entity under his or her control
                                         has business or professional relations with those whom affiliation is prohibited as described
                                         above, and even if these relations are not on a regular basis (other than de minimis
                                         relations); and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ● | a
                                         person may not continue to serve as an external director if he or she accepts, during
                                         his or her tenure as an external director, direct or indirect compensation from the company
                                         for his or her role as a director, other than amounts prescribed under the regulations
                                         promulgated under the Israeli Companies Law, indemnification, the company’s undertaking
                                         to indemnify such person and insurance coverage.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Furthermore,
no person may serve as an external director if that person’s professional or other activities create, or may create, a conflict
of interest with that person’s responsibilities as a director or otherwise interfere with that person’s ability to
serve as an external director. Following the termination of an external director’s membership on a board of directors, such
former external director and his or her spouse and children may not be provided a direct or indirect benefit by the company, its
controlling shareholder or any entity under its controlling shareholder’s control, including being engaged to serve as an
executive officer or director of the company or a company controlled by its controlling shareholder and cannot be employed by
or provide professional services to the company for pay, either directly or indirectly, including through a corporation controlled
by that former external director, for a period of two years (which prohibition also applies to other relatives of the former external
director (who are not his or her spouse or children) for a period of one year).



If
at the time at which an external director is appointed all members of the board of directors that are not controlling shareholders
or their relatives are of the same gender, the external director must be of the other gender. A director of one company may not
be appointed as an external director of another company if a director of the other company is acting as an external director of
the first company at such time.



Pursuant
to the regulations promulgated under the Israeli Companies Law, a person may be appointed as an external director only if he or
she has professional qualifications or if he or she has accounting and financial expertise as defined in those regulations. In
addition, at least one of the external directors must be determined by our board of directors to have accounting and financial
expertise and the board is required to determine the minimum number of board members that are required to possess accounting and
financial expertise. In determining the number of directors required to have such expertise, the members of our board of directors
must consider, among other things, the type and size of the company and the scope and complexity of its operations. Our board
of directors has determined that Yair Orgler, Ronnie Bar-On and Noga Knaz, as well as all other current board members, possess
“accounting and financial” expertise and the requisite professional qualifications as such term is defined under the
Israeli Companies Law.



Alternate
Directors



Our
articles of association provide that any director may appoint, by written notice to us, an alternate director for himself or herself,
provided that such person meets the qualifications of a director under the Israeli Companies Law and is approved by our board
of directors. A person may not act as an alternate director for more than one director, and a person serving as a director may
not serve as an alternate director. Notwithstanding the foregoing, a member of the board of directors may be appointed as an alternate
member of any committee of our board of directors, provided that such alternate member is not already a member of such committee.
Any alternate director shall have all of the rights and obligations of the director appointing him or her.





89







Audit
Committee



Under
the Israeli Companies Law, the board of directors of a public company must appoint an audit committee. The audit committee must
be comprised of at least three directors, including all of the external directors, and a majority of its members must be independent
directors. An independent director is an external director or a director that is appointed or classified as such, and that meets
the qualifications of an external director (other than the professional qualifications/accounting and financial expertise requirement)
and the audit committee so approved and does not serve as a director of the company for more than nine (9) consecutive years (with
any period of up to two years during which such person does not serve as a director not being viewed as interrupting a nine-year
period). For Israeli companies traded on certain foreign stock exchanges, including the NYSE, a director who qualifies as an independent
director for the purposes of such director’s membership on the audit committee in accordance with the rules of such stock
exchange on which it is traded, including the NYSE, is also deemed to be an independent director under the Israeli Companies Law.
Such person must meet the non-affiliation requirements as to relationships with the controlling shareholder (and any entity controlled
by the controlling shareholder, other than the company and other entities controlled by the company) and must meet the nine-year
requirement described above. Following the nine-year period, a director of an Israeli company traded on such foreign stock exchanges
may continue to be considered an unaffiliated director for unlimited additional periods of three-years each, provided the audit
committee and the board of directors of the company confirm that, in light of the director’s expertise and special contribution
to the work of the board of directors and its committees, the reelection for such additional period(s) is beneficial to the company.



The
audit committee may not include the chairman of the board, any director employed by the company or that regularly provides services
to the company (other than as a board member), a controlling shareholder or any relative of the controlling shareholder, as each
term is defined in the Israeli Companies Law. In addition, the audit committee may not include any director employed by the company’s
controlling shareholder or by a company controlled by such controlling shareholder, or who provides services to the company’s
controlling shareholder or a company controlled by such controlling shareholder, on a regular basis, or a director whose main
livelihood is based on the controlling shareholder. The chairman of the audit committee is required to be an external director.



The
members of our audit committee are Yair Orgler, Haim Ben-Dor, Noga Knaz, Zehavit Cohen, and Ronnie Bar-On. Our board of directors
has determined that each member of our audit committee meets the independence requirements set forth in the NYSE Listed Company
Manual. In addition, each of Dr. Orgler, Mr. Ben-Dor, Ms. Knaz, Ms. Cohen and Mr. Bar-On is independent as such term is defined
in Rule 10A-3(b)(1) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (which contains the
SEC’s independence requirements for audit committee members). All members of the audit committee meet the requirements for
financial literacy under the applicable rules and regulations of the SEC and the NYSE. The rules of the SEC also require that
we disclose in our annual reports whether at least one member of the audit committee is an “audit committee financial expert.”
On March 28, 2016, our board of directors determined that Ms. Zehavit Cohen qualifies as an audit committee financial expert,
as defined by the rules of the SEC and has the requisite accounting or related financial management expertise referenced by the
NYSE Listed Company Manual.



Our
board of directors has adopted an audit committee charter that is consistent with the rules of the SEC and the NYSE Listed Company
Manual.



Our
audit committee provides assistance to our board of directors in fulfilling its legal and fiduciary obligations in matters involving
our accounting, auditing, financial reporting and internal control functions by reviewing the services of our independent accountants
and reviewing their reports regarding our accounting practices and systems of internal control over financial reporting. Our audit
committee also oversees the audit efforts of our independent accountants. Under the Israeli Companies Law, an audit committee
is also required, among other things, to identify deficiencies in the administration of the company, including by consulting with
the internal auditor, and recommending remedial actions with respect to such deficiencies, for reviewing and approving certain
related party transactions and is required to adopt procedures with respect to processing of employee complaints in connection
with deficiencies in the administration of the company, and the appropriate means of redress. Under the Israeli Companies Law,
the approval of the audit committee is required for specified actions and transactions with office holders and controlling shareholders.
The audit committee must determine standards and policies for determining whether a transaction with a controlling shareholder
or a transaction in which a controlling shareholder has a personal interest is deemed negligible or not and the approval requirements
(including, potentially, the approval of the audit committee) for transactions that are not negligible, including the types of
transactions that are not negligible However, the audit committee may not approve an action or a transaction with an office holder
or a controlling shareholder unless at the time of approval the majority of the members of the audit committee are present, of
whom a majority must be unaffiliated directors and at least one of whom must be an external director.



According
to the Israeli Companies Regulation (Provisions and Conditions in the Matter of the Approval Process of Financial Statements),
2010, the board of directors of an Israeli public company must approve the financial statements of the company after a financial
statements review committee has submitted its recommendations to the board of directors in respect to certain matters relating
to the preparation of the financial statements as detailed in the regulation, and submit such recommendations to the board a reasonable
period prior to its meeting on the matter. The company’s auditors are to be invited to all meetings of the financial statements
review committee, and the internal auditor is to receive notices of such meetings and be entitled to participate. The financial
statements review committee must consist of at least three directors and a majority of its members are required to be unaffiliated
directors. The restrictions on who may not be a member of the audit committee, as described above, apply to membership on the
financial statements review committee as well. All of the financial statements review committee members are required to have the
ability to read and understand financial statements, and at least one of the unaffiliated directors should have “accounting
and financial expertise” (within the meaning of the Israeli Companies Law). In addition, the chairman of the financial statements
review committee is required to be an external director. An audit committee that meets these requirements may serve as a financial
statements review committee. Our audit committee also serves as our financial statements review committee.





90







Investment
Committee



Our
board of directors has established an investment committee. The investment committee reviews for approval investments of a magnitude
that the board of directors has determined is in excess of management’s prerogative but do not require approval of the full
board of directors. The current members of the investment committee are Chaim Katzman, Dor J. Segal and Yair Orgler.



Compensation
Committee



Under
the Israeli Companies Law, the board of directors of a public company must appoint a compensation committee. The compensation
committee must be comprised of at least three directors, including all of the external directors (as described under “—Audit
Committee” above). In addition, a director who is a member of the compensation committee (and is not an external director)
may not accept benefits from the company beyond his or her prescribed compensation. If a company’s audit committee meets
these requirements, it may serve as the company’s compensation committee as well.



Our
compensation committee consists of Mr. Bar-On, Mr. Ben-Dor, Ms. Knaz, Dr. Orgler and Ms. Cohen. Our board of directors has determined
that each member of our compensation committee meets the independence requirements set forth in the NYSE Listed Company Manual.
In addition, each of Mr. Bar-On, Mr. Ben-Dor, Ms. Knaz, Dr. Orgler and Ms. Cohen is independent, as such term is defined in Rule
10C-1(b)(1) under the Exchange Act (which contains the SEC’s independence requirements for compensation committee members).



Under
the Israeli Companies Law, the responsibilities of the compensation committee include:



| | ● | approval
                                         of either a new compensation policy or the continuation of an existing compensation policy
                                         at least every three years;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ● | recommending
                                         to the board periodic updates to the compensation policy and assessing implementation
                                         of the compensation policy;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ● | approving
                                         compensation arrangements with office holders of the company (as defined under the Israeli
                                         Companies Law and described in “—External Directors” above). Each person
                                         listed in the table under “—Directors and Senior Management” above
                                         is an office holder under the Israeli Companies Law; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ● | determining
                                         whether the compensation terms of the Chief Executive Officer require shareholder approval.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------



Compensation
Policy



In
November 2016, the Company’s shareholders approved the Compensation Policy. The Compensation Policy applies to the Company’s
President, its Executive Vice President, its vice-presidents and directors, including directors who serve in another position
at the Company (with the exception of the Company’s controlling shareholders). Under the Compensation Policy, the compensation
package for the Company’s officers will include three principal components, in varying proportion, as follows:



| | ● | Salary
                                         and related benefits: fixed compensation will be set according to market terms for officers
                                         in similar positions in comparable companies (for officers reporting directly to the
                                         CEO, adjustable by up to 5% a year), and will include social benefits and the customary
                                         related benefits. The Company may also refund the amount needed to gross up car and phone
                                         use benefits for tax purposes and may cover academic tuition fees.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ● | Performance-based
                                         annual bonus: the annual bonus will be calculated based on the attainment of measureable
                                         targets for the Company, which are determined annually, including: FFO per share, NAV
                                         per share, leverage ratio (stand-alone and/or adjusted stand-alone and consolidated),
                                         performance of the Company’s ordinary shares, capital markets activity, general
                                         and administrative expenses target, NAV per share under EPRA principles, and FFO return
                                         on equity and debt. At least three of the aforementioned parameters will be selected
                                         at the compensation committee’s and the board of director’s discretion each
                                         year, and the compensation committee and board of directors may add other measureable
                                         operating or financial parameters. The compensation committee and the board of directors
                                         will annually determine the weight of each parameter, which shall not exceed 25% (subject
                                         to exceptions). For the CEO and executive directors, the discretionary component of such
                                         officer’s annual bonus will not exceed a sum equal to three monthly salaries. With
                                         respect to officers other than the CEO and/or a director of the Company, at least 25%
                                         of the bonus will be calculated based on measureable and qualitative targets set for
                                         the Company, at least 25% of the bonus will be calculated on the basis of the achievement
                                         of personal targets for such officer (distinguished from the targets for the Company
                                         itself) and up to 50% of the annual bonus may be based on the discretion of the compensation
                                         committee and the board of directors. The annual bonus amounts are limited to a ceiling
                                         ranging between seven and 12 times an officer’s monthly salary, according to the
                                         officer’s corporate rank. A performance range will be set for each of the parameters,
                                         against which a weighted calculation of actual achievement will be compared as part of
                                         the annual bonus determination. The bonus amount which is based on the Company targets
                                         being met will be set linearly, based on the performance range determined for each parameter,
                                         all subject to the precondition that the Company has attained a weighted rating of at
                                         least 80% in achieving targets for that year.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





91







| | ● | Long-term
                                         equity-based compensation: the equity-based compensation will include the allocation
                                         of securities or phantom securities to officers, at an annual economic value at the grant
                                         date that shall not exceed the ceiling set forth in the Compensation Policy according
                                         to the corporate rank of each officer, provided that restricted share units that are
                                         not contingent on performance will not account for more than half of the equity-based
                                         compensation. The vesting period of the securities will be no less than three years (subject
                                         to exceptions).
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ● | Sign-on
                                         and retention bonuses: the policy permits the granting of a sign-on bonus and a retention
                                         bonus each in an amount not to exceed six monthly salary payments.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In
addition, the Compensation Policy sets forth the term of the agreements with the officers and provisions for the officers’
rights on retirement, which include an advance notice period, an adaptation period, acceleration of the vesting of the equity-based
compensation components, and the option of granting a retirement grant in an amount that will not exceed twelve times such officer’s
monthly salary.



Directors
who do not hold another position in the Company will be entitled to the remuneration provided for the external directors of the
Company. In addition, officers will receive customary insurance, indemnification and exemption.



Nominating
and Corporate Governance Committee



Our
nominating and corporate governance committee consists of Mr. Ben-Dor, Ms. Knaz, Dr. Orgler and Mr. Bar-On.



The
nominating and corporate governance committee identifies and recommends to the Board individuals qualified to serve as directors
of the Company and on committees of the Board; advises the Board with respect to the Board composition, procedures and committees;
develops and recommends to the Board a set of corporate governance principles applicable to the Company; and oversees the evaluation
of the Board and the Company’s management.



Each
of the members of our nominating and corporate governance committee is independent under the requirements of the NYSE Listed Company
Manual.



Compensation
of Directors and Officers



According
to the Israeli Companies Law, the compensation of our directors and our Chief Executive Officer has to be consistent with our
then-effective compensation policy and requires the approval of our compensation committee, the subsequent approval of the board
of directors and, unless exempted under the regulations promulgated under the Israeli Companies Law, the approval of the shareholders
at a general meeting (in the case of a director, if the compensation deviates from our then-effective compensation policy, or
in the case of our Chief Executive Officer, based on receipt of a special majority, as described below). Unless exempted under
the regulations promulgated under the Israeli Companies Law, where the director or Chief Executive Officer is also a controlling
shareholder, the requirements for approval of transactions with controlling shareholders apply, as described below under “Item
10—Additional Information—Approval of Related Party Transactions Under Israeli Law—Disclosure of Personal Interests
of Controlling Shareholders and Approval of Certain Transactions.”



The
compensation of any other office holder (who is neither a director nor our Chief Executive Officer), if consistent with our then-effective
compensation policy, requires the approval of our compensation committee, followed by our board of directors. Compensation of
any such office holder that deviates from our then-effective compensation policy will additionally require shareholder approval
by a majority vote of the shares present and voting at a shareholders’ meeting, provided that either: (i) such majority
includes at least a majority of the shares held by all shareholders who are not controlling shareholders and do not have a personal
interest in such compensation; or (ii) the total number of shares of non-controlling shareholders and shareholders that do not
have a personal interest in such compensation voting against the election of an external director does not exceed 2% of the aggregate
voting rights in the company. The directors are entitled to be paid out of the funds of the company their reasonable traveling,
hotel and other expenses expended by them in attending board meetings and upholding their functions as directors of the company,
all of which is to be determined by the board of directors.





92







As
of the date of this annual report, external directors are entitled to remuneration subject to the provisions and limitations set
forth in the regulations promulgated under the Israeli Companies Law. We also apply the same provisions and limitations applied
to our external directors to the compensation of our non-external directors other than with respect to our chairman, deputy chairman
and vice chairman. Pursuant to a resolution of the Company, compensation for our external directors (as well as the for the other
directors in the Company who do not hold additional positions and are not controlling shareholders therein) will be updated (upon
the end of Mr. Bar On’s term as an external director, which is expected to occur in May 2019) to the effect that the current
“proportionate compensation” will be replaced with: (1) fixed monetary compensation, which is provided for in the
regulations promulgated under the Israeli Companies Law, based on the Company’s performance; and (2) equity compensation
in the amount of 1,500 RSUs per year, in accordance with the Company’s equity compensation plan, as shall be in effect on
the relevant dates. Such RSUs will vest over a period of two years from their grant date. A director whose office ends prior to
the vesting of RSUs shall be entitled to the vesting of the proportionate share of such RSUs (subject to the payment of the par
value of the exercise shares). In addition, the directors shall be entitled to various adjustments under the Company’s equity
compensation plan. For example, in the event the Company pays a cash dividend to the holders of its ordinary shares during the
vesting period, no adjustment will be made with respect to the dividend; however, each of the directors shall be entitled to a
cash grant in a (gross) amount that is equal to the amount to such dividend that would have been paid to the director for the
holding of the unvested RSUs on the date of the dividend distribution.



For
our discussion of the date of expiration of the terms of our directors, see “—Directors and Senior Management”
above.



For
our discussion of the details of our directors’ service contracts, see “—Compensation—Employment and Consultant
Agreements” above.



| | D. | Employees
| | -- | ---------



As
of December 31, 2016, we employed, through our significant investees, a total of 1,289 individuals. Of this number, 42 individuals
were employed directly by Gazit-Globe and its wholly-owned subsidiaries.



The
following table provides an overview of the number of employees at Gazit-Globe and each of our subsidiaries and jointly controlled
companies as of December 31, 2016, 2015 and 2014:



|                                     |  | As of December 31, |      
|------------------------------------ |  | ------------------ | -----
|Entity                               |  | 2014               |      
|Gazit-Globe (including ProMed)       |  |                    | 47   
|Equity One (1)                       |  |                    | 155  
|First Capital (2)                    |  |                    | 422  
|Citycon                              |  |                    | 151  
|Atrium                               |  |                    | 348  
|Gazit Germany                        |  |                    | 7    
|Gazit Development                    |  |                    | 69   
|Luzon Group (formerly Dori Group)(3) |  |                    | 617  
|Gazit Brazil                         |  |                    | 17   
|Total                                |  |                    | 1,833








| | (1) | Effective
                                         as of March 1, 2017, Equity One completed the Regency Merger, and is presented in our
                                         audited consolidated financial statements included elsewhere in this annual report as
                                         a discontinued operation. Regency will not be consolidated into our financial statements
                                         in 2017 and instead we will present the investment as an available-for-sale financial
                                         asset.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | We
                                         reported on March 20, 2017 that we will deconsolidate First Capital from our financial
                                         statements and present the investment on an equity method basis.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | On
                                         January 14, 2016, Gazit Development divested its entire holdings (direct and indirect)
                                         of Luzon Group for a total consideration of NIS 10.7 million (U.S.$ 2.7 million). Consequently,
                                         commencing in the first quarter of 2016, Luzon Group’s operations are no longer
                                         consolidated as an operating segment in our financial statements.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | E. | Share
                                         Ownership
| | -- | --------------------------------------------------------



The
following table sets forth information regarding the beneficial ownership of our outstanding ordinary shares as of April 12, 2017
by each of our directors and executive officers, individually, and all of our directors and executive officers as a group.



The
beneficial ownership of ordinary shares is determined in accordance with the rules of the SEC and generally includes any ordinary
shares over which a person exercises sole or shared voting or investment power, or the right to receive the economic benefits
of ownership. For purposes of the table below, we deem shares subject to options or warrants that are currently exercisable or
exercisable within 60 days of April 12, 2017, to be outstanding and to be beneficially owned by the person holding the options
or warrants for the purposes of computing the percentage ownership of that person but we do not treat them as outstanding for
the purpose of computing the percentage ownership of any other person. The percentage of shares beneficially owned is based on
the 195,550,414 ordinary shares outstanding (excluding treasury shares) as of April 12, 2017.





93







|                                                    |  | Shares
    Beneficially Owned |           
|--------------------------------------------------- |  | ----------------------------- | ----------
|                                                    |  | Number                        |           
|Directors
    and executive officers:               |  |                               |           
|Chaim Katzman                                       |  |                               | 99,048,000
|Dor J. Segal                                        |  |                               | 770,000   
|Adi Jemini                                          |  |                               | 73,797    
|Rami Vaisenberger                                   |  |                               | 8,029     
|Yair Orgler                                         |  |                               | —         
|Haim Ben-Dor                                        |  |                               | 74,933    
|Zehavit Cohen                                       |  |                               | —         
|Noga Knaz                                           |  |                               | —         
|Douglas Sesler                                      |  |                               | —         
|Ronnie Bar-On                                       |  |                               | —         
|All
    directors and executive officers as a group |  |                               | 99,974,759








|* | Represents less than 1% of the issued and outstanding
ordinary shares.
|- | ----------------------------------------------------------------------
|  |                                                                       

| | (1) | Consists
                                         of Mr. Katzman’s direct shareholdings alone (60,000 ordinary shares) and consists
                                         of ordinary shares held by Norstar, of which Mr. Katzman is the controlling shareholder
                                         (98,988,000 ordinary shares).
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Includes
                                         options to purchase 66,556 ordinary shares, which are currently exercisable. Does not
                                         include options to purchase 193,961 ordinary shares, 32,418 RSUs, and 18,162 performance-based
                                         RSUs not exercisable within 60 days of April 12, 2017.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | Consists
                                         of 99,908,193 ordinary shares and options to purchase 66,566 ordinary shares exercisable
                                         within 60 days of April 12, 2017. Does not include options to purchase 193,961 ordinary
                                         shares, 32,418 RSUs, and 18,162 PSUs not exercisable within 60 days of April 12, 2017.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Share
Option Plans



In
December 2011, our board of directors approved our 2011 Share Incentive Plan, pursuant to which we may grant share options and
other share based awards to our employees and officers and the employees and officers of our subsidiaries. Our board of directors
reserved 4,500,000 shares for awards to be issued under the new share incentive plan. The terms of the individual share based
awards are subject to the discretion of our compensation committee, which administers the new share incentive plan.



The
following tables provide details of grants made in the last three years under the 2011 Share Incentive Plan:



|Issuance Date     |  | Number of Share Options |         |     | Exercise
Priceper Share
(NIS) |  |        | Fair Value at Issuance
 (NIS)(1) | 
|----------------- |  | ----------------------- | ------- | --- | ----------------------------- |  | ------ | -------------------------------- | 
|September 1, 2015 |  |                         | 917,439 | (2) |                               |  | 43.836 |                                  | 
|January 1, 2017   |  |                         | 60,848  | (3) |                               |  | 33.714 |                                  | 










| | (1) | Calculated
                                         based on the binomial method.
| | --- | ---------------------------------------------------------------------------------

| | (2) | The
share options that were granted to Mr. Jemini (199,669 options) will vest over a period of three years in three equal installments,
starting one year from the grant date. The share options that were granted to Ms. Lavine (717,770 options) accelerated upon the
termination of her employment, and as such are exercisable within 90 days commencing on March 31, 2017.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





94







| | (3) | In
                                                                                                                                                                                                                               January                                          2017, Mr. Jemini was allotted 60,848 non-tradable share options, which are
                                                                                                                                                                                                                               exercisable                                          into 60,848 shares of the Company. The terms of exercise and vesting of
                                                                                                                                                                                                                               the options are                                          identical to those of the options that are described in footnote (2)
                                                                                                                                                                                                                               above.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Issuance Date     |  | Number of Restricted Share Units |        |     | Fair Value at Issuance (NIS) | 
|----------------- |  | -------------------------------- | ------ | --- | ---------------------------- | 
|September 1, 2015 |  |                                  | 65,351 | (1) |                              | 
|November 21, 2016 |  |                                  | 11,463 | (2) |                              | 
|January 1, 2017   |  |                                  | 11,473 | (2) |                              | 








| | (1) | The
RSUs that were granted to Mr. Jemini (14,223 RSUs) will vest over a period of three years in three equal installments, starting
one year from the grant date. The RSUs that were granted to Ms. Lavine (51,128 RSUs) accelerated upon the termination of her employment,
and as such vested into company shares on March 31, 2017.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | In
                                         January 2017, Mr. Jemini was allotted 22,936 RSUs (the allotment of 11,463 RSUs was in
                                         lieu of 36,326 PSUs, which were cancelled, effective from the date of adoption of the
                                         Company’s new compensation policy in November 2016 that requires officers of the
                                         Company to hold shares in the Company).
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Issuance Date     |  | Number of Performance-Based Restricted Share Units |         |     | Fair Value at Issuance
 (NIS)(1) | 
|----------------- |  | -------------------------------------------------- | ------- | --- | -------------------------------- | 
|September 1, 2015 |  |                                                    | 250,358 | (2) |                                  | 








| | (1) | Calculated
                                         based on the binomial method.
| | --- | ---------------------------------------------------------------------------------

| | (2) | The
                                         PSUs will vest in one installment at the end of three years following the grant date
                                         provided that the Company’s share price has appreciated by at least 20%. 36,326
                                         of the PSUs were cancelled in January 2017 (effective from the date of adoption of the
                                         Company’s new compensation policy in November 2016) and replaced with RSUs that
                                         were allocated to Mr. Jemini. 195,870 PSUs that were granted to Ms. Lavine accelerated
                                         upon the termination of her employment, and as such expired on March 31, 2017.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



As
of April 12, 2017, the total number of share options granted by Gazit-Globe to employees, directors and officers of Gazit-Globe
(and that had not yet been exercised or had not expired) are 1,121,965 share options, with an average adjusted exercise price
of NIS 43.68. As of April 12, 2017, there are 32,418 RSUs and 18,162 PSUs outstanding, all of which are held by Mr. Jemini.





In addition to the
above, we entered into phantom share agreements between the years 2006 and 2016 with several employees of wholly-owned subsidiaries
of ours which were intended to have the economic effect of the grant of 137,500 RSUs (outstanding as of December 31, 2016).







95







|ITEM
    7. | MAJOR
    SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
|----------- | -----------------------------------------------------



| | A. | Major
                                         Shareholders
| | -- | -----------------------------------------------------------



The
following table sets forth, as of April 12, 2017, certain information with respect to the beneficial ownership of our ordinary
shares by each person known by us to own beneficially more than 5% of the outstanding ordinary shares, based on information provided
to us by the holders or disclosed in public filings of the shareholders. The beneficial ownership of ordinary shares is determined
in accordance with the rules of the SEC and generally includes any ordinary shares over which a person exercises sole or shared
voting or investment power, or the right to receive the economic benefits of ownership.



|                                     |  | Shares Beneficially Owned |           
|------------------------------------ |  | ------------------------- | ----------
|                                     |  | Number                    |           
|Principal shareholders:              |  |                           |           
|Norstar Holdings Inc. (2)            |  |                           | 98,988,000
|Mawer Investment Management Ltd. (3) |  |                           | 9,903,999 








| | (1) | The
                                         percentages shown are based on 195,550,414 ordinary shares outstanding (excluding treasury
                                         shares) as of April 12, 2017.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Chaim
Katzman, our chairman, and certain members of his family, own or control, including through private entities owned by them and
trusts under which they are the beneficiaries, directly and indirectly, approximately 24.3% of Norstar’s outstanding shares
as of April 12, 2017. Mr. Katzman also controls FUF, which controls the voting rights of approximately 18.6% of Norstar’s
outstanding shares as of April 12, 2017. In addition, Mr. Segal, our CEO and vice-chairman, holds 8.8% of Norstar’s outstanding
shares. Additionally, Mr. Katzman has entered into a shareholders agreement with Mr. Segal and other related parties with respect
to their holdings in Norstar, which, among other things, provides Mr. Katzman the right to vote such holders’ Norstar shares
regarding certain issues relating to director nominations. In aggregate, Mr. Katzman has the right to vote 57.5% of Norstar’s
outstanding shares. During the past three years, Norstar’s holdings in our ordinary shares ranged from approximately 50.2%
to 50.6% of our outstanding share capital. A substantial number of the shares held by Norstar are pledged to financial institutions
in Israel to secure revolving credit facilities and/or to secure indebtedness of Norstar. See also “Item 3—Key Information—Risk
Factors—Risks Related to Investment in our Ordinary Shares— Our controlling shareholder has the ability to take actions
that may conflict with the interests of other holders of our shares.”
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | Based
                                         on information provided by Mawer Investment Management Ltd. to the Company on March 31,
                                         2017 pursuant to Israeli securities regulations. The address of Mawer Investment Management
                                         Ltd. is 900, 603 — 7th Ave SW, Calgary, Alberta, Canada T2P 2T5.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Voting
Rights of Major Shareholders



Our
major shareholders do not have voting rights that are different from our other shareholders. For additional information regarding
the voting of our ordinary shares, refer to “Item 10—Additional Information—Memorandum and Articles of Association.”



As
of April 12, 2017, we had one holder of record of our ordinary shares in the United States (the Depositary Trust Company, as nominee
for underlying beneficial holders). Such holder of record held as of that date 31,203,469 ordinary shares, constituting approximately
16.0% of our outstanding ordinary shares. These numbers are not representative of the number of beneficial holders of our shares,
nor are they representative of where such beneficial holders reside. Of the aforementioned 16.0% held by the U.S. record holder,
more than two-thirds (or approximately 10.7% of our total outstanding ordinary shares) are held by Norstar Israel Ltd. (an Israeli
company owned by Norstar) through the Depositary Trust Company. In addition, both the foregoing 10.7% of our outstanding ordinary
shares held by Norstar Israel Ltd. through a U.S. record holder, and the remaining 40.0% of our outstanding ordinary shares held
by Norstar Israel Ltd. through non-U.S. record holders, are deemed beneficially held by our chairman, Chaim Katzman, who is a
resident of the United States.



| | B. | Related
                                         Party Transactions
| | -- | -------------------------------------------------------------------



Equity
One



Effective
as of March 1, 2017, Equity One completed the Regency Merger, and is presented in our audited consolidated financial statements
included elsewhere in this annual report as discontinued operation. Regency will not be consolidated into our financial statements
in 2017 and instead we will present the investment as an available-for-sale financial asset.





96







Gazit
Development/Luzon Group/Dori Construction



Gazit
Development had previously invested in Luzon Group, including by participation in its capital issuance and through the extension
of credit facilities and loans, as set out in Note 9(g) to our audited consolidated financial statements included elsewhere in
this annual report.



On January 14, 2016, Gazit
Development divested its entire holdings (direct and indirect) of Luzon Group, for a total consideration of NIS 10.7 million (U.S.$
2.7 million). Consequently, commencing in the first quarter of 2016, Luzon Group’s operations are no longer consolidated
as an operating segment in our financial statements and are presented in our audited consolidated financial statements included
elsewhere in this annual report as discontinued operations. See Note 9(g) to our audited consolidated financial statements included
elsewhere in this annual report.



In
December 2016, Gazit Development entered into a transaction with Luzon Group and its controlling shareholder for the liquidation
of Gazit Development’s remaining investment in Luzon Group. In connection with this transaction: (1) Gazit Development will
be issued marketable debentures in the amount of NIS 120 million (U.S.$ 31 million, in lieu of the credit facility previously
extended by Gazit Development to Luzon Group; (2) Luzon Group will issue shares (representing 1.5% of the share capital of Luzon
Group) to Gazit Development in lieu of interest accrued and expected to be accrued on the such credit facility; (3) a portion
of the convertible capital notes previously issued to Gazit Development by Luzon Group will convert into shares of Luzon Group,
to the effect that, following the conversion, Gazit Development will hold 15% of the share capital in Luzon Group (Gazit Development
has undertaken not to exceed a holding of 17% in the share capital of Luzon Group); (4) the balance of the outstanding capital
note will be reduced to NIS 108 million (U.S.$ 28 million), entitling Gazit Development to conversion at the original conversion
rate of NIS 1.313 per share); (5) the non-convertible capital notes previously issued to Gazit Development by Luzon Group will
be sold to the controlling shareholder in Luzon Group in consideration of NIS 1; and (6) Gazit Development will receive a put
option from the controlling shareholder in Luzon Group to purchase 10 million shares of Luzon Group for NIS 0.45 per share, exercisable
for a period of one year from the date of completion of the transaction. The transaction is subject to closing conditions that
have not yet been met as of the date of this annual report. See Note 10(a)(5) to our audited consolidated financial statements
included elsewhere in this annual report.



In
December 2016, the Company completed its acquisition of the remaining 15.35% of the share capital
of Gazit Development from Ashkenazi Holdings, and Gazit Development became a wholly-owned subsidiary of the Company. In connection
with such acquisition, Mr. Ronen Ashkenazi’s service as CEO of Gazit Development was terminated and certain non-core assets
were sold by Gazit Development to Mr. Ashkenazi.



Application
of D&O Insurance Policy to Mr. Zvi Gordon



At
the Company’s annual and extraordinary general meeting of shareholders held on November 21, 2016, the Company’s shareholders
voted to approve the application of the Company’s directors and officers liability insurance policy to Mr. Zvi Gordon, the
son-in-law of Mr. Chaim Katzman and the Vice President of Mergers & Acquisitions at Gazit USA, for a three year period commencing
from the date of approval. Mr. Gordon is subject to the same terms under the policy as the other officers and managers of the
Company and its subsidiaries.



| | C. | Interests
                                         of Experts and Counsel
| | -- | -------------------------------------------------------------------------



Not
applicable.



97







|ITEM
    8. | FINANCIAL
    INFORMATION
|----------- | -------------------------



|A. | Consolidated Statements and Other Financial Information
|-- | -------------------------------------------------------



See
Item 18.



Legal
Proceedings



Atrium



Atrium
is involved in legal proceedings in Austria that have been filed by investors alleging losses due to the volatility of its securities
during 2006-2007 and other related claims. As of March 21, 2017, a total of 1,377 proceedings are pending against Atrium, with
an aggregate potential liability to Atrium of EUR 68 million.



In
addition, in January 2016, Atrium announced that a declaratory ruling was issued in a claim that had been filed in the Netherlands
for claims similar to the ones asserted in the Austrian proceedings, including an arrangement for the establishment of a compensation
fund in connection with the proceedings in Austria and the joining of criminal proceedings by individuals. The total amount approved
for payment under the arrangement (which expired in October 2016) in relation to the proceedings involving 1,325 individuals was
EUR 8.6 million (50% of which was payable by Atrium). Additionally, there are 325 proceedings pending for which the total amount
payable was EUR 2.8 million (50% of which was payable by Atrium).



Furthermore,
in March 2017, Atrium’s board of directors approved an agreement between Atrium and two entities, pursuant to which investors
that are customers of these entities and that have filed petitions for the initiation of criminal proceedings relating to Atrium
securities may reach an arrangement in connection with their claims. To the extent that all of these investors choose to participate
in the arrangement, Atrium would pay an aggregate amount of EUR 44 million under this arrangement. The rate of participation of
such investors in the arrangement and the actual amounts payable will be determined at a later date. In the event that some investors
choose to continue with the criminal proceedings, Atrium has reported that it intends to continue to defend itself against such
proceedings and to reject all claims raised against it. The total amount reserved on Atrium’s balance sheet for payments
under these proceedings was EUR 53.5 million as of March 31, 2017.



Additionally,
to date, the criminal proceedings against Julius Meinl‏ and others in connection with the aforementioned events are still
in progress. In connection with these proceedings, a law firm representing various investors, who had invested in Atrium at the
time of these events, has alleged that Atrium is liable for various instances of fraud, breach of trust and infringements of the
Austrian Stock Corporation Act and Austrian Capital Market Act. The public prosecutor has directed Atrium to reply to the allegations
and has started criminal investigation proceedings against Atrium based on the Austrian Corporate Criminal Liability Act. It is
uncertain whether this legislation, which came into effect in 2006, is applicable to Atrium. Atrium has reported that it believes
that a finding of liability on its part would be inappropriate and, accordingly, is actively defending itself.



Amos
Luzon Entrepreneurship and Energy Ltd. (formerly U. Dori Group Ltd.)



In
July and August 2014, a number of lawsuits were filed with the Economic Affairs Division of the Tel Aviv District Court requesting
class action certification against Dori Construction, Luzon Group, their directors and officers and their auditors, as well as
against Gazit Development and Gazit-Globe. The motions deal with damage allegedly caused to the shareholders of Dori Construction
and/or Luzon Group, respectively, as a result of the publication of allegedly erroneous information by Dori Construction, including
in its financial statements, and as a result of its alleged failure to report, at the required time, material adverse information
concerning the financial results and financial position of Dori Construction and Luzon Group. The claims alleged include claims
under the Securities Law, 1968, for inclusion of erroneous information in financial statements and deficient and erroneous reporting,
a negligent tort claim under the Torts Laws and a breach of statutory duty claim under the Securities Law and the Regulations
promulgated thereunder, as well as the Companies Law.



The
aggregate amount of such claims is approximately NIS 75 million, which is not material for the Company. The motions have been
consolidated into a single proceeding (apart from three motions that have been dismissed). The Company and the other respondents
have submitted their responses to the amended motion, subsequent to which the petitioners filed their replies and also added and
lodged a motion for disclosure of documents which do not belong to the Company or Gazit Development. In December 2015, a preliminary
hearing was held on the amended motion, as a result of which the parties agreed to transfer the proceeding to mediation. The parties
further agreed that, at this stage, the hearing on the motion for disclosure of documents would be deferred. In August 2016, the
petitioners notified the Court of the failure of the mediation proceeding. The petitioners requested to resume the hearing of
the motion for the disclosure of documents and to provide for further deliberation in the proceeding. On February 12, 2017, a
hearing was held on the motion for the disclosure of documents, in which the Court ordered the parties to reach understandings
with respect to the requested documents. The petitioners updated the court about the pending matters and an additional hearing
was scheduled for May 25, 2017, regarding the motion for the disclosure of documents. At this preliminary stage of the proceeding,
the outcome of the lawsuit cannot be assessed.





98







Additionally,
two derivative actions were filed in 2014 against Dori Construction and Luzon Group and their directors and officers in connection
with a dividend distribution made by Dori Construction to its shareholders. The court has decided that a ruling with regard to
the procedural rules in these motions will be granted at a later date, following the filing of the unified motion to certify the
lawsuit as a class action. Since the sale of the Company’s interests in Luzon Group, the Company is no longer receiving
updates regarding the status of these proceedings.



Derivative
Claim Against Gazit-Globe in connection with Amos Luzon Entrepreneurship and Energy Ltd. (formerly U. Dori Group Ltd.).



On
January 26, 2016, a request for discovery and review of documents was filed with the Department of Economic Affairs at the Tel-Aviv
District Court by a shareholder of Gazit-Globe against Gazit-Globe and Gazit Israel. Such request is a prerequisite for a potential
application for a shareholder derivative lawsuit with respect to alleged failures regarding investments made in U. Dori Group
Ltd. The plaintiffs alleged that directors and officers of Gazit-Globe acted with bad faith, negligence and recklessness with
respect to investments in 2007, and that such wrongful acts caused damages to shareholders.



On
August 11, 2016, the Department of Economic Affairs at the Tel-Aviv District Court rejected the request for discovery and review
of documents. The appellants then appealed the decision to the Supreme Court of Israel, and on December 7, 2016, that the Supreme
Court rejected the applicants’ Application for Leave to appeal the ruling of the Department of Economic Affairs at the Tel-Aviv
District Court.



Other
Legal Proceedings



Except
for the actions described above, there is no litigation threatened against us or any of our properties, other than routine litigation
and administrative proceedings, which individually and in the aggregate are not expected to have a material adverse effect on
our business, financial condition, and results of operations or cash flows.



Dividend
Policy



Through
2016, our board of directors has determined, and we have announced, the amount of the minimum dividend we intend to pay in the
four quarters of the coming year. Payments of quarterly dividends are subject to the availability of adequate distributable income
at the relevant dates. Our board of directors may appropriate funds that would otherwise be used to pay dividends for other purposes
or change the dividend policy at any time. The terms of our credit facilities and other indebtedness currently do not restrict
our ability to distribute dividends. In the years ended December 31, 2014, 2015 and 2016, we paid our shareholders cash dividends
in the amount of NIS 1.80 (U.S.$ 0.46), NIS 1.84 (U.S.$ 0.47) and NIS 1.51 (U.S.$ 0.39) per ordinary share, respectively, representing
53.1%, 52.4% and 50.3%, respectively, of our adjusted EPRA Earnings for the applicable period, and have retained the remainder
of our income to fund our business. In the first quarter of 2017, we announced that our quarterly dividend for 2017 will be NIS
0.35 (U.S.$ 0.09) per ordinary share.



| | B. | Significant
                                         Changes
| | -- | ------------------------------------------------------------



None.



99







|ITEM
    9. | THE
    OFFER AND LISTING.
|----------- | --------------------------



| | A. | Offer
                                         and Listing Details
| | -- | ------------------------------------------------------------------



Our
ordinary shares have been trading on the TASE since January 1983 under the symbol “GZT” (since 2013), on the New York
Stock Exchange under the symbol “GZT” since December 2011, and on the Toronto Stock Exchange under the symbol “GZT”
since October 2013.



The
following table sets forth, for the periods indicated, the reported high and low closing sale prices of our ordinary shares on
the TASE in NIS and U.S. dollars. The following table below contains translations of NIS amounts into U.S. dollars for amounts
presented as of and for the year ended December 31, 2016. Translations were calculated based on the representative exchange rate
reported by the Bank of Israel.





|                           |  | NIS                       |       |  | U.S.$                     | 
|-------------------------- |  | ------------------------- | ----- |  | ------------------------- | 
|                           |  | Price Per  Ordinary Share |       |  | Price Per  Ordinary Share | 
|                           |  | High                      |       |  | Low                       | 
|Annual:                    |  |                           |       |  |                           | 
|2016                       |  |                           | 40.44 |  |                           | 
|2015                       |  |                           | 52.53 |  |                           | 
|2014                       |  |                           | 48.10 |  |                           | 
|2013                       |  |                           | 51.58 |  |                           | 
|2012                       |  |                           | 48.50 |  |                           | 
|Quarterly:                 |  |                           |       |  |                           | 
|First Quarter 2017         |  |                           | 38.25 |  |                           | 
|Fourth Quarter 2016        |  |                           | 37.80 |  |                           | 
|Third Quarter 2016         |  |                           | 40.44 |  |                           | 
|Second Quarter 2016        |  |                           | 36.00 |  |                           | 
|First Quarter 2016         |  |                           | 35.89 |  |                           | 
|Fourth Quarter 2015        |  |                           | 43.39 |  |                           | 
|Third Quarter 2015         |  |                           | 45.47 |  |                           | 
|Second Quarter 2015        |  |                           | 52.30 |  |                           | 
|First Quarter 2015         |  |                           | 52.53 |  |                           | 
|Most Recent Six Months(1): |  |                           |       |  |                           | 
|March 2017                 |  |                           | 38.25 |  |                           | 
|February 2017              |  |                           | 37.90 |  |                           | 
|January 2017               |  |                           | 36.66 |  |                           | 
|December 2016              |  |                           | 34.90 |  |                           | 
|November 2016              |  |                           | 35.70 |  |                           | 
|October 2016               |  |                           | 39.32 |  |                           | 








| | (1) | For
                                         the period from April 1, 2017 through April 10, 2017, the high was NIS 38.16 (U.S.$ 9.92)
                                         and the low was NIS 37.34 (U.S.$ 9.71).
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





100







The
following table sets forth, for the periods indicated, the reported high and low closing sale prices of our ordinary shares on
the New York Stock Exchange in U.S. dollars.



|                           |  | U.S.$                    |      
|-------------------------- |  | ------------------------ | -----
|                           |  | Price Per Ordinary Share |      
|                           |  | High                     |      
|Annual:                    |  |                          |      
|2016                       |  |                          | 10.89
|2015                       |  |                          | 13.36
|2014                       |  |                          | 13.81
|2013                       |  |                          | 14.24
|2012                       |  |                          | 13.18
|Quarterly:                 |  |                          |      
|First Quarter 2017         |  |                          | 10.54
|Fourth Quarter 2016        |  |                          | 10.56
|Third Quarter 2016         |  |                          | 10.89
|Second Quarter 2016        |  |                          | 9.60 
|First Quarter 2016         |  |                          | 9.25 
|Fourth Quarter 2015        |  |                          | 11.18
|Third Quarter 2015         |  |                          | 12.04
|Second Quarter 2015        |  |                          | 13.36
|First Quarter 2015         |  |                          | 13.31
|Most Recent Six Months(1): |  |                          |      
|March 2017                 |  |                          | 10.54
|February 2017              |  |                          | 10.32
|January 2017               |  |                          | 9.64 
|December 2016              |  |                          | 9.22 
|November 2016              |  |                          | 9.60 
|October 2016               |  |                          | 10.56








|(1) | For
                                         the period from April 1, 2017 through April 10, 2017, the high was U.S.$ 10.52 and the
                                         low was U.S.$ 10.15.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





101







The
following table sets forth, for the periods indicated, the reported high and low closing sale prices of our ordinary shares on
the Toronto Stock Exchange in Canadian dollars and U.S. dollars. The following table below contains translations of Canadian dollar
amounts into U.S. dollars for amounts presented as of and for the year ended December 31, 2016. Translations were calculated based
on the representative exchange rate reported by the Bank of Israel.



|                           |  | C$                       |       |  | U.S.$                    | 
|-------------------------- |  | ------------------------ | ----- |  | ------------------------ | 
|                           |  | Price Per Ordinary Share |       |  | Price Per Ordinary Share | 
|                           |  | High                     |       |  | Low                      | 
|Annual:                    |  |                          |       |  |                          | 
|2016                       |  |                          | 13.86 |  |                          | 
|2015                       |  |                          | 16.53 |  |                          | 
|2014                       |  |                          | 14.98 |  |                          | 
|2013 (since October 16th)  |  |                          | 14.55 |  |                          | 
|Quarterly:                 |  |                          |       |  |                          | 
|First Quarter 2017         |  |                          | 14.38 |  |                          | 
|Fourth Quarter 2016        |  |                          | 13.52 |  |                          | 
|Third Quarter 2016         |  |                          | 13.86 |  |                          | 
|Second Quarter 2016        |  |                          | 11.64 |  |                          | 
|First Quarter 2016         |  |                          | 12.93 |  |                          | 
|Fourth Quarter 2015        |  |                          | 14.76 |  |                          | 
|Third Quarter 2015         |  |                          | 15.56 |  |                          | 
|Second Quarter 2015        |  |                          | 16.52 |  |                          | 
|First Quarter 2015         |  |                          | 16.53 |  |                          | 
|Most Recent Six Months(1): |  |                          |       |  |                          | 
|March 2017                 |  |                          | 14.38 |  |                          | 
|February 2017              |  |                          | 13.85 |  |                          | 
|January 2017               |  |                          | 12.52 |  |                          | 
|December 2016              |  |                          | 12.25 |  |                          | 
|November 2016              |  |                          | 13.42 |  |                          | 
|October 2016               |  |                          | 13.52 |  |                          | 








| | (1) | For
                                         the period from April 1, 2017 through April 10, 2017, the high was C$ 13.67 (U.S.$ 10.14)
                                         and the low was C$ 13.55 (U.S.$ 10.05).
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | B. | Plan
                                         of Distribution
| | -- | -------------------------------------------------------------



Not
applicable.



| | C. | Markets
| | -- | -------



See
“—Offer and Listing details” above.



| | D. | Selling
                                         Shareholders
| | -- | -------------------------------------------------------------



Not
applicable.



| | E. | Dilution
| | -- | --------



Not
applicable.



| | F. | Expenses
                                         of the Issue
| | -- | --------------------------------------------------------------



Not
applicable.



102







|ITEM
    10. | ADDITIONAL
    INFORMATION.
|------------ | ---------------------------



| | A. | Share
                                         Capital
| | -- | ------------------------------------------------------



Not
applicable.



| | B. | Memorandum
                                         and Articles of Association.
| | -- | --------------------------------------------------------------------------------



Registrar
and Purpose



Our
Israeli Registrar of Companies number is 520033234. Section 2 of our memorandum of association provides that our purpose includes
any lawful purpose.



Board
of Directors



See
“Item 6—Directors, Senior Management and Employees—Board Practices.”



Borrowing
Powers, Guarantees and Debentures



Our
board of directors may from time to time, in its sole discretion, borrow or secure any amount or amounts of money for our purposes.
Our board of directors may procure or guarantee the settlement of any such amount or amounts in such manner and on such dates
and under such terms as it shall deem fit and in particular by issuing secured bonds, debentures, bonds or any mortgage, encumbrance
or other security on all or any portion of our existing or future plant or property.



Approval
of Related Party Transactions Under Israeli Law



Fiduciary
Duties of Directors and Executive Officers



The
Israeli Companies Law codifies the fiduciary duties that office holders owe to a company. An office holder’s fiduciary duties
consist of a duty of care and a duty of loyalty. The duty of care requires an office holder to act with the level of care with
which a reasonable office holder in the same position would have acted under the same circumstances. The duty of loyalty requires
that an office holder act in good faith and in the best interests of the company.



The
duty of care includes a duty to use reasonable means to obtain:



| | ● | information
                                         on the appropriateness of a given action brought for his or her approval or performed
                                         by virtue of his or her position; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ● | all
                                         other important information pertaining to these actions.
| | - | -----------------------------------------------------------------------------------------------------



The
duty of loyalty of an office holder includes a duty to:



| | ● | refrain
                                         from any conflict of interest between the performance of his or her duties to the company
                                         and his or her personal affairs;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ● | refrain
                                         from any activity that is competitive with the company;
| | - | --------------------------------------------------------------------------------------------------------

| | ● | refrain
                                         from exploiting any business opportunity of the company to receive a personal gain for
                                         himself or herself or others; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ● | disclose
                                         to the company any information or documents relating to the company’s affairs which
                                         the office holder received as a result of his or her position as an office holder.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Disclosure
of Personal Interests of an Office Holder and Approval of Certain Transactions



The
Israeli Companies Law requires that an office holder promptly disclose to the board of directors any personal interest that he
or she may have and all related material information known to him or her concerning any existing or proposed transaction with
the company. A personal interest includes an interest of any person in an act or transaction of a company, including a personal
interest of one’s relative or of a corporate body in which such person or a relative of such person is a 5% or greater shareholder,
director or chief executive officer (referred to under the Israeli Companies Law as the general manager) or in which he or she
has the right to appoint at least one director or the general manager, and including the personal interest of a person voting
by a proxy granted to him/her by another person, even if the person so granting the proxy does not have a personal interest in
the transaction, but excludes a personal interest stemming solely from one’s ownership of shares in the company. The disclosure
requirement does not apply to the extent that the office holder’s only personal interest stems from the personal interest
of a relative in a non-extraordinary transaction of the company. If it is determined that an office holder has a personal interest
in a transaction, approval by the board of directors is required for the transaction. Our articles of association do not provide
for a different method of approval. No transaction that is not in favor of the company’s interest may be approved by the
board of directors. Approval first by the company’s audit committee and subsequently by the board of directors is required
for an extraordinary transaction, meaning any transaction that is not in the ordinary course of business, not on market terms
or that is likely to have a material impact on the company’s profitability, assets or liabilities. A director and any other
office holder who has a personal interest in a transaction which is considered at a meeting of the board of directors or the audit
committee may generally (unless it is with respect to a transaction which is not an extraordinary transaction) not be present
at such a meeting or vote on that matter unless a majority of the directors or members of the audit committee, as applicable,
have a personal interest in the matter. If a majority of the members of the audit committee or the board of directors has a personal
interest in the approval of such a transaction then all of the directors may participate in deliberations of the audit committee
or board of directors, as applicable, with respect to such transaction and vote on the approval thereof and, in such case, shareholder
approval is also required.





103







Pursuant
to the Israeli Companies Law, all compensation arrangements, including insurance, indemnification or exculpation of, executive
officers or office holders who are not directors or our Chief Executive Officer require compensation committee approval and subsequent
approval by the board of directors and, if deviating from our then-effective compensation policy, approval by our shareholders,
by special majority. Compensation arrangements with directors, including compensation arrangements with directors in their capacities
as executive officers, or with  our Chief Executive Officer, as well as insurance (unless exempted under the applicable regulations),
indemnification or exculpation of directors or our Chief Executive Officer, require the approval of the compensation committee,
the board of directors and the company’s shareholders, in that order. If the compensation arrangement of the office holder
brought for approval is an amendment of an existing arrangement, then only the approval of the compensation committee is required
if the compensation committee determines that the amendment is not material in relation to the existing arrangement.



Disclosure
of Personal Interests of Controlling Shareholders and Approval of Certain Transactions



Pursuant
to the Israeli Companies Law, the disclosure requirements regarding personal interests that apply to an office holder also apply
to a controlling shareholder of a public company. A controlling shareholder is a shareholder who has the ability to direct the
activities of a company, including (for purposes of related party transaction approval) a shareholder who owns 25% or more of
the voting rights if no other shareholder owns more than 50% of the voting rights. Two or more shareholders with a personal interest
in the approval of the same transaction are deemed to be one shareholder.



An
extraordinary transaction between a public company and a controlling shareholder, or in which a controlling shareholder has a
personal interest, and the terms of any compensation of a controlling shareholder who is an office holder, require the approval
of a company’s audit committee or the compensation committee, as the case may be, the board of directors and shareholders’
meeting in that order. In addition, the shareholder approval must fulfill one of the following requirements:



| | ● | at
                                         least a majority of the voting rights in the company held by shareholders who have no
                                         personal interest in the transaction and who are present and voting at the general meeting,
                                         must be voted in favor of approving the transaction (for this purpose, abstentions are
                                         disregarded); or
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ● | the
                                         voting rights held by shareholders who have no personal interest in the transaction and
                                         who are present and voting at the general meeting, and who vote against the transaction,
                                         do not exceed 2% of the voting rights in the company.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



To
the extent that any such transaction with a controlling shareholder is for a period extending beyond three years, approval is
required once every three years, unless the audit committee determines that the duration of the transaction is reasonable given
the circumstances related thereto. In certain cases provided in regulations promulgated under the Israeli Companies Law, shareholder
approval is not required.



Shareholder
Duties



Pursuant
to the Israeli Companies Law, a shareholder has a duty to act in good faith and in a customary manner toward the company and other
shareholders and to refrain from abusing his or her power with respect to the company, including, among other things, in voting
at a general meeting and at class shareholder meetings with respect to the following matters:



| | ● | an
                                         amendment to the company’s articles of association;
| | - | -----------------------------------------------------------------------------------------------

| | ● | an
                                         increase of the company’s authorized share capital;
| | - | -----------------------------------------------------------------------------------------------

| | ● | a
                                         merger; or
| | - | -----------------------------------------------------

| | ● | interested
                                         party transactions that require shareholder approval.
| | - | ---------------------------------------------------------------------------------------------------------





104







Pursuant
to regulations adopted under the Israeli Companies Law, a transaction with a controlling shareholder that would otherwise require
approval of the shareholders is exempt from shareholder approval if the audit committee and the board of directors determine that
the transaction is on market terms and in the ordinary course of business and does not otherwise harm the company. Under these
regulations, a shareholder holding at least 1% of the issued share capital of the company may require, within two weeks of the
publication of such determination, that despite such determination by the audit committee and the board of directors, such transaction
will require shareholder approval under the same majority requirements that otherwise apply to such transactions.



A
shareholder also has a general duty to refrain from discriminating against other shareholders (which duty has not been interpreted
to date by the Israeli courts).



In
addition, certain shareholders have a duty of fairness toward the company. These shareholders include any controlling shareholder,
any shareholder who knows that it has the power to determine the outcome of a shareholder vote and any shareholder who has the
power to appoint or to prevent the appointment of an office holder of the company or exercise any other rights available to it
under the company’s articles of association with respect to the company. The Israeli Companies Law does not define the substance
of this duty of fairness, except to state that the remedies generally available upon a breach of contract will also apply in the
event of a breach of the duty to act with fairness. Any voting agreement is also subject to observance of these duties.



Approval
of Private Placements



Under
the Israeli Companies Law, a significant private placement of securities requires approval by the board of directors and at a
general meeting by holders of a majority of the voting power held by the shareholders present at the meeting, in person or by
proxy. A private placement is considered a significant private placement if it will cause a person to become a controlling shareholder
or if:



| | ● | the
                                         securities issued amount to 20% or more of the company’s outstanding voting rights
                                         before the issuance;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ● | some
                                         or all of the consideration is other than cash or listed securities or the transaction
                                         is not on market terms; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ● | the
                                         transaction will increase the relative holdings of a shareholder that holds 5% or more
                                         of the company’s outstanding share capital or voting rights or that will cause
                                         any person to become, as a result of the issuance, a holder of more than 5% of the company’s
                                         outstanding share capital or voting rights.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Transfer
of Shares



Our
ordinary shares that are fully paid for are issued in registered form and may be freely transferred under our articles of association
unless the transfer is restricted or prohibited by applicable law or the rules of a stock exchange on which the shares are traded.
The ownership or voting of our ordinary shares by non-residents of Israel is not restricted in any way by our articles of association
or the laws of the State of Israel, except for ownership by nationals of some countries that are, or have been, enemies of the
state of Israel.



Shareholder
Meetings



Under
the Israeli Companies Law, we are required to convene an annual general meeting of our shareholders at least once every calendar
year and not more than 15 months following the preceding annual general meeting on such date and at such place as may be designated
by our board of directors. All meetings other than the annual general meeting of shareholders are referred to as special general
meetings of shareholders. Our board of directors may convene a special general meeting as it deems fit and, in addition, our board
is required to convene a special general meeting upon demand of any two directors or one quarter of the members of our board of
directors or upon the demand of one or more holders, in the aggregate, of either (a) 5% or more of our outstanding share capital
and 1% of our voting power or (b) 5% or more of our voting power.



Pursuant
to our articles of association and the Israeli Companies Law and the regulations promulgated thereunder, a notice of any annual
or special general meeting is required to be provided at least 14 days prior to the meeting provided that if voting at a particular
general meeting may be by voting deed (under the circumstances described in “—Voting” below), notice must be
provided at least 35 days prior to the meeting. Our articles of association provide that notice of a general meeting may be provided
by publication rather than by delivery to shareholders of record. Our practice has nevertheless been to distribute a notice of
general meeting by delivery to our shareholders of record. Shareholders entitled to participate and vote at general meetings are
the shareholders of record on a date determined by our board of directors, which may be between four and 40 days prior to the
date of the meeting.





105







The
agenda of a general meeting is to be determined by our board of directors and the general meeting may only pass resolutions with
respect to issues specified in such agenda. The agenda of a general meeting is determined by our board of directors and the general
meeting may only pass resolutions with respect to issues specified in such agenda. Pursuant to the Israeli Companies Law, one
or more shareholders with at least 1% of the voting rights at the general meeting may request that the board of directors include
a matter in the agenda of a general meeting, provided that it is appropriate to discuss such a matter in the general meeting.
Under recently adopted regulations, such a shareholder request must be submitted within three or, for certain requested agenda
items, seven days following our publication of notice of the meeting. If the requested agenda item includes the appointment of
director(s), the requesting shareholder must comply with particular procedural and documentary requirements. If our board of directors
determines that the requested agenda item is appropriate for consideration by our shareholders, we must publish an updated notice
that includes such item within seven days following the deadline for submission of agenda items by our shareholders. The publication
of the updated notice of the shareholders meeting does not impact the record date for the meeting. In lieu of this process, we
may choose to provide pre-notice of our shareholders meeting at least 21 days prior to publishing official notice of the meeting.
In that case, our 1% shareholders are given a 14-day period in which to submit proposed agenda items, after which we must publish
notice of the meeting that includes any accepted shareholder proposals.



Under
the Companies Law and under our articles of association, shareholders are not permitted to take action by way of written consent
in lieu of a meeting.



Quorum



The
quorum required for a general meeting shall consist of at least two shareholders present in person or represented by proxy, who
hold or represent in the aggregate at least 35% of the voting power in our company. A meeting adjourned for lack of a quorum shall
be adjourned to the same day in the following week at the same time and place or at any time and place as our board of directors
shall designate in a notice to the shareholders.



If
at the adjourned meeting a quorum is not present within half an hour of the time designated, then the quorum shall be deemed present
if at least two shareholders are present in person or represented by proxy, who hold or represent in the aggregate at least 30%
of the voting power in our company.



The
chairman of the general meeting may, by resolution of the meeting in which a quorum is present, adjourn such meeting or postpone
the adoption of a resolution with respect to any issue on the agenda of such meeting, from time to time and from place to place,
and he shall be required to do so if the meeting has instructed him to do so. If such meeting has been adjourned by more than
21 days, a notice of such adjourned meeting shall be given in accordance with the notice procedure required by the Israeli Companies
Law and our articles of association. If the meeting has been adjourned by more than 21 days, but without changing its agenda,
then a notice of the new date shall be given as soon as possible, but no later than 72 hours prior to the adjourned meeting.



Resolutions



An
ordinary resolution of a general meeting is deemed adopted if it is approved by the holders of more than 50% of the voting rights
represented at the meeting, in person or by proxy and voting on the resolution. A special resolution of a general meeting (which
is required for approval of the matters described below under “—Provisions in Our Articles of Association Requiring
a Supermajority Shareholder Vote”) is deemed adopted if it is approved by the holders of at least 75% of the voting rights
represented at the meeting, in person or by proxy and voting on the resolution.



Provisions
in Our Articles of Association Requiring a Supermajority Shareholder Vote



Approval
of any of the following matters (among other matters) requires approval by a special resolution (i.e., 75% of the voting rights
represented at our shareholder meeting):



| | ● | consolidation
                                         and re-division of our share capital;
| | - | --------------------------------------------------------------------------------------------

| | ● | sub-division
                                         of all or any of our existing shares;
| | - | -------------------------------------------------------------------------------------------

| | ● | cancellation
                                         of any shares;
| | - | --------------------------------------------------------------------

| | ● | reduction
                                         of our share capital; and
| | - | ----------------------------------------------------------------------------

| | ● | dismissal
                                         of a director or the chairman of the board from his or her role as such prior to the
                                         end of his or her term in such office.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In
addition, amendments to any provision of our articles of association (other than to increase the authorized share capital) require
the approval of 60% of the ordinary shares represented at the general meeting, by person or by proxy, and voting on the resolution.



Approval
of a merger of Gazit-Globe requires the approval of a supermajority vote of 60% of the voting rights present and voting at the
general meeting (in person or by proxy).



To
the extent our company has different classes of shares in the future (there is currently only one class of equity securities and
the company is prohibited from having more than one class so long as the shares are listed on the TASE) changes to the determination
of the rights of a class of securities would require the approval of a supermajority vote of 75% of the voting rights of such
class present and voting at the general meeting (in person or by proxy). The quorum required for such a meeting would be two or
more shareholders holding 75% or more of the issued shares of that class.



106







Voting



Our
articles of association provide that every shareholder present in person or by proxy shall have one vote per ordinary share held
by such shareholder eligible to vote.



In
addition, Israeli law provides that a shareholder of a public company may vote in a general meeting or in a meeting of a class
of shares by means of a voting deed (proxy) in which the shareholder indicates how such shareholder votes on resolutions relating
to the following matters:



| | ● | an
                                         appointment or removal of directors;
| | - | --------------------------------------------------------------------------------

| | ● | an
                                         approval of transactions with office holders or interested or related parties;
| | - | --------------------------------------------------------------------------------------------------------------------------

| | ● | an
                                         approval of a merger;
| | - | -----------------------------------------------------------------

| | ● | any
                                         other matter with respect to which there is a provision in the articles of association
                                         providing that decisions of the general meeting may also be passed by voting deed;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ● | the
                                         authorization of the chairman of the board of directors or his relative to fulfill the
                                         role of the general manager or to exercise his powers, and the authorization of the general
                                         manager or his relative to fulfill the role of the chairman of the board of directors
                                         or to exercise his powers;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ● | scheme
                                         of arrangement (with court approval); and
| | - | -----------------------------------------------------------------------------------------

| | ● | other
                                         matters which may be prescribed by Israel’s Minister of Justice.
| | - | ---------------------------------------------------------------------------------------------------------------



A
voting deed is a card made available to shareholders prior to a general meeting together with instructions regarding how to fill
in and deliver the completed voting deed to us prior to the vote. The provision allowing the vote by voting deed does not apply
where the voting power of the controlling shareholder is sufficient to determine the vote. With respect to our company, since
we have a controlling shareholder, in any of the matters listed above in which a separate vote of non-interested shareholders
is not required and a special majority of more than 50% is also not required, we are not required to provide for the use of voting
deeds.



Election
of Directors



Under
our articles of association, the directors are appointed by the holders of a simple majority of our shares at a general meeting,
subject to the special majority requirements for external directors described below. Removal of any director at a general meeting
shall be upon the vote of 75% of the shares of shareholders who are present and voting (in person or by proxy), except as provided
by applicable law with respect to external directors. See also “Item 6—Directors, Senior Management and Employees—Board
Practices”.



Other
than a person who has served as a director up to the date of the annual general meeting and/or whose appointment as a director
has been recommended to the general meeting by our board of directors, no director shall be appointed at the annual general meeting
unless a shareholder or group of shareholders holding 1% or more of the voting rights of our company wishing to propose him as
a candidate submits to our office, at least ten days prior to the date of the notice of annual general meeting, a written document,
signed by the shareholder, indicating that such shareholder is seeking to nominate such candidate, together with a written consent
of the proposed candidate to hold office as a director and his curriculum vitae and all other documents required under the Israeli
Companies Law and related regulations with respect to directors and their election that are applicable to our company at such
time, including the rules of any exchange on which our shares are listed.



Dividend
and Liquidation Rights



We
may declare a dividend to be paid to the holders of our ordinary shares in proportion to their respective shareholdings. Under
the Israeli Companies Law, dividend distributions are determined by the board of directors and do not require the approval of
the shareholders of a company unless the company’s articles of association provide otherwise. Our articles of association
do not require shareholder approval of a dividend distribution and provide that dividend distributions may be determined by our
board of directors.



Pursuant
to the Israeli Companies Law, the distribution amount is limited to the greater of retained earnings or earnings generated over
the previous two years, according to our then last reviewed or audited financial reports, provided that the date of the financial
reports is not more than six months prior to the date of distribution. Even if the foregoing condition is not met, we may distribute
dividends with court approval. In each case, we are only permitted to pay a dividend if there is no reasonable concern that payment
of the dividend will prevent us from satisfying our existing and foreseeable obligations as they become due.



In
the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of
our ordinary shares in proportion to their shareholdings. This right, as well as the right to receive dividends, may be effected
by the grant of preferential dividend or distribution rights to the holders of a class of shares with preferential rights that
may be authorized in the future.





107







Access
to Corporate Records



Under
the Israeli Companies Law, all of our shareholders generally have the right to review minutes of our general meetings, our shareholder
register, our articles of association and any document we are required by law to publicly file. Any shareholder who specifies
the purpose of his or her request may request to review any document in our possession that relates to any action or transaction
with a related party which requires shareholder approval under the Israeli Companies Law. We may deny a request to review a document
if we determine that the request was not made in good faith, that the document contains a trade secret or a patent or that the
disclosure of the document may otherwise harm or prejudice our interests.



Changes
in Capital



Our
articles of association enable us to increase or reduce our authorized share capital. Any increase in our authorized share capital
must be approved by a majority of the voting rights represented at a general meeting and voting on such change in the capital,
in person or by proxy. Unless otherwise resolved in such resolution approving the increase of our authorized share capital, the
new shares shall be subject to the same provisions as applicable to our ordinary shares. As noted above under “—Provisions
in Our Articles of Association Requiring a Supermajority Shareholder Vote,” a reduction in our authorized share capital
requires approval by a special resolution (i.e., 75% of the voting rights represented at a general meeting and voting on such
change in the capital, in person or by proxy).



Acquisitions
Under Israeli Law



Full
Tender Offer



A
person wishing to acquire shares of a public Israeli company and who could as a result hold over 90% of the target company’s
voting rights or of the target company’s issued and outstanding share capital (or of a class thereof), is required by the
Israeli Companies Law to make a tender offer to all of the company’s shareholders for the purchase of all of the issued
and outstanding shares of the company (or the applicable class). If (a) the shareholders who do not accept the offer hold less
than 5% of the issued and outstanding share capital of the company (or the applicable class) and the shareholders who accept the
offer constitute a majority of the offerees that do not have a personal interest in the acceptance of the tender offer or (b)
the shareholders who did not accept the tender offer hold less than 2% of the issued and outstanding share capital of the company
(or of the applicable class), all of the shares that the acquirer offered to purchase will be transferred to the acquirer by operation
of law. A shareholder that had its shares so transferred may petition the court within six months from the date of acceptance
of the full tender offer, whether or not such shareholder agreed to the tender, to determine whether the tender offer was for
less than fair value and whether the fair value should be paid as determined by the court. However, an offeror may provide in
the offer that a shareholder who accepted the offer will not be entitled to appraisal rights as described in the preceding sentence,
as long as the offeror and the company disclosed the information required by law in connection with the tender offer. If (a) the
shareholders who did not accept the tender offer hold 5% or more of the issued and outstanding share capital of the company (or
of the applicable class) or the shareholders who accept the offer constitute less than a majority of the offerees that do not
have a personal interest in the acceptance of the tender offer, or (b) the shareholders who did not accept the tender offer hold
2% or more of the issued and outstanding share capital of the company (or of the applicable class) the acquirer may not acquire
shares of the company that will increase its holdings to more than 90% of the company’s issued and outstanding share capital
(or of the applicable class) from shareholders who accepted the tender offer.



Special
Tender Offer



The
Israeli Companies Law provides that an acquisition of shares of a public Israeli company must be made by means of a special tender
offer if as a result of the acquisition the purchaser could become a holder of 25% or more of the voting rights in the company,
unless one of the exemptions in the Israeli Companies Law is met. This rule does not apply if there is already another holder
of at least 25% of the voting rights in the company. Similarly, the Israeli Companies Law provides that an acquisition of shares
in a public company must be made by means of a tender offer if as a result of the acquisition the purchaser could become a holder
of more than 45% of the voting rights in the company, if there is no other shareholder of the company who holds more than 45%
of the voting rights in the company, unless one of the exemptions in the Israeli Companies Law is met.



A
special tender offer must be extended to all shareholders of a company but the offeror is not required to purchase shares representing
more than 5% of the voting power attached to the company’s outstanding shares, regardless of how many shares are tendered
by shareholders. A special tender offer may be consummated only if (i) at least 5% of the voting power attached to the company’s
outstanding shares will be acquired by the offeror and (ii) the number of shares tendered in the offer exceeds the number of shares
whose holders objected to the offer (excluding, controlling shareholders and any person having a personal interest in the acceptance
of the tender offer).





108







If
a special tender offer is accepted, then the purchaser or any person or entity controlling it or under common control with the
purchaser or such controlling person or entity may not make a subsequent tender offer for the purchase of shares of the target
company and may not enter into a merger with the target company for a period of one year from the date of the offer, unless the
purchaser or such person or entity undertook to effect such an offer or merger in the initial special tender offer.



Merger



The
Israeli Companies Law permits merger transactions if approved by each party’s board of directors and, unless certain requirements
described under the Israeli Companies Law are met, a majority of each party’s shares voted on the proposed merger at a general
meeting called with at least 35 days’ prior notice. Notwithstanding the above, our articles of association provide that
the approvals of board members constituting 75% of the members of the board eligible to vote and holders of 60% of our ordinary
shares present and eligible to vote at a general meeting are required to approve a merger.



For
purposes of the shareholder vote, unless a court rules otherwise, the merger will not be deemed approved if a unless a majority
of the shares represented at the shareholders’ meeting that are held by parties other than the other party to the merger,
or by any person (or group of persons acting in concert) who holds (or hold, as the case may be) 25% or more of the outstanding
shares or the right to appoint 25% or more of the directors of the other party, vote for the merger. If the transaction would
have been approved but for the separate approval of each class of shares or the exclusion of the votes of certain shareholders
as provided above, a court may still approve the merger upon the request of holders of at least 25% of the voting rights of a
company, if the court holds that the merger is fair and reasonable, taking into account the financial valuation of the entities
being merged and the consideration offered to the shareholders.



Upon
the request of a creditor of either party to the proposed merger, the court may delay or prevent the merger if it concludes that
there exists a reasonable concern that, as a result of the merger, the surviving company will be unable to satisfy the obligations
of any of the parties to the merger, and may further give instructions to secure the rights of creditors.



In
addition, a merger may not be completed unless at least 50 days have passed from the date on which a proposal for approval of
the merger was filed by each party with the Israeli Registrar of Companies and 30 days have passed from the date on which the
merger was approved by the shareholders of each party.



Tax
Consequences of Merger



Israeli
tax law may treat stock-for-stock acquisitions between an Israeli company and a foreign company less favorably than does United
States tax law. For example, unless the stock-for-stock transaction is considered a tax-deferred merger which relates to a transfer
of at least 80% of the shares in the transferred company, Israeli tax law subjects a shareholder who exchanges his or her ordinary
shares for shares in another corporation (which is listed for trading on a stock exchange) to taxation on half of the shareholder’s
shares two years following the exchange and on the balance four years thereafter even if the shareholder has not yet sold the
new shares.



Disclosure
of Shareholder Ownership



Our
articles of association do not mandate a threshold at which shareholder ownership must be publicly disclosed. Such thresholds
are determined by applicable securities laws.



| | C. | Material
                                         Contracts
| | -- | -----------------------------------------------------------



See
“Item 6—Directors, Senior Management and Employees—Compensation—Employment and Consultant Agreements”,
“Item 7—Major Shareholders and Related Party Transactions—Related Party Transactions”, and “Item
5—Operating and Financial Review and Prospects—Liquidity and Capital Resources—Credit Facilities and Indebtedness
of Gazit-Globe and its Private Subsidiaries and —Credit Facilities and Other Indebtedness of Other Group Entities.”



| | D. | Exchange
                                         Controls
| | -- | ----------------------------------------------------------



There
are currently no Israeli currency control restrictions on payments of dividends or other distributions with respect to our ordinary
shares or the proceeds from the sale of the shares, except for the obligation of Israeli residents to file reports with the Bank
of Israel regarding certain transactions. However, legislation remains in effect pursuant to which currency controls can be imposed
by administrative action at any time.





109







| | E. | Taxation
| | -- | --------



The
following is a summary of the current tax law applicable to companies in Israel, with special reference to its effect on us and
our subsidiaries. The following also contains a discussion of material Israeli tax consequences that may be applicable to our
shareholders that are initial purchasers of ordinary shares pursuant to an offering and that will hold such ordinary shares as
capital assets.



The
discussion is not intended, and should not be construed, as legal or professional tax advice and is not exhaustive of all possible
tax considerations. Holders of our ordinary shares should consult their own tax advisors as to the United States, Israeli or other
tax consequences of the purchase, ownership and disposition of ordinary shares, including, in particular, the effect of any foreign,
state or local taxes.



General
Corporate Tax Structure



Generally,
Israeli companies are subject to corporate income tax (CIT) on their taxable income. The Israeli CIT rate was 25% in 2016 compared
to a tax rate of 26.5% in 2015 and 2014 (in 2017 the Israeli CIT rate is 24% and as of 2018 the Israeli CIT rate will be 23%).
In addition, Israeli companies are currently subject to regular Israeli CIT rate on their capital gains.



Taxation
of Non-Israeli Subsidiaries Held by an Israeli Parent Company



Non-Israeli
subsidiaries of an Israeli parent company are generally subject to tax in their countries of residence under tax laws applicable
to them in such country. Such subsidiaries could also be subject to Israeli corporate income tax on their income if they are viewed
as Israeli resident corporations. The Income Tax Ordinance defines an Israeli resident corporation as one that was incorporated
in Israel or is managed and controlled from Israel, such that if a non-Israeli corporation is managed and controlled from Israel,
it would be subject to tax in Israel. In such case, double taxation could ensue, although the Income Tax Ordinance and the relevant
tax treaty provide rules for provision of foreign tax credits in such situation. In addition, if the non-Israeli subsidiary were
to be a resident of a country which has a double tax treaty in force with Israel, the provisions of such tax treaty would normally
provide rules for defining residency for purposes of applying the provisions of the tax treaty and provide further relief from
double taxation.



In
addition, under the Israeli CFC rules, undistributed passive profits of a controlled foreign corporation may be subject to Israeli
taxation under certain conditions.



Israeli
Tax Considerations for Our Shareholders



Israeli
law generally imposes a capital gains tax on the sale of any capital assets by residents of Israel, as defined for Israeli tax
purposes, and on the sale of assets located in Israel, including shares of Israeli companies, by both residents and non-residents
of Israel, unless a specific exemption is available or unless a tax treaty between Israel and the shareholder’s country
of residence provides otherwise. The Income Tax Ordinance distinguishes between “Real Capital Gain” and “Inflationary
Surplus”. The Inflationary Surplus is a portion of the total capital gain which is equivalent to the increase of the relevant
asset’s purchase price which is attributable to the increase in the Israeli consumer price index or, in certain circumstances,
a foreign currency exchange rate, between the date of purchase and the date of sale. The Real Capital Gain is the excess of the
total capital gain over the Inflationary Surplus. In general, the sale of Gazit-Globe’s shares by a foreign investor may
be tax exempt in Israel subject to the fulfillment of some conditions in the Israeli domestic tax law.



Israeli
Resident Individuals



Capital
Gains



Israeli
law imposes capital gains tax on capital gains derived from the sale of securities and other capital assets, including ordinary
shares. Up until the Change in Tax Burden Law (Legislative Amendments), 2011 (the “Tax Burden Law”) was introduced,
gains from sale of ordinary shares acquired by an individual prior to January 1, 2003 were subject to the individual’s marginal
income tax rate in the period until January 1, 2003 and to 20% capital gains tax rate for the period onwards. The tax rate is
increased to 25% for sale of shares by an individual shareholder holding, directly or indirectly, alone or together with a Relative
or with another person who collaborates with such person on a permanent basis, 10% or more of at least one of the “means
of control” (including, among other things, the right to receive profits of the company, voting rights, the right to receive
the company’s liquidation proceeds and the right to appoint a director) of the company at the time of sale or at any time
during the preceding 12 month period (a “Substantial Shareholder”).



Following
enactment of the Tax Burden Law, which entered into force on January 1, 2012, the capital gains tax rate applicable to individuals
upon the sale of shares is divided to one more layer, so that capital gains tax for the period from January 1, 2012 onward is
subject to 25% tax rate (or 30% with respect to a Substantial Shareholder. The 30% is also applicable to individuals who claim
deductions for interest and linkage differences expenses in connection with the purchase and holding of such shares).





110







Individual
shareholders dealing in securities in Israel are taxed at their marginal tax rates applicable to business income (up to 48% in
2016 and up to 47% in 2017 onwards).



Dividend
Income



Following
the enactment of the Tax Burden Law, starting January 1, 2012, the distribution of dividend income generated by other sources,
other than bonus shares (stock dividends), to Israeli residents who purchased our ordinary shares will generally be subject to
income tax at a rate of 25% for individuals (30% for a Substantial Shareholder).



Israeli
Resident Corporations



Capital
Gains



Under
present Israeli tax legislation, the tax rate applicable to Real Capital Gain derived by Israeli resident corporations from the
sale of shares of an Israeli company is the general CIT rate. As described above, the CIT rate was 25% in 2016, in 2017 the CIT
rate is 24% and as of 2018 onwards the CIT rate will be 23%.



Dividend
Income



Israeli
resident corporations are generally exempt from Israeli corporate tax with respect to dividends received from Israeli resident
corporations where the income distributed by such corporations were subject to Israeli CIT and such income was not subject to
a special tax rate.



Non-Israeli
Residents



Non-Israeli
residents are subject to tax on income accrued or derived from Israeli sources. These include, inter alia, dividends, royalties
and interest, as well as other types of income (e.g., from provision of services in Israel). We are required to withhold income
tax on such payments to non-residents. Israel presently has no estate or gift tax.



Capital
Gains



Israeli
capital gains tax is imposed on the disposal of capital assets by a non-Israeli resident seller if such assets are either (i)
located in Israel; (ii) the asset is located abroad and is mainly a right, directly or indirectly, to an asset or to inventory,
or it is an indirect right for a right in real estate or to an asset in a “real estate organization”, that is located
in Israel, for the part of the consideration that is derived from the asset that is located in Israel; (iii) the asset is a share
or right for a share in a body of person, which is an Israeli resident; (vi) the asset is a right for a body of persons resident
abroad that mainly entails a right, directly or indirectly, for an asset located in Israel – for the part of the consideration
that is derived from the asset which is located in Israel unless a tax treaty between Israel and the seller’s country of
residence provides otherwise. As mentioned above, Real Capital Gain derived by a company is generally subject to tax at the CIT
rate (25% for 2016, 24% in 2017 and 23% in 2018 and onwards) or, if derived by an individual, at the rate of 20%-25% or 25%-30%
for Substantial Shareholder, for assets purchased on or after January 1, 2003. Individual and corporate shareholders dealing in
securities in Israel are taxed at the tax rates applicable to business income (a CIT rate of 25% for a corporation in 2016 and
a marginal tax rate of up to 48% for an individual in 2016). Notwithstanding the foregoing, shareholders who are not Israeli residents
(individuals and corporations) are generally exempt from Israeli capital gains tax on any gains derived from the sale, exchange
or disposition of shares publicly traded on the Tel Aviv Stock Exchange or on a recognized stock exchange outside of Israel, provided,
among other things, that (i) such gains are not generated through a permanent establishment that the non-Israeli resident maintains
in Israel, (ii) the shares were purchased after being listed on a recognized stock exchange, and (iii) with respect to shares
listed on a recognized stock exchange outside of Israel, such shareholders are not subject to the Inflationary Adjustment Law.
However, non-Israeli corporations will not be entitled to the foregoing exemptions if Israeli residents (a) have a controlling
interest of more than 25% in such non-Israeli corporation, or (b) are the beneficiaries of or are entitled to 25% or more of the
revenues or profits of such non-Israeli corporation, whether directly or indirectly. Such exemption is not applicable to a person
whose gains from selling or otherwise disposing of the shares are deemed to be business income.



In
addition, a sale of securities may be exempt from Israeli capital gains tax under the provisions of an applicable tax treaty.
For example, under the Convention Between the Government of the United States of America and the Government of the State of Israel
With Regard to Taxes on Income (the “U.S.-Israel Treaty”), the sale, exchange or disposition of shares of an Israeli
company by a shareholder who is a U.S. resident (for purposes of the U.S.-Israel Treaty) holding the shares as a capital asset
is exempt from Israeli capital gains tax unless either (i) the shareholder holds, directly or indirectly, shares representing
10% or more of the voting rights during any part of the 12-month period preceding such sale, exchange or disposition, (ii) the
shareholder, being an individual, has been present in Israel for a period or periods of 183 days or more in the aggregate during
the applicable taxable year; or (iii) the capital gain arising from such sale is attributable to a permanent establishment of
the shareholder which is maintained in Israel. In either case, the sale, exchange or disposition of such shares would be subject
to Israeli tax, to the extent applicable; however, under the U.S.-Israel Treaty, a U.S. resident would be permitted to claim a
credit for the Israeli tax against the U.S. federal income tax imposed with respect to the sale, exchange or disposition, subject
to the limitations in U.S. laws applicable to foreign tax credits. The U.S-Israel Treaty does not provide such credit against
any U.S. state or local taxes.





111







Payers
of consideration for shares, including a purchaser, an Israeli stockbroker effectuating the transaction, or a financial institution
through which the sold securities are held, are required, subject to any of the foregoing exemptions and the demonstration of
a shareholder regarding his, her or its foreign residency, to withhold tax upon the sale of publicly traded securities from the
consideration or from the Real Capital Gain derived from such sale, as applicable.



Dividend
Income



Non-Israeli
residents (whether individuals or corporations) are generally subject to Israeli income tax on the receipt of dividends paid for
shares, like our ordinary shares, at the rate of 25% or 30% (if the dividend recipient is a Substantial Shareholder at the time
of distribution or at any time during the preceding 12-month period). Such dividends are generally subject to Israeli withholding
tax at a rate of 25%, so long as the ordinary shares are publicly traded and registered with a nominee company (whether the recipient
is a Substantial Shareholder or not), unless a reduced rate is provided under an applicable tax treaty (subject to certain conditions).



For
example, under the U.S.-Israel Treaty, the maximum rate of Israeli withholding tax on dividends paid to a U.S. resident (for purposes
of the U.S.-Israel Treaty) holder of our ordinary shares is 25%. However, generally, the maximum withholding tax rate on dividends
that are paid to a U.S. corporation holding at least 10% or more of our outstanding voting capital from the start of the tax year
preceding the distribution of the dividend through (and including) the distribution of the dividend, is 12.5%, provided that no
more than 25% of our gross income for such preceding year consists of certain types of dividends and interest. U.S. residents
who are subject to Israeli withholding tax on a dividend may be entitled to a credit for U.S. federal income tax purposes in the
amount of the taxes withheld, subject to detailed rules contained in United States tax legislation.



A
non-Israeli resident who receives dividends from which Israeli tax was withheld is generally exempt from the obligation to file
tax returns in Israel with respect to such income, provided that (i) such income was not generated from business conducted in
Israel by the taxpayer for a period that exceeds 180 days in the tax year, and (ii) the taxpayer has no other taxable sources
of income in Israel with respect to which a tax return is required to be filed. Shareholders should consult with their tax advisor
regarding their obligation to file tax return in Israel.



Payers
of dividends on our ordinary shares, including an Israeli stockbroker effectuating the transaction, or a financial institution
through which the securities are held, are required, subject to any of the foregoing exemptions and the demonstration of a shareholder
regarding his, her or its foreign residency, to withhold tax upon the distribution of dividend at the rate of 25%, so long as
the ordinary shares are registered with a Nominee Company (for corporations and individuals).



Excess
Tax



Beginning
on January 1, 2013, an additional tax liability at the rate of 2% was added to the applicable tax rate of individuals on their
annual taxable income from any source (whether such individual is an Israeli resident or non-Israeli resident) exceeding NIS 803,520
in 2016 (and as of 2017, the additional tax will be at a rate of 3% on annual income exceeding NIS 640,000), which amount is linked
to the annual change in the Israeli consumer price index, including, but not limited to, dividends, interest and capital gain.



United
States Federal Income Tax Considerations



The
following discussion is a summary of material U.S. federal income tax considerations relating to the ownership and disposition
of our ordinary shares. This discussion addresses only the U.S. federal income tax considerations relating to U.S. Holders (as
defined below) that are initial purchasers of our ordinary shares and that hold such ordinary shares as capital assets. This discussion
does not address tax considerations that may be relevant to particular holders in light of their individual circumstances, including,
without limitation:



| | ● | banks,
                                         financial institutions or insurance companies;
| | - | ----------------------------------------------------------------------------------------------

| | ● | real
                                         estate investment trusts, regulated investment companies or grantor trusts;
| | - | -------------------------------------------------------------------------------------------------------------------------

| | ● | dealers
                                         or traders in securities, commodities or currencies;
| | - | -----------------------------------------------------------------------------------------------------

| | ● | tax-exempt
                                         entities;
| | - | -------------------------------------------------------------

| | ● | certain
                                         former citizens or long-term residents of the United States;
| | - | -------------------------------------------------------------------------------------------------------------

| | ● | persons
                                         that received our shares as compensation for the performance of services;
| | - | --------------------------------------------------------------------------------------------------------------------------

| | ● | persons
                                         that will hold our shares as part of a “hedging,” “integrated”
                                         or “conversion” transaction or as a position in a “straddle”
                                         for United States federal income tax purposes;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ● | partnerships
                                         (including entities classified as partnerships for United States federal income tax purposes)
                                         or other pass-through entities, or holders that will hold our shares through such an
                                         entity;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ● | S-corporations;
| | - | ---------------

| | ● | holders
                                         that acquire ordinary shares as a result of holding or owning our preferred shares;
| | - | ------------------------------------------------------------------------------------------------------------------------------------

| | ● | U.S.
                                         Holders whose “functional currency” is not the U.S. Dollar; or
| | - | ------------------------------------------------------------------------------------------------------------

| | ● | holders
                                         that own directly, indirectly or through attribution 10.0% or more of the voting power
                                         or value of our shares.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





112







Moreover,
this discussion does not address the U.S. federal estate, gift or alternative minimum tax considerations, the 3.8% Medicare tax
on net investment income, or any state, local or foreign tax considerations, relating to the acquisition, ownership and disposition
of our ordinary shares.



This
discussion is based on the Code, existing, proposed and temporary U.S. Treasury Regulations and judicial and administrative interpretations
thereof, in each case as in effect and available on the date hereof. All of the foregoing are subject to change, which change
could apply retroactively and could affect the tax consequences discussed below. There can be no assurances that the U.S. Internal
Revenue Service (the “Service”) will not take a different position concerning the tax consequences of the ownership
and disposition of our ordinary shares or that such a position could not be sustained.



For
purposes of this discussion, a “U.S. Holder” is a beneficial owner of our ordinary shares that, for U.S. federal income
tax purposes, is:



| | ● | a
                                         citizen or resident of the United States;
| | - | ------------------------------------------------------------------------------------

| | ● | a
                                         corporation (or other entity treated as a corporation for U.S. federal income tax purposes)
                                         created or organized in or under the laws of the United States, any state thereof, or
                                         the District of Columbia;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ● | an
                                         estate the income of which is subject to U.S. federal income taxation regardless of its
                                         source; or
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ● | a
                                         trust if such trust has validly elected to be treated as a U.S. person for U.S. federal
                                         income tax purposes or if (1) a court within the United States is able to exercise primary
                                         supervision over its administration and (2) one or more U.S. persons have the authority
                                         to control all of the substantial decisions of such trust.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



A
“Non-U.S. Holder” is a beneficial owner of our ordinary shares that is neither a U.S. Holder nor a partnership (or
other entity treated as a partnership for United States federal income tax purposes).



If
a partnership (or any other entity treated as a partnership for U.S. federal income tax purposes) holds our ordinary shares, the
tax treatment of a partner in such partnership will generally depend on the status of the partner and the activities of the partnership.
Such a partner or partnership should consult its tax advisor as to its tax consequences.



You
should consult your tax advisor with respect to the U.S. federal, state, local and foreign tax consequences of owning and disposing
of our ordinary shares.



Distributions



Subject
to the discussion below under “—Passive Foreign Investment Company Considerations,” if you are a U.S. Holder,
the gross amount of any cash distribution made to you with respect to your ordinary shares, before reduction for any Israeli taxes
withheld therefrom, will generally be includible in your income as dividend income to the extent such distribution is paid out
of our current or accumulated earnings and profits as determined under U.S. federal income tax principles. Subject to the discussion
below under “—Passive Foreign Investment Company Considerations,” non-corporate U.S. Holders may qualify for
the lower rates of taxation with respect to dividends on ordinary shares applicable to long-term capital gains (i.e., gains from
the sale of capital assets held for more than one year), provided that (a) you have held the ordinary shares for at least 61 days
during the 121-day period beginning on the date which is 60 days before the ex-dividend date with respect to such dividends, (b)
you are not under an obligation, pursuant to a short sale or otherwise, to make payments related to such dividends with respect
to positions in substantially similar or related property, and (c) such dividends are received from a “qualified foreign
corporation” for U.S. federal income tax purposes. A non-U.S. corporation (other than a corporation that is classified as
a PFIC for the taxable year in which the dividend is paid or the preceding taxable year) will generally be considered to be a
qualified foreign corporation (a) if it is eligible for the benefits of a comprehensive tax treaty with the United States which
the Secretary of the U.S. Treasury determines is satisfactory for purposes of this provision and which includes an exchange of
information program, or (b) with respect to any dividend it pays on stock which is readily tradable on an established securities
market in the United States. Our ordinary shares are listed on the New York Stock Exchange, which is an established securities
market in the United States, and therefore we believe that we will constitute a “qualified foreign corporation” for
U.S. federal income tax purposes with respect to dividends on our ordinary shares. Dividends on our ordinary shares will not be
eligible for the dividends received deduction generally allowed to corporate U.S. Holders. Subject to the discussion below under
“—Passive Foreign Investment Company Considerations,” to the extent that the amount of any distribution by us
exceeds our current and accumulated earnings and profits as determined under U.S. federal income tax principles, it will be treated
first as a tax free return of your adjusted tax basis (as defined below) in your ordinary shares and thereafter as capital gain.
We do not expect to maintain calculations of our earnings and profits under U.S. federal income tax principles and, therefore,
if you are a U.S. Holder you should expect that the entire amount of any distribution will generally be reported as dividend income
to you.





113







If
you are a U.S. Holder, Israeli tax withheld on dividends paid to you with respect to your ordinary shares may be deducted from
your taxable income or credited against your U.S. federal income tax liability. The rules relating to eligibility for such deductions
or credits, however, are complex, and you should consult your tax advisor to determine whether and to what extent you will be
entitled to such credits or deductions. Subject to the discussion below, our dividends will generally be treated as foreign source
income, which may be relevant in calculating your foreign tax credit limitation. Subject to certain exceptions, a portion of our
dividends will be treated as U.S. source income for U.S. foreign tax credit purposes, in proportion to our U.S. source earnings
and profits, if U.S. persons own, directly or indirectly, 50% or more of the voting power or value of our shares. To the extent
any portion of our dividends is treated as U.S. source income pursuant to this rule, the ability of a U.S. Holder to claim a foreign
tax credit for any Israeli withholding taxes payable with respect to our dividends may be limited depending on your individual
circumstances. We do not expect to maintain calculations of our earnings and profits under U.S. federal income tax principles
and, therefore, if we are subject to the sourcing rule described above, U.S. Holders should expect that the entire amount of our
dividends will be treated as U.S. source income for U.S. foreign tax credit purposes. U.S. Holders, however, who qualify for benefits
of the U.S.-Israel Treaty may elect to treat any dividend income otherwise subject to the sourcing rule described above as foreign
source income pursuant to Articles 4(1) and 26(1) of the U.S.-Israel Treaty, though such income will be treated as a separate
class of income subject to its own foreign tax credit limitations. You should consult your tax advisor to determine the impact
of, and any exception available to, the special sourcing rule described in this paragraph, and the availability and impact of
the U.S.-Israel Treaty election described above. The limitation on foreign taxes eligible for credit is calculated separately
with respect to specific classes of income. For this purpose, dividends that we distribute should generally constitute “passive
category income,” or, in the case of certain U.S. Holders, “general category income,” and in the case of the
election described above, its own separate class of income. A foreign tax credit for foreign taxes imposed on distributions may
be denied if you have not held your ordinary shares for at least 16 days during the 31 day period beginning on the date which
is 15 days before the ex-dividend date with respect to such dividends or if you are under an obligation, pursuant to a short sale
or otherwise, to make payments related to such dividends with respect to positions in substantially similar or related property.



The
amount of a distribution will equal the U.S. dollar value of the NIS received, calculated by reference to the exchange rate in
effect on the date that distribution is received, whether or not a U.S. Holder in fact converts any NIS received into U.S. dollars
at that time. If the NIS are converted into U.S. dollars on the date of receipt, a U.S. Holder will generally not be required
to recognize foreign currency gain or loss with respect to the distribution. A U.S. Holder may have foreign currency gain or loss
if the NIS are converted into U.S. dollars after the date of receipt, depending on the exchange rate at the time of translation.
Any gains or losses resulting from the translation of NIS into U.S. dollars will generally be treated as ordinary income or loss,
as the case may be, and will generally be treated as U.S. source.



Subject
to the discussion below under “—Backup Withholding Tax and Information Reporting Requirements,” if you are a
Non-U.S. Holder, you will generally not be subject to U.S. federal income (or withholding) tax on dividends received by you on
your ordinary shares, unless you conduct a trade or business in the United States and such income is effectively connected with
that trade or business (or, if required by an applicable income tax treaty, the dividends are attributable to a permanent establishment
or fixed base that such holder maintains in the United States).



Sale,
Exchange or Other Disposition of Ordinary Shares



Subject
to the discussion below under “—Passive Foreign Investment Company Considerations,” if you are a U.S. Holder,
you will generally recognize gain or loss on the sale, exchange or other disposition of your ordinary shares equal to the difference
between the amount realized on such sale (or its U.S. dollar equivalent, determined by reference to the spot rate of exchange
on the date of disposition, if the amount realized is denominated in a foreign currency), exchange or other disposition and your
adjusted tax basis in your ordinary shares, and such gain or loss will be capital gain or loss. The adjusted tax basis in an ordinary
share will generally be equal to the cost of such ordinary share. If you are a non-corporate U.S. Holder, capital gain from the
sale, exchange or other disposition of ordinary shares is eligible for a preferential rate of taxation applicable to capital gains,
if your holding period for such ordinary shares exceeds one year (i.e., such gain is long-term capital gain) on the date of such
sale, exchange or other disposition. The deductibility of capital losses for U.S. federal income tax purposes is subject to limitations
under the Code. Any such gain or loss that a U.S. Holder recognizes will generally be treated as U.S. source income or loss for
foreign tax credit limitation purposes.



Subject
to the discussion below under “—Backup Withholding Tax and Information Reporting Requirements,” if you are a
Non-U.S. Holder, you will generally not be subject to U.S. federal income or withholding tax on any gain realized on the sale
or exchange of such ordinary shares unless:



| | ● | such
                                         gain is effectively connected with your conduct of a trade or business in the United
                                         States (or, if required by an applicable income tax treaty, the gain is attributable
                                         to a permanent establishment or fixed base that such holder maintains in the United States);
                                         or
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ● | you
                                         are an individual and have been present in the United States for 183 days or more in
                                         the taxable year of such sale or exchange and certain other conditions are met.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





114







Passive
Foreign Investment Company Considerations



If
we were to be classified as a PFIC, in any taxable year, a U.S. Holder would be subject to special rules generally intended to
reduce or eliminate any benefits from the deferral of U.S. federal income tax that a U.S. Holder could derive from investing in
a non-U.S. company that does not distribute all of its earnings on a current basis.



A
non-U.S. corporation will be classified as a PFIC, for U.S. federal income tax purposes in any taxable year in which, after applying
certain look-through rules, either:



| | ● | at
                                         least 75% of its gross income is passive income; or
| | - | -----------------------------------------------------------------------------------------------

| | ● | at
                                         least 50% of the average value of its gross assets is attributable to assets that produce
                                         passive income or are held for the production of passive income.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



“Passive
income” for this purpose generally includes dividends, interest, royalties, rents, gains from commodities and securities
transactions, the excess of gains over losses from the disposition of assets which produce passive income, and includes amounts
derived by reason of the temporary investment of funds raised in offerings of our ordinary shares. If a non-U.S. corporation owns
at least 25% by value of the stock of another corporation, the non-U.S. corporation is treated for purposes of the PFIC tests
as owning its proportionate share of the assets of the other corporation and as receiving directly its proportionate share of
the other corporation’s income. If we are classified as a PFIC in any year with respect to which a U.S. Holder owns our
ordinary shares, we will continue to be treated as a PFIC with respect to such U.S. Holder in all succeeding years during which
the U.S. Holder owns our ordinary shares, regardless of whether we continue to meet the tests described above, unless such U.S.
Holder elects to apply a qualified electing fund (a “QEF”) or a mark-to-market election (described below) and certain
other conditions are met.



We
engaged a nationally recognized tax advisor (a member of an international accounting organization) to assist in our analysis of
our PFIC status for 2016. Based on the advisor’s advice and assessment, and our analysis regarding the composition of our
gross assets (including valuing tangible and intangible assets based on the market value of our shares), the source and amounts
of our gross income, and the nature of our business, we believe we were not a PFIC for the taxable year ended December 31, 2016.
However, we must determine our PFIC status annually based on tests which are factual in nature, and our status in future years
will depend on our income, assets and activities in those years. While we intend to manage our business so as to avoid PFIC status,
to the extent consistent with our other business goals, we cannot predict whether our business plans will allow us to avoid PFIC
status. In addition, because the market price of our ordinary shares is likely to fluctuate and because that market price may
affect the determination of whether we will be considered a PFIC, there can be no assurance that we will not be considered a PFIC
for any taxable year.



If
we were a PFIC, and you are a U.S. Holder, then unless you make one of the elections described below, a special tax regime will
apply to both (a) any “excess distribution” by us to you (generally, your ratable portion of distributions in any
year which are greater than 125% of the average annual distribution received by you in the shorter of the three preceding years
or your holding period for our ordinary shares) and (b) any gain realized on the sale or other disposition of the ordinary shares.
Under this regime, any excess distribution and realized gain will be treated as ordinary income and will be subject to tax as
if (a) the excess distribution or gain had been realized ratably over your holding period, (b) the amount deemed realized in each
year had been subject to tax in each year of that holding period at the highest marginal rate for such year (other than income
allocated to the current period or any taxable period before we became a PFIC, which would be subject to tax at the U.S. Holder’s
regular ordinary income rate for the current year and would not be subject to the interest charge discussed below), and (c) the
interest charge generally applicable to underpayments of tax had been imposed on the taxes deemed to have been payable in those
years. In addition, dividend distributions made to you will not qualify for the lower rates of taxation applicable to long-term
capital gains discussed above under “—Distributions.”



Certain
elections may be available to U.S. Holders of shares that may serve to alleviate some of the adverse tax consequences of PFIC
status described above. For example, if we agreed to provide the necessary information, you could avoid the interest charge imposed
by the PFIC rules by making a QEF election, in which case you would generally be required to include in income on a current basis
your pro rata share of our ordinary earnings as ordinary income and your pro rata share of our net capital gains as capital gain.
However, we do not expect to provide to U.S. Holders the information needed to report income and gain pursuant to a QEF election,
and we make no undertaking to provide such information in the event that we are a PFIC.



Under
an alternative tax regime, you may also avoid certain adverse tax consequences relating to PFIC status discussed above by making
a mark-to-market election with respect to your ordinary shares annually, provided that the shares are “marketable.”
Shares will be marketable if they are regularly traded on certain U.S. stock exchanges (including the NYSE) or on certain non-U.S.
stock exchanges. For these purposes, the shares will generally be considered regularly traded during any calendar year during
which they are traded, other than in negligible quantities, on at least 15 days during each calendar quarter.



If
you choose to make a mark-to-market election, you would recognize as ordinary income or loss each year in which we are a PFIC
an amount equal to the difference as of the close of the taxable year between the fair market value of your ordinary shares and
your adjusted tax basis in your ordinary shares. Such recognition of gain or loss will cause an increase or decrease, respectively,
in the adjusted tax basis in your ordinary shares. Such losses would be allowed only to the extent of net mark-to-market gain
previously included by you under the election for prior taxable years. If the mark-to-market election were made, then the PFIC
rules described above relating to excess distributions and realized gains would not apply for periods covered by the election.
If you do not make a mark-to-market election for the first taxable year in which we are a PFIC during your holding period of our
ordinary shares, you would be subject to interest charges with respect to the inclusion of ordinary income attributable to each
taxable year in which we were a PFIC during your holding period before the effective date of such election.





115







If
we are a PFIC for any year, a U.S. Holder will generally be required to file the Service Form 8621 with respect to us, generally
with such U.S. Holder’s federal income tax return for that year.



You
should consult your tax adviser concerning the U.S. federal income tax consequences of holding and disposing of our ordinary shares
if we are or become classified as a PFIC, including the unavailability of the QEF election, the possibility of making a mark-to-market
election, and your annual PFIC filing requirements, if any.



Backup
Withholding Tax and Information Reporting Requirements



U.S.
backup withholding tax and information reporting requirements may apply to certain payments to certain holders of stock. Information
reporting will generally apply to payments of dividends on, and to proceeds from the sale or redemption of, our ordinary shares
made within the United States, or by a U.S. payer or U.S. middleman, to a holder of our ordinary shares, other than an exempt
recipient (including a payee that is not a U.S. person that provides an appropriate certification and certain other persons).
A payer will be required to withhold backup withholding tax from any payments of dividends on, or the proceeds from the sale or
redemption of, ordinary shares within the United States, or by a U.S. payer or U.S. middleman, to a holder, other than an exempt
recipient, if such holder fails to furnish its correct taxpayer identification number or otherwise fails to comply with, or establish
an exemption from, such backup withholding tax requirements. Any amounts withheld under the backup withholding rules will be allowed
as a credit against the beneficial owner’s U.S. federal income tax liability, if any, and any excess amounts withheld under
the backup withholding rules may be refunded, provided that the required information is timely furnished to the Service.



Certain
U.S. Holders who are individuals are required to report information relating to an interest in “specified foreign financial
assets,” including shares issued by a non-U.S. corporation, for any year in which the aggregate value of all specified foreign
financial assets exceeds $ 50,000, subject to certain exceptions (including an exception for ordinary shares held in custodial
accounts maintained with a U.S. financial institution) penalties may be imposed for a failure to disclose such information. U.S.
Holders are urged to consult their tax advisers regarding the effect, if any, of the recent U.S. federal income tax legislation
on their ownership and disposition of ordinary shares.



THE
PRECEDING DISCUSSION OF U.S. FEDERAL INCOME TAX CONSIDERATIONS IS INTENDED FOR GENERAL INFORMATION ONLY AND DOES NOT CONSTITUTE
TAX ADVICE. U.S. HOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE U.S. FEDERAL, STATE, LOCAL AND NON-U.S. TAX CONSEQUENCES
TO THEM OF THE OWNERSHIP AND DISPOSITION OF ORDINARY SHARES IN THEIR PARTICULAR CIRCUMSTANCES.



| | F. | Dividends
                                         and Paying Agents
| | -- | --------------------------------------------------------------------



Not
applicable.



| | G. | Statements
                                         by Experts
| | -- | --------------------------------------------------------------



Not
applicable.



| | H. | Documents
                                         on Display
| | -- | -------------------------------------------------------------



We
file annual and special reports and other information with the SEC. You may inspect and copy such material at the public reference
facilities maintained by the SEC, 100 F Street, N.E., Washington, D.C. 20549. You may also obtain copies of such material from
the SEC at prescribed rates by writing to the Public Reference Section of the SEC, 100 F Street, N.E., Washington, D.C. 20549.
Please call the SEC at 1-800-SEC-0330 for further information on the public reference room.



The
SEC maintains an Internet website at http://www.sec.gov that contains reports, proxy statements, information statements and other
material that are filed through the SEC’s Electronic Data Gathering, Analysis and Retrieval (“EDGAR”) system.
All of the Company’s EDGAR filings as well as additional special filings can be found on the System for Electronic Document
Analysis and Retrieval (“SEDAR”) operated by the Canadian Securities Administrators.



In
addition, we file annual and special reports and other information with the Israeli Securities Authority through its fair disclosure
electronic system called MAGNA. You may review these filings on the website of the MAGNA system operated by the Israeli Securities
Authority at www.magna.isa.gov.il or on the website of the TASE at www.tase.co.il.



Our
ordinary shares are listed on the TASE, the NYSE, and the TSX. Information about us is also available on our website at http://www.gazit-globe.com.
Such information on our website is not part of this annual report.



| | I. | Subsidiary
                                         Information
| | -- | ---------------------------------------------------------------



Not
applicable.





116







|ITEM
    11. | QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
|------------ | ---------------------------------------------------------------



Market
risk is the adverse effect on the value of assets and liabilities that results from a change in the applicable market resulting
from a variety of factors such as perceived risk, interest rate changes, inflation and overall general economic changes. We are
exposed to various financial market risks, primarily from changes in foreign exchange rates, interest rates, changes to the Israeli
CPI and inflation and market prices with respect to securities we hold, mortgages, debentures and swaps. Our comprehensive risk
management policy focuses on activities that seek to reduce the possible adverse effects of market risk on our financial performance.
We have used, and we expect to continue to use, derivative financial instruments to manage these risks in some cases. The following
is additional information about the market risks we are exposed to and how we manage these risks:



Foreign
Currency Risk



We
conduct business in a large number of countries and, as a result, we are exposed to foreign currency fluctuations. A significant
majority of our rental income (assuming full consolidation of jointly-controlled entities and discontinued operations) is generated
in U.S. dollars, Canadian dollars and Euros. For the year ended December 31, 2016, 30.7% of our rental income was earned in Canadian
dollars, 29.7% in Euros, 22.9% in U.S. dollars, 3.0% in Swedish Krona, 5.7% in Norwegian Krone, 3.3% in NIS and 4.7% in other
currencies. Effective as of March 1, 2017, Equity One completed the Regency Merger, and is presented in our audited consolidated
financial statements included elsewhere in this annual report as a discontinued operation. Regency will not be consolidated into
our financial statements in 2017 and instead we will present the investment as an available-for-sale financial asset. Additionally,
we reported on March 20, 2017 that we will deconsolidate First Capital from our financial statements and present the investment
on an equity method basis. In addition, Gazit-Globe’s reporting and functional currency is the New Israeli Shekel and the
reporting and functional currency is separately determined for each of our subsidiaries. When a subsidiary’s functional
currency differs from our reporting currency, the financial statements of such subsidiary are translated to NIS so that they can
be included in our financial statements. As a result, fluctuations of the currencies in which we conduct business relative to
the NIS impact our results of operations and the impact may be material. Changes in the exchange rates will also affect the fair
value of derivative financial instruments (primarily cross-currency swaps) that provide economic hedging but do not meet the criteria
for hedge accounting. The resulting change in the fair value of these instruments is carried to the statement of income under
the finance income or expenses line item, as applicable. In addition, our equity has a currency exposure to the US dollar, Canadian
dollar and Euro. An increase in the exchange rate of other foreign currencies would increase our equity in an investment, while
a decrease in their exchange rates would decrease our equity in such investment. Our goal is to maintain as close an economic
correlation as possible between the currency in which our assets are acquired and the currency in which we incur liabilities to
finance the acquisition of those assets in order to maintain our equity in the currencies of the various markets we operate in,
and in proportion to the various currencies of our total assets. The following table presents information about the changes in
the exchange rates of the principal currencies that impact our results of operations:



|              |  | Average Exchange Rates During Period |     
|------------- |  | ------------------------------------ | ----
|              |  | U.S.$ Against NIS (%)                |     
|2016 vs. 2015 |  |                                      | (1.2
|2015 vs. 2014 |  |                                      | 8.6 
|2014 vs. 2013 |  |                                      | (0.9



Assuming
a 10% decrease in the U.S. dollar relative to the NIS and assuming no other change, our net operating income would have decreased
by NIS 110 million in 2016. Assuming a 10% decrease in the Canadian dollar relative to the NIS and assuming no other change, our
net operating income would have decreased by NIS 122 million in 2016. Assuming a 10% decrease in the Euro relative to the NIS
and assuming no other change, our net operating income would have decreased by NIS 105 million in 2016.





117







From
time to time we enter into hedging transactions to reduce exposure to fluctuations in the exchange rates of foreign currencies.
As of December 31, 2016, we had the following foreign currency hedge portfolio:



|Transaction Type    |  | Currency             |  | Notional Amounts (NIS in millions) |        |  | Average Duration in Years |  |             | Fair Value (NIS in millions) | 
|------------------- |  | -------------------- |  | ---------------------------------- | ------ |  | ------------------------- |  | ----------- | ---------------------------- | 
|Cross-currency swap |  | EUR-NIS              |  |                                    | 4,641  |  |                           |  | 7           |                              | 
|Cross-currency swap |  | U.S.$-NIS            |  |                                    | 631    |  |                           |  | 4           |                              | 
|Cross-currency swap |  | C$-NIS               |  |                                    | 1,626  |  |                           |  | 7           |                              | 
|Cross-currency swap |  | BRL-NIS              |  |                                    | 92     |  |                           |  | 1           |                              | 
|Cross-currency swap |  | U.S.$-C$             |  |                                    | 428    |  |                           |  | -           |                              | 
|Cross-currency swap |  | Swedish Krona-Euro   |  |                                    | 1,415  |  |                           |  | 5           |                              | 
|Cross-currency swap |  | Norwegian Krone-Euro |  |                                    | 436    |  |                           |  | 6           |                              | 
|Forward contracts   |  | Various currencies   |  |                                    | 3,595  |  |                           |  | Less than 1 |                              | 
|Call option         |  | NIS-C$               |  |                                    | 328    |  |                           |  | -           |                              | 
|Total               |  |                      |  |                                    | 13,192 |  |                           |  |             |                              | 



These
foreign currency hedge transactions may also include interest exchange features. For further information refer to Note 36(c) to
our audited consolidated financial statements included elsewhere in this annual report and for the impact of changes in interest
yields, foreign currency exchanges and the Israeli CPI on the fair value of our hedging transactions, refer to the sensitivity
analysis in Note 36(f) to our audited consolidated financial statements included elsewhere in this annual report.



Consumer
Price Index/Inflation Risk



Our
foreign currency hedge transactions may include interest exchange features. For further information, refer to Note 36(c) to our
audited consolidated financial statements included elsewhere in this annual report, and for the impact of changes in interest
yields, foreign currency exchanges and the Israeli CPI on the fair value of our hedging transactions, refer to the sensitivity
analysis in Note 36(f) to our audited consolidated financial statements included elsewhere in this annual report.



Assuming
an increase of 1% in the Israeli CPI, our pre-tax equity would have decreased and, assuming a decrease of 1% in the CPI, our pre-tax
equity would have increased, by NIS 110 and NIS 116 million as of December 31, 2016 and December 31, 2015, respectively. Including
the partial offset impact of our cross currency swaps, our pre-tax income would decrease/increase as of the same dates by NIS
53 and NIS 55 million, respectively.



Most
of our leases contain provisions designed to partially mitigate any adverse impact of inflation. Although inflation has been low
in recent periods and has had a minimal impact on our performance, recent data suggests that inflation may be a greater concern
in the future given economic conditions and governmental fiscal policy. Most of our leases require the tenant to pay its share
of operating expenses, including common area maintenance, real estate taxes and insurance, thereby reducing our exposure to increases
in costs and operating expenses resulting from inflation. Some of our leases also include clauses enabling us to receive percentage
rents based on a tenant’s gross sales above predetermined levels, which sales generally increase as prices rise, or escalation
clauses which are typically related to increases during 2016 and 2015 in the CPI or similar inflation indices.



Credit
Risk



The
financial strength of our tenants affects our results. We are not exposed to significant concentration of credit risks. We regularly
evaluate the quality of our tenants and the scope of credit extended to our tenants. Accordingly, we provide an allowance for
doubtful accounts based on the credit risk with respect to certain tenants. Cash and deposits are maintained with major financial
institutions. Our management estimates that the risk that these parties will fail to meet their obligations is remote, since they
are financially sound.





118







Interest
Rate Risk



Our
interest rate risk arises primarily from long-term liabilities under our credit facilities. Liabilities with variable interest
rates expose us to interest rate risk with respect to cash flow and liabilities bearing fixed interest rates expose us to interest
rate risk with respect to fair value. From time to time and according to market conditions, we enter into interest rate swaps
in which we exchange variable interest with fixed interest and, vice-versa, to hedge our liabilities against changes in interest
rate. As of December 31, 2016, we had the following interest rate hedge portfolio:



|Transaction Type                   |  | Denomination    |  | Notional Amount (NIS in millions) |       |  | Interest Receivable |          | Interest Payable |       | Average Effective Duration |  |      | Fair Value (NIS in millions) | 
|---------------------------------- |  | --------------- |  | --------------------------------- | ----- |  | ------------------- | -------- | ---------------- | ----- | -------------------------- |  | ---- | ---------------------------- | 
|Interest rate swaps fixed/variable |  | C$              |  |                                   | 1,038 |  |                     | variable |                  | fixed |                            |  | 7.37 |                              | 
|Interest rate swaps fixed/variable |  | €               |  |                                   | 464   |  |                     | variable |                  | fixed |                            |  | 1.7  |                              | 
|Interest rate swaps fixed/variable |  | Norwegian Krone |  |                                   | 1,001 |  |                     | variable |                  | fixed |                            |  | 4.3  |                              | 



As
of December 31, 2016 and 2015, 85.9% and 86.4% of our interest bearing liabilities, respectively (83.7% and 80.4% excluding interest
rate swaps, respectively), were at fixed interest rates.



The
following table presents information showing the impact that a 1% absolute increase in interest rates would have on pre-tax income
(loss) for the year:



|                                                                               |  | Sensitivity Analysis for Liabilities in Variable Interest |    
|------------------------------------------------------------------------------ |  | --------------------------------------------------------- | ---
|Impact on Pre-Tax Income (Loss) for the Year of a 1% Increase in Interest Rate |  | U.S.$ Interest                                            |    
|                                                                               |  | NIS in millions                                           |    
|December 31, 2016                                                              |  |                                                           | (22
|December 31, 2015                                                              |  |                                                           | (56



|                                |  | Sensitivity Analysis for Fair Value of Derivatives — Absolute changes in Consumer Price Index |    
|------------------------------- |  | --------------------------------------------------------------------------------------------- | ---
|Effect on Pre-Tax Income (Loss) |  | 2%                                                                                            |    
|                                |  | NIS in millions                                                                               |    
|December 31, 2016               |  |                                                                                               | 114
|December 31, 2015               |  |                                                                                               | 122



The
following tables present information showing the impact that a 2% to 1% absolute increase/decrease in interest rates would have
on our pre-tax income and pre-tax equity:



|                                     |  | Sensitivity Analysis for Fair Value of Derivatives— Absolute changes in Interest Rates |     
|------------------------------------ |  | -------------------------------------------------------------------------------------- | ----
|Effect on Pre-Tax Income (Loss)      |  | 2%                                                                                     |     
|                                     |  | NIS in millions                                                                        |     
|December 31, 2016                    |  |                                                                                        |     
|Change in interest on €              |  |                                                                                        | 422 
|Change in interest on U.S.$          |  |                                                                                        | 30  
|Change in interest on C$             |  |                                                                                        | 199 
|Change in interest on Brazilian Real |  |                                                                                        | 1   
|Change in nominal interest on NIS    |  |                                                                                        | (238
|Change in real interest on NIS       |  |                                                                                        | (683



|                                            |  | Sensitivity Analysis for Fair Value of Derivatives— Absolute changes in Interest Rates |    
|------------------------------------------- |  | -------------------------------------------------------------------------------------- | ---
|Effect on Pre-Tax Equity (Accounting Hedge) |  | 2%                                                                                     |    
|                                            |  | NIS in millions                                                                        |    
|December 31, 2016                           |  |                                                                                        |    
|Change in interest on €                     |  |                                                                                        | (51
|Change in interest on C$                    |  |                                                                                        | 195
|Change in interest on Norwegian Krone       |  |                                                                                        | 123



The
above sensitivity analyses refer to a potential increase in the relevant variables at rates that the Company deems appropriate.
The same is true for a decrease in the same percentage which would impact profit or loss by the same amounts in the opposite direction,
unless otherwise indicated. The sensitivity analyses for changes in interest rates were performed on the balance as of the reporting
date of long-term liabilities with variable interest. Cash and cash equivalents, including financial assets that are deposited
or maintained for less than one year, were not included in the analyses of exposure to changes in interest.





119







Price
Risk



We
have investments in marketable financial instruments traded on securities exchanges, such as shares, participation certificates
in mutual funds and debentures, which are classified as available-for-sale financial assets or as financial assets measured at
fair value through profit or loss, with respect to which we are exposed to risks associated with fluctuations in market prices
on stock exchanges. The carrying amount of these investments as of December 31, 2016 and December 31, 2015 was NIS 212 and 354
NIS million, respectively. This exposure is not hedged.



Effective
as of March 1, 2017, Equity One completed the Regency Merger. Regency will not be consolidated into our financial statements in
2017 and instead we will present the investment as an available-for-sale financial asset.



|ITEM
    12. | DESCRIPTION
    OF SECURITIES OTHER THAN EQUITY SECURITIES
|------------ | ----------------------------------------------------------



Not
applicable.



PART
II



|ITEM
    13. | DEFAULTS,
    DIVIDEND ARREARAGES AND DELINQUENCIES
|------------ | ---------------------------------------------------



None.



|ITEM
    14. | MATERIAL
    MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
|------------ | --------------------------------------------------------------------------------



On
April 20, 2016, we amended our articles of association to eliminate our staggered board of directors. All non-external directors
will now be eligible for election or re-election annually, for a period that concludes at the next annual general meeting of shareholders.
No other amendments to the articles of association were adopted.



|ITEM
    15. | CONTROLS
    AND PROCEDURES
|------------ | ---------------------------



Disclosure
Controls and Procedures



Our
Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures
(as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this annual report, have concluded that, as
of such date, our disclosure controls and procedures were effective to ensure that the information required in the reports that
we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in
the SEC’s rules and forms, and such information is accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.



Management’s
Annual Report on Internal Control over Financial Reporting



The
Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting.
Our internal control system was designed to provide reasonable assurance to the Company’s management regarding the reliability
of financial reporting and the preparation and fair presentation of our published consolidated financial statements.



Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures may deteriorate.



The
Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December
31, 2016. In making this assessment, it used the criteria established in Internal Control—Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (COSO). Based on such assessment, management
has concluded that, as of December 31, 2016, our internal control over financial reporting is effective based on those criteria.



Attestation
Report of the Registered Public Accounting Firm



The
effectiveness of the Company’s internal control over financial reporting as of December 31, 2016 has been audited by the
Company’s independent registered public accounting firm, Kost Forer Gabbay & Kasierer, a member of Ernst & Young
Global, and their report dated as of March 26, 2017 herein expresses an unqualified opinion on the Company’s internal control
over financial reporting.



Changes
in Internal Control over Financial Reporting



There
were no changes to the Company’s internal control over financial reporting that occurred during the period covered by this
annual report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control
over financial reporting.





120







|ITEM
    16. | [RESERVED]
|------------ | ----------



|ITEM
    16A. | AUDIT
    COMMITTEE FINANCIAL EXPERT
|------------- | ------------------------------------



Our
board of directors has determined that Ms. Zehavit Cohen qualifies as an audit committee financial expert, as defined by the rules
of the SEC and has the requisite accounting or related financial management expertise referenced by the NYSE Listed Company Manual.
In addition, Ms. Cohen is independent as such term is defined in Rule 10A-3(b)(1) under the Securities Exchange Act of 1934, as
amended, and is an independent director under Section 303A.02 of the New York Stock Exchange Listed Company Manual.



|ITEM
    16B. | CODE
    OF ETHICS
|------------- | ------------------



We
have adopted a code of business conduct applicable to our executive officers (including our principal executive officer, principal
financial officer and principal accounting officer or controller), directors and all other employees. A copy of the code is delivered
to every employee of Gazit-Globe Ltd. and every employee of its private subsidiaries, and is available to investors and others
on the Company’s website at http://www.gazit-globe.com or by contacting the Company’s investor relations department.
Any waivers of this code for executive officers or directors will be disclosed through the filing of a Form 6-K or on the Company’s
website. The Company has also implemented a training program for new and existing employees concerning the code of business conduct.



|ITEM
    16C. | PRINCIPAL
    ACCOUNTANT FEES AND SERVICES
|------------- | ------------------------------------------



Policy
on Pre-approval of Audit and Non-Audit Services of Independent Registered Public Accounting Firm



Our
audit committee is responsible for the oversight of our independent registered public accounting firm’s work. The audit
committee’s policy is to pre-approve all audit and non-audit services provided by Ernst & Young, an independent registered
public accounting firm. These services may include audit services, audit-related services, tax services and other services, as
further described below. The audit committee sets forth the basis for its pre-approval in detail, listing the particular services
or categories of services which are pre-approved. Additional services may be pre-approved by the audit committee on an individual
basis. Once services have been pre-approved, management must notify the audit committee prior to Ernst & Young commencing
a new service. Ernst & Young and management then report to the audit committee on a periodic basis regarding the extent of
services actually provided in accordance with the applicable pre-approval, and regarding the fees for the services performed.
Such fees for 2016 and 2015 were pre-approved by the audit committee in accordance with these procedures.



Principal
Accountant Fees and Services



The
Company paid the following fees for professional services rendered by Ernst & Young, an independent registered public accounting
firm, for the years ended December 31, 2016 and 2015:



|                   |  | 2016                 |       |  | 2015 | 
|------------------ |  | -------------------- | ----- |  | ---- | 
|                   |  | (U.S.$ in thousands) |      
|Audit Fees         |  |                      | 3,956 |  |      | 
|Audit-Related Fees |  |                      | 1,033 |  |      | 
|Tax Fees           |  |                      | 775   |  |      | 
|Total              |  |                      | 5,764 |  |      | 



The
audit fees for the years ended December 31, 2016 and 2015 were for professional services rendered for the audit of the Company’s
annual consolidated financial statements, the audit of the effectiveness of internal controls over financial reporting as required
by the U.S. SEC as of December 31, 2016, and the Israeli Securities Regulations as of December 31, 2016 and 2015, the review of
consolidated quarterly financial statements, statutory audits of its subsidiaries, issuance of consents and assistance with the
review of documents filed with the Israeli Securities Authority and the SEC.



The
audit-related fees for the years ended December 31, 2016 and 2015 were for services with respect to accounting consultations,
attest services that are not required by statute or regulation, consultations concerning financial accounting and reporting standards.



Tax
fees for the years ended December 31, 2016 and 2015 were for services related to tax compliance, including the preparation of
tax returns and claims for a refund, tax planning and tax advice, including assistance with tax audits and appeals, and assistance
with respect to requests for rulings from tax authorities.





121







|ITEM
    16D. | EXEMPTIONS
    FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
|------------- | --------------------------------------------------------------



Not
applicable.



|ITEM
    16E. | PURCHASES
    OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
|------------- | --------------------------------------------------------------------------



None.



|ITEM
    16F. | CHANGE
    IN REGISTRANT’S CERTIFYING ACCOUNTANT
|------------- | ------------------------------------------------



None.



|ITEM
    16G. | CORPORATE
    GOVERNANCE
|------------- | ------------------------



Except
as otherwise indicated, we comply with corporate governance standards as currently applicable to us under Israeli, U.S., SEC and
NYSE laws and regulations. Under the NYSE rules, as a foreign private issuer, we may elect to follow certain corporate governance
practices permitted under the Israeli Companies Law in lieu of compliance with corresponding corporate governance requirements
otherwise imposed by the NYSE rules for U.S. domestic issuers. We currently follow the provisions of the Israeli Companies Law,
rather than the NYSE Listed Company Manual, solely with respect to the below-described matter:



Approval
of share issuances to officers, directors and 5% securityholders



Under
the NYSE Listed Company Manual, shareholder approval is generally required prior to the issuance of more than one percent of the
outstanding number of shares or voting power of the company to a director, officer or 5% securityholder of the company, or a related
party, or certain companies, entities or persons with relationships with the related party. The NYSE Listed Company Manual also
provides that if the related party involved in the transaction is classified as such solely because such person is a 5% securityholder,
and if the issuance relates to a sale of stock for cash at a price at least as great as each of the book and market value of the
issuer's common stock, then shareholder approval will not be required unless the number of shares exceeds five percent of either
the outstanding number of shares or voting power of the company.



We
have elected instead to be governed by Israeli law, under which an issuance of shares to a controlling shareholder or an issuance
of shares pursuant to a transaction in which a controlling shareholder has a personal interest requires approval by the audit
committee (or, in the case of a compensatory issuance, the compensation committee) and the board of directors and then approval
at the general meeting of shareholders that meets the special majority requirements described above for extraordinary transactions
with controlling shareholders under “Additional Information—Memorandum and Articles of Association—Disclosure
of Personal Interests of Controlling Shareholders and Approval of Certain Transactions”; provided, that if the audit committee
and board of directors determine that the transaction is not an extraordinary transaction—i.e., it is on market terms, is
in the ordinary course of business and is not likely to have a material impact on the Company’s assets, liabilities or profitability—
shareholder approval will not be required.



In
the case of a security issuance to a director or executive officer, approval of the board of directors is sufficient, unless the
issuance is an extraordinary transaction, in which case it would also require approval of the audit committee, or if it is part
of compensation for the officer or director, in which case it would require approval of the compensation committee and board of
directors, and, with respect to a director and Chief Executive Officer, approval of a general meeting of shareholders. As indicated
above, a significant private placement would require approval of the board of directors and then approval at a general meeting
of shareholders.



In
addition to the foregoing departure from U.S. corporate governance rules, we are also not currently obligated to follow additional
corporate governance practices promulgated by the TSX provided that no more than 25% of the trading volume in our ordinary shares
over any six-month period occurs on the TSX and another stock exchange is providing review of the action in question.



|ITEM
    16H. | MINE
    SAFETY DISCLOSURE
|------------- | --------------------------



Not
applicable.





122







PART
III



|ITEM
    17. | Not
    applicable
|------------ | ------------------



We
have responded to Item 18 in lieu of this item.



|ITEM
    18. | FINANCIAL
    STATEMENTS
|------------ | ------------------------



The
financial statements required by this item are found at the end of this annual report, beginning on page F-1.





|                                                                                              | Page   
|--------------------------------------------------------------------------------------------- | -------
|Reports of Independent Registered Public Accounting Firm                                      | F - 2  
|Consolidated Statements of Financial Position                                                 | F - 4  
|Consolidated Statements of Income                                                             | F - 6  
|Consolidated Statements of Comprehensive Income                                               | F - 7  
|Consolidated Statements of Changes in Equity                                                  | F - 8  
|Consolidated Statements of Cash Flow                                                          | F - 12 
|Notes to Consolidated Financial Statements                                                    | F - 15 
|Appendix A to Consolidated Financial Statements - List of Major Group Investees               | F - 124
|Appendix B to Consolidated Financial Statements - Schedule III of rule 5-04 of regulation S-X | F - 125
|Reports of the other Auditor                                                                  | F - 127







123







|ITEM
    19. | EXHIBITS
|------------ | --------



|No.  |  | Description                                                                                                                                                                                                                                                                                                                                                                                                              
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1.1  |  | Articles of Association of the registrant, as amended (incorporated by reference to Exhibit 99.1 to the Report on Form 6-K that was furnished to the SEC on April 20, 2016) ∞                                                                                                                                                                                                                                            
|1.2  |  | Memorandum of Association of the registrant, as amended (incorporated by reference to Exhibit 1.2 to our Annual Report on Form 20-F for the year ended December 31, 2012, which was filed with the SEC on April 22, 2013) ∞                                                                                                                                                                                              
|4.1  |  | Amended and Restated Facility Agreement among the registrant, Bank Hapoalim B.M., Israel Discount Bank Ltd and Union Bank of Israel Ltd., dated December 31, 2013 (incorporated by reference to Exhibit 99.2 to the Report on Form 6-K that was furnished to the SEC on January 2, 2014) +                                                                                                                               
|4.2  |  | Amending Agreement, dated January 21, 2015, between registrant, Bank Hapoalim B.M. Israel Discount Bank Ltd, and Union Bank of Israel Ltd. (incorporated by reference to Exhibit 99.2 to the Report on Form 6-K that was furnished to the SEC on January 26, 2015).                                                                                                                                                      
|4.3  |  | Credit Facility Agreement between the registrant and Israel Discount Bank Ltd., dated May 17, 2010, and amendment thereto (incorporated by reference to Exhibit 10.8 to the Registration Statement on Form F-1 that was filed with the SEC on December 5, 2011 (Registration No. 333-178320)) +                                                                                                                          
|4.4  |  | Amendment No. 2 to the Credit Facility Agreement between the registrant and Israel Discount Bank Ltd., dated June 28, 2012 (incorporated by reference to Exhibit 4.9 to our Annual Report on Form 20-F for the year ended December 31, 2012, which was filed with the SEC on April 22, 2013) +                                                                                                                           
|4.5  |  | Amendment No. 3 to the Credit Facility Agreement between the registrant and Israel Discount Bank Ltd., dated November 30, 2014 (incorporated by reference to Exhibit 99.2 to the Report on Form 6-K that was furnished to the SEC on December 3, 2014) +                                                                                                                                                                 
|4.6  |  | Facility Agreement between the registrant and Bank Hapoalim, B.M., dated July 13, 2010, and amendment thereto (incorporated by reference to Exhibit 10.9 to the Registration Statement on Form F-1 that was filed with the SEC on December 5, 2011 (Registration No. 333-178320)) +                                                                                                                                      
|4.7  |  | Facility Agreement between Gazit Canada Inc. and Bank Hapoalim, B.M., dated July 13, 2010, and amendments thereto (incorporated by reference to Exhibit 10.10 to the Registration Statement on Form F-1 that was filed with the SEC on December 5, 2011 (Registration No. 333-178320)) +                                                                                                                                 
|4.8  |  | Third Amendment to the Facility Agreement between the registrant and Bank Hapoalim, B.M., dated December 31, 2012 and the addendum thereto dated January 13, 2013 (incorporated by reference to Exhibit 99.1 to the Report on Form 6-K that was furnished to the SEC on March 13, 2013) +                                                                                                                                
|4.9  |  | Third Amendment to the Facility Agreement between Gazit Canada Inc. and Bank Hapoalim, B.M., dated December 31, 2012 and the addendum dated thereto January 13, 2013 (incorporated by reference to Exhibit 99.2 to the Report on Form 6-K that was furnished to the SEC on March 13, 2013) +                                                                                                                             
|4.10 |  | Private Allotment Agreement between the registrant and Gazit Inc. (now known as Norstar Holdings Inc.) with respect to the private placement dated October 15, 2009 (incorporated by reference to Exhibit 10.13 to the Registration Statement on Form F-1 that was filed with the SEC on December 5, 2011 (Registration No. 333-178320))                                                                                 
|4.11 |  | Master Agreement, comprised of an amendment to a Management Agreement, an amendment to a Restructuring Agreement, and a Registration Rights Agreement between the registrant, Norstar Israel Ltd., and Norstar Holdings Inc., dated February 1, 2012 (incorporated by reference to Exhibit 4.15 to our Annual Report on Form 20-F for the year ended December 31, 2011, which was filed with the SEC on April 27, 2012) ∞
|4.12 |  | Arrangement Agreement, by and among the registrant, First Capital Realty Inc. and Gazit America Inc., dated June 20, 2012 (incorporated by reference to Exhibit 4.22 to our Annual Report on Form 20-F for the year ended December 31, 2012, which was filed with the SEC on April 22, 2013)                                                                                                                             
|4.13 |  | Governance Agreement, by and between the registrant and CPP Investment Board European Holdings S.à r.l with respect to Citycon Oyj., dated May 12, 2014 (incorporated by reference to Exhibit 99.1 to the Report on Form 6-K that was furnished to the SEC on June 10, 2014)                                                                                                                                             
|4.14 |  | Transaction Agreement among Atrium European Real Estate, Gazit Midas Limited and CPI CEE Management LLC, dated September 2, 2009 (incorporated by reference to Exhibit 10.1 to the Registration Statement on Form F-1 that was filed with the SEC on December 5, 2011 (Registration No. 333-178320)).                                                                                                                    
|4.15 |  | Amended and Restated Relationship Agreement among Atrium European Real Estate, Gazit Midas Limited and CPI CEE Management LLC, dated September 2, 2009 (incorporated by reference to Exhibit 10.2 to the registration statement on Form F-1 that was filed with the SEC on December 5, 2011 (Registration No. 333-178320)).                                                                                              
|4.16 |  | Third Amended and Restated Margin Loan Agreement, dated as of October 26, 2016, by and among Gazit-Globe Ltd., MGN (USA) Inc.,various lenders party thereto and Citbank N.A., as amended by the First Amendment, dated December 2, 2016, and the Second Amendment, dated March 1, 2017 (incorporated by reference to Exhibit 99.1 to the Report on Form 6-K that was furnished to the SEC on March 16, 2017) +           
|4.17 |  | Governance Agreement, dated November 14, 2016, by and among the registrant, Regency Centers Corporation and various affiliated entities of the registrant (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by Regency Centers Corporation with the SEC on November 15, 2016)                                                                                                           
|8.1  |  | List of subsidiaries of the registrant                                                                                                                                                                                                                                                                                                                                                                                   
|10.1 |  | Consent of Kost Forer Gabbay & Kasierer                                                                                                                                                                                                                                                                                                                                                                                  
|10.2 |  | Consent of KPMG Channel Islands Limited                                                                                                                                                                                                                                                                                                                                                                                  
|12.1 |  | Certificate of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to §302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                   
|12.2 |  | Certificate of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to §302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                   
|13.1 |  | Certificate of Chief Executive Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                        
|13.2 |  | Certificate of Chief Financial Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                        








|∞ | English
translation of original Hebrew document.                                                                                                 
|- | -------------------------------------------------------------------------------------------------------------------------------------------------
|+ | Portions of these exhibits
have been omitted pursuant to a request for confidential treatment. The omitted portions have been filed with the SEC.



124







Signatures



The
registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized
the undersigned to sign this annual report on its behalf.



| | GAZIT-GLOBE
    LTD.
| | --------------------
| |                     
| | By:                 
| |                     



Date:
April 27, 2017





125







GAZIT-GLOBE LTD.



CONSOLIDATED FINANCIAL STATEMENTS



AS OF DECEMBER 31, 2016



INDEX





|                                                                                              | Page   
|--------------------------------------------------------------------------------------------- | -------
|Reports of Independent Registered Public Accounting Firm                                      | F - 2  
|Consolidated Statements of Financial Position                                                 | F - 4  
|Consolidated Statements of Income                                                             | F - 6  
|Consolidated Statements of Comprehensive Income                                               | F - 7  
|Consolidated Statements of Changes in Equity                                                  | F - 8  
|Consolidated Statements of Cash Flow                                                          | F - 12 
|Notes to Consolidated Financial Statements                                                    | F - 15 
|Appendix A to Consolidated Financial Statements - List of Major Group Investees               | F - 124
|Appendix B to Consolidated Financial Statements - Schedule III of rule 5-04 of regulation S-X | F - 125
|Reports of the other Auditor                                                                  | F - 127



F-1








| | Kost
                                         Forer Gabbay & Kasierer
        3
        Aminadav St.
        Tel-Aviv
        6706703, Israel | Tel:
                                         +972-3-6232525
        Fax:
        +972-3-5622555
        ey.com
| | --------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------





REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To
the Shareholders and Board of Directors of Gazit Globe LTD.



We
have audited Gazit Globe, Ltd. (the "Company") and subsidiaries’ internal control over financial reporting as
of December 31, 2016, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 framework) (the "COSO criteria"). The Company's management is responsible
for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control
over financial reporting included in the accompanying management's report on internal control over financial reporting. Our responsibility
is to express an opinion on the Company's internal control over financial reporting based on our audit.



We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial
reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinion.



A
company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have
a material effect on the financial statements.



Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures may deteriorate.



In
our opinion, the Company and subsidiaries maintained in all material respects, effective internal control over financial reporting
as of December 31, 2016, based on the COSO criteria.



We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated
statements of financial position of the Company and subsidiaries as of December 31, 2016 and 2015, the related consolidated statements
of income, comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31,
2016 and the financial statement schedule of investment property information and our report dated March 26, 2017 expressed an
unqualified opinion thereon based on our audits and the reports of the other auditors.



|Tel-Aviv,
    Israel | KOST
    FORER GABBAY & KASIERER    
|-------------------- | ------------------------------------
|March
    26, 2017   | A
    Member of Ernst & Young Global





F-2










| | Kost
                                         Forer Gabbay & Kasierer
        3
        Aminadav St.
        Tel-Aviv
        6706703, Israel | Tel:
                                         +972-3-6232525
        Fax:
        +972-3-5622555
        ey.com
| | --------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------



REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To
the Shareholders and Board of Directors of Gazit Globe LTD.



We
have audited the accompanying consolidated statements of financial position of Gazit Globe, Ltd. (the "Company") and
subsidiaries as of December 31, 2016 and 2015 and the related consolidated statements of income, comprehensive income, changes
in equity and cash flows for each of the three years in the period ended December 31, 2016. Our audits also included the
financial statement schedule of investment property information (the "schedule"). These financial statements and schedule
are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements
and schedule based on our audits.



We
did not audit the financial statements of a certain subsidiary, previously an associate accounted for using the equity method
and was initially consolidated in 2015, whose assets constituted approximately 15% and 16% of total consolidated assets as of
December 31, 2016 and 2015, respectively and whose revenues constituted approximately 23% and 16% of respective total consolidated
revenues for the years then ended. Furthermore, the Company's share in its losses amounted to NIS 111 million for the year ended
December 31, 2014. The financial statements of this entity were audited by other auditors, whose reports have been furnished to
us, and our opinion, insofar as it relates to amounts included for this entity is based on the reports of the other auditors.



We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of the other auditors
provide a reasonable basis for our opinion.



In
our opinion, based on our audits and the reports of the other auditors, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of the Company and subsidiaries as of December 31,
2016 and 2015 and the related consolidated results of their operations and their cash flows for each of the three years in the
period ended December 31, 2016, in conformity with International Financial Reporting Standards as issued by the International
Accounting Standards Board. Also, in our opinion, based on our audits, the schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects the information set forth therein.



We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company
and subsidiaries' internal control over financial reporting as of December 31, 2016, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and
our report dated March 26, 2017 expressed an unqualified opinion thereon.



|Tel-Aviv,
    Israel | KOST
    FORER GABBAY & KASIERER    
|-------------------- | ------------------------------------
|March
    26, 2017   | A
    Member of Ernst & Young Global





F-3








GAZIT-GLOBE
LTD.

CONSOLIDATED
STATEMENTS OF FINANCIAL POSITION



|                                                   |  |      |  | Convenience      |        |  |              |  |        |      | 
|-------------------------------------------------- |  | ---- |  | ---------------- | ------ |  | ------------ |  | ------ | ---- | 
|                                                   |  |      |  | translation      |        |  |              |  |        |      | 
|                                                   |  |      |  | (Note
    2d(1)) |        |  |              |  |        |      | 
|                                                   |  |      |  | December 31,     |        |  | December 31, | 
|                                                   |  |      |  | 2016             |        |  | 2016         |  |        | 2015 | 
|                                                   |  | Note |  | U.S.
    dollars |        |  | NIS          | 
|                                                   |  |      |  | In
    millions  |       
|ASSETS                                             |  |      |  |                  |        |  |              |  |        |      | 
|CURRENT ASSETS                                     |  |      |  |                  |        |  |              |  |        |      | 
|Cash
    and cash equivalents                      |  | 3    |  |                  | 395    |  |              |  | 1,520  |      | 
|Short-term investments
    and loans               |  | 4a   |  |                  | 25     |  |              |  | 96     |      | 
|Marketable securities                              |  | 4b   |  |                  | 55     |  |              |  | 212    |      | 
|Financial derivatives                              |  | 36c  |  |                  | 25     |  |              |  | 98     |      | 
|Trade receivables                                  |  | 5    |  |                  | 42     |  |              |  | 163    |      | 
|Other accounts receivable                          |  | 6    |  |                  | 86     |  |              |  | 329    |      | 
|Inventory of buildings
    and apartments for sale |  | 7    |  |                  | 4      |  |              |  | 14     |      | 
|Income
    taxes receivable                        |  |      |  |                  | 7      |  |              |  | 26     |      | 
|                                                   |  |      |  |                  | 639    |  |              |  | 2,458  |      | 
|Assets classified
    as held for sale             |  | 8    |  |                  | 5,496  |  |              |  | 21,132 |      | 
|                                                   |  |      |  |                  | 6,135  |  |              |  | 23,590 |      | 
|NON-CURRENT ASSETS                                 |  |      |  |                  |        |  |              |  |        |      | 
|Equity-accounted
    investees                     |  | 9    |  |                  | 545    |  |              |  | 2,097  |      | 
|Other investments,
    loans and receivables       |  | 10   |  |                  | 318    |  |              |  | 1,223  |      | 
|Available-for-sale
    financial assets            |  | 11   |  |                  | 100    |  |              |  | 384    |      | 
|Financial derivatives                              |  | 36c  |  |                  | 134    |  |              |  | 516    |      | 
|Investment property                                |  | 12   |  |                  | 14,560 |  |              |  | 55,982 |      | 
|Investment property
    under development          |  | 13   |  |                  | 550    |  |              |  | 2,113  |      | 
|Fixed assets, net                                  |  | 14   |  |                  | 39     |  |              |  | 152    |      | 
|Intangible assets,
    net                         |  | 15   |  |                  | 212    |  |              |  | 815    |      | 
|Deferred
    taxes                                 |  | 25p  |  |                  | 4      |  |              |  | 15     |      | 
|                                                   |  |      |  |                  | 16,462 |  |              |  | 63,297 |      | 
|                                                   |  |      |  |                  | 22,597 |  |              |  | 86,887 |      | 







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





F-4








GAZIT-GLOBE
LTD.

CONSOLIDATED
STATEMENTS OF FINANCIAL POSITION



|                                                         |  |      |  | Convenience      |        |   |                  |  |        |      | 
|-------------------------------------------------------- |  | ---- |  | ---------------- | ------ | - | ---------------- |  | ------ | ---- | 
|                                                         |  |      |  | translation      |        |   |                  |  |        |      | 
|                                                         |  |      |  | (Note
    2d(1)) |        |   |                  |  |        |      | 
|                                                         |  |      |  | December 31,     |        |   | December
    31, | 
|                                                         |  |      |  | 2016             |        |   | 2016             |  |        | 2015 | 
|                                                         |  | Note |  | U.S.
    dollars |        |   | NIS              | 
|                                                         |  |      |  | In
    millions  |       
|LIABILITIES AND EQUITY                                   |  |      |  |                  |        |   |                  |  |        |      | 
|CURRENT LIABILITIES                                      |  |      |  |                  |        |   |                  |  |        |      | 
|Credit
    from banks and others                         |  | 16   |  |                  | 202    |   |                  |  | 775    |      | 
|Current maturities
    of non-current liabilities        |  | 17   |  |                  | 791    |   |                  |  | 3,043  |      | 
|Financial derivatives                                    |  | 36c  |  |                  | 12     |   |                  |  | 47     |      | 
|Trade payables                                           |  | 18   |  |                  | 98     |   |                  |  | 377    |      | 
|Other accounts payable                                   |  | 19   |  |                  | 473    |   |                  |  | 1,820  |      | 
|Advances from customers
    and buyers of apartments     |  | 7    |  |                  | -      |   |                  |  | -      |      | 
|Income
    taxes payable                                 |  |      |  |                  | 24     |   |                  |  | 93     |      | 
|                                                         |  |      |  |                  | 1,600  |   |                  |  | 6,155  |      | 
|Liabilities attributed
    to assets held for sale       |  | 8    |  |                  | 1,827  |   |                  |  | 7,024  |      | 
|                                                         |  |      |  |                  | 3,427  |   |                  |  | 13,179 |      | 
|NON-CURRENT LIABILITIES                                  |  |      |  |                  |        |   |                  |  |        |      | 
|Debentures                                               |  | 20   |  |                  | 7,105  |   |                  |  | 27,319 |      | 
|Convertible debentures                                   |  | 21   |  |                  | 77     |   |                  |  | 296    |      | 
|Interest-bearing
    loans from banks and others         |  | 22   |  |                  | 2,128  |   |                  |  | 8,183  |      | 
|Financial derivatives                                    |  | 36c  |  |                  | 13     |   |                  |  | 50     |      | 
|Other liabilities                                        |  | 23   |  |                  | 74     |   |                  |  | 283    |      | 
|Deferred
    taxes                                       |  | 25p  |  |                  | 991    |   |                  |  | 3,809  |      | 
|                                                         |  |      |  |                  | 10,388 |   |                  |  | 39,940 |      | 
|EQUITY ATTRIBUTABLE
    TO EQUITY HOLDERS OF THE COMPANY |  | 27   |  |                  |        |   |                  |  |        |      | 
|Share capital                                            |  |      |  |                  | 65     |   |                  |  | 249    |      | 
|Share premium                                            |  |      |  |                  | 1,298  |   |                  |  | 4,992  |      | 
|Retained earnings                                        |  |      |  |                  | 1,482  |   |                  |  | 5,699  |      | 
|Foreign currency
    translation reserve                 |  |      |  |                  | (847   | ) |                  |  | (3,257 | )    | 
|Other reserves                                           |  |      |  |                  | 129    |   |                  |  | 496    |      | 
|Treasury shares                                          |  |      |  |                  | (5     | ) |                  |  | (21    | )    | 
|                                                         |  |      |  |                  | 2,122  |   |                  |  | 8,158  |      | 
|Non-controlling
    interests                            |  | 27g  |  |                  | 6,660  |   |                  |  | 25,610 |      | 
|Total equity                                             |  |      |  |                  | 8,782  |   |                  |  | 33,768 |      | 
|                                                         |  |      |  |                  | 22,597 |   |                  |  | 86,887 |      | 





F-5








GAZIT-GLOBE
LTD.

CONSOLIDATED
STATEMENTS OF INCOME



|                                                                                                   |  |       |  | Convenience                                  |       |   |                  |  |        |             |  |  |             |  
|-------------------------------------------------------------------------------------------------- |  | ----- |  | -------------------------------------------- | ----- | - | ---------------- |  | ------ | ----------- |  |  | ----------- | -
|                                                                                                   |  |       |  | translation                                  |       |   |                  |  |        |             |  |  |             |  
|                                                                                                   |  |       |  | (Note
    2d(1))                             |       |   |                  |  |        |             |  |  |             |  
|                                                                                                   |  |       |  | Year
    ended                               |       |   | Year
    ended   | 
|                                                                                                   |  |       |  | December 31,                                 |       |   | December
    31, | 
|                                                                                                   |  |       |  | 2016                                         |       |   | 2016             |  |        | (*
    2015 |  |  | (*
    2014 |  
|                                                                                                   |  | Note  |  | U.S.
    dollars                             |       |   | NIS              | 
|                                                                                                   |  |       |  | (In
    millions, except for per share data) |      
|Rental
    income                                                                                  |  | 30    |  |                                              | 1,249 |   |                  |  | 4,801  |             |  |  | 4,809       |  
|Property
    operating expenses                                                                    |  | 31    |  |                                              | 418   |   |                  |  | 1,607  |             |  |  | 1,613       |  
|Net
    operating rental income                                                                    |  |       |  |                                              | 831   |   |                  |  | 3,194  |             |  |  | 3,196       |  
|Fair
    value gain (loss) from investment property and investment property under development, net |  |       |  |                                              | 230   |   |                  |  | 885    |             |  |  | (372        | )
|General
    and administrative expenses                                                            |  | 32    |  |                                              | (141  | ) |                  |  | (542   | )           |  |  | (568        | )
|Other
    income                                                                                   |  | 33a   |  |                                              | 9     |   |                  |  | 37     |             |  |  | 27          |  
|Other
    expenses                                                                                 |  | 33b   |  |                                              | (61   | ) |                  |  | (236   | )           |  |  | (795        | )
|Company's
    share in earnings of equity-accounted investees, net                                 |  | 9b    |  |                                              | 37    |   |                  |  | 142    |             |  |  | 164         |  
|Operating
    income                                                                               |  |       |  |                                              | 905   |   |                  |  | 3,480  |             |  |  | 1,652       |  
|Finance
    expenses                                                                               |  | 34a   |  |                                              | (416  | ) |                  |  | (1,600 | )           |  |  | (1,586      | )
|Finance
    income                                                                                 |  | 34b   |  |                                              | 84    |   |                  |  | 325    |             |  |  | 849         |  
|Income
    before taxes on income                                                                  |  |       |  |                                              | 573   |   |                  |  | 2,205  |             |  |  | 915         |  
|Taxes
    on income (tax benefit)                                                                  |  | 25q   |  |                                              | 112   |   |                  |  | 434    |             |  |  | (79         | )
|Net
    income from continuing operations                                                          |  |       |  |                                              | 461   |   |                  |  | 1,771  |             |  |  | 994         |  
|Net
    income from discontinued operations, net                                                   |  | 9d,9g |  |                                              | 366   |   |                  |  | 1,409  |             |  |  | 1,312       |  
|Net
    income                                                                                     |  |       |  |                                              | 827   |   |                  |  | 3,180  |             |  |  | 2,306       |  
|Attributable
    to:                                                                               |  |       |  |                                              |       |   |                  |  |        |             |  |  |             |  
|Equity
    holders of the Company                                                                  |  |       |  |                                              | 205   |   |                  |  | 787    |             |  |  | 620         |  
|Non-controlling
    interests                                                                      |  |       |  |                                              | 622   |   |                  |  | 2,393  |             |  |  | 1,686       |  
|                                                                                                   |  |       |  |                                              | 827   |   |                  |  | 3,180  |             |  |  | 2,306       |  
|Net
    earnings (loss) per share attributable to equity holders of the Company:                   |  | 35    |  |                                              |       |   |                  |  |        |             |  |  |             |  
|Basic
    earnings (loss) from continuing operations                                               |  |       |  |                                              | 0.70  |   |                  |  | 2.70   |             |  |  | 1.36        |  
|Basic
    net earnings from discontinued operations                                                |  |       |  |                                              | 0.35  |   |                  |  | 1.33   |             |  |  | 2.11        |  
|Total
    basic net earnings                                                                       |  |       |  |                                              | 1.05  |   |                  |  | 4.03   |             |  |  | 3.47        |  
|Diluted
    earnings (loss) from continuing operations                                             |  |       |  |                                              | 0.68  |   |                  |  | 2.63   |             |  |  | 1.35        |  
|Diluted
    net earnings from discontinued operations                                              |  |       |  |                                              | 0.35  |   |                  |  | 1.33   |             |  |  | 2.10        |  
|Total
    diluted net earnings                                                                     |  |       |  |                                              | 1.03  |   |                  |  | 3.96   |             |  |  | 3.45        |  





*)       Reclassified,
refer to note 2ff.





F-6








GAZIT-GLOBE
LTD.

CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME





|                                                                                                |  | Convenience      |      |   |                  |  |       |        |  |  |        |  
|----------------------------------------------------------------------------------------------- |  | ---------------- | ---- | - | ---------------- |  | ----- | ------ |  |  | ------ | -
|                                                                                                |  | translation      |      |   |                  |  |       |        |  |  |        |  
|                                                                                                |  | (Note
    2d(1)) |      |   |                  |  |       |        |  |  |        |  
|                                                                                                |  | Year
    ended   |      |   | Year
    ended   | 
|                                                                                                |  | December 31,     |      |   | December
    31, | 
|                                                                                                |  | 2016             |      |   | 2016             |  |       | (*2015 |  |  | (*2014 |  
|                                                                                                |  | U.S.
    dollars |      |   | NIS              | 
|                                                                                                |  | In
    millions  |     
|                                                                                                |  |                  |      |   |                  |  |       |        |  |  |        |  
|Net
    income                                                                                  |  |                  | 827  |   |                  |  | 3,180 |        |  |  | 2,306  |  
|Other
    comprehensive income (loss) (net of tax effect **):                                   |  |                  |      |   |                  |  |       |        |  |  |        |  
|Items
    that are or will be reclassified to profit or loss:                                   |  |                  |      |   |                  |  |       |        |  |  |        |  
|Exchange
    differences on translation of foreign operations (1)                               |  |                  | (151 | ) |                  |  | (582  | )      |  |  | (3,789 | )
|Net
    gains (losses) on cash flow hedges (1)                                                  |  |                  | 11   |   |                  |  | 43    |        |  |  | (25    | )
|Net
    gains (losses) on available-for-sale financial assets                                   |  |                  | 21   |   |                  |  | 80    |        |  |  | (66    | )
|Realization
    of capital reserves on sale of previously consolidated subsidiary               |  |                  | 13   |   |                  |  | 51    |        |  |  | -      |  
|Realization
    of capital reserves of company previously accounted for using the equity method |  |                  | -    |   |                  |  | -     |        |  |  | 452    |  
|Other
    comprehensive income (loss) from the continuing operations                            |  |                  | (106 | ) |                  |  | 408   |        |  |  | (3,428 | )
|Other
    comprehensive income (loss) from discontinued operations, net                         |  |                  | (10  | ) |                  |  | (39   | )      |  |  | (45    | )
|Total
    other comprehensive income (loss)                                                     |  |                  | (116 | ) |                  |  | (447  | )      |  |  | (3,473 | )
|Comprehensive
    income (loss)                                                                 |  |                  | 711  |   |                  |  | 2,733 |        |  |  | (1,167 | )
|Attributable
    to:                                                                            |  |                  |      |   |                  |  |       |        |  |  |        |  
|Equity
    holders of the Company (2)                                                           |  |                  | 192  |   |                  |  | 736   |        |  |  | (901   | )
|Non-controlling
    interests                                                                   |  |                  | 519  |   |                  |  | 1,997 |        |  |  | (266   | )
|                                                                                                |  |                  | 711  |   |                  |  | 2,733 |        |  |  | (1,167 | )





|(1) |  | Includes
    Company's share in other comprehensive income (loss) of investees according to the equity method |  |  | -   |   |  |  | 1    |   |  |  | 21     |   |  |  | (36 | )
|--- |  | ------------------------------------------------------------------------------------------------------------- |  |  | --- | - |  |  | ---- | - |  |  | ------ | - |  |  | --- | -
|(2) |  | Breakdown of total
    comprehensive income (loss)  attributable to equity holders of the Company:            |  |  |     |   |  |  |      |   |  |  |        |   |  |  |     |  
|    |  | Net income                                                                                                    |  |  | 205 |   |  |  | 787  |   |  |  | 620    |   |  |  | 73  |  
|    |  | Exchange differences on translation
    of foreign operations                                                 |  |  | (51 | ) |  |  | (197 | ) |  |  | (1,900 | ) |  |  | 307 |  
|    |  | Net gains (losses) on cash flow hedges                                                                        |  |  | 5   |   |  |  | 20   |   |  |  | (7     | ) |  |  | 29  |  
|    |  | Net gains (losses) on available-for-sale
    financial assets                                                 |  |  | 22  |   |  |  | 83   |   |  |  | (66    | ) |  |  | 36  |  
|    |  | Realization of capital reserves on sale
    of previously consolidated subsidiary                             |  |  | 11  |   |  |  | 43   |   |  |  | -      |   |  |  |     |  
|    |  | Realization of
    capital reserves of company previously accounted for using the equity method               |  |  | -   |   |  |  | -    |   |  |  | 452    |   |  |  | -   |  
|    |  |                                                                                                               |  |  | 192 |   |  |  | 736  |   |  |  | (901   | ) |  |  | 445 |  



*) Reclassified,
refer to Note 2ff.

**) For further
details regarding other comprehensive income (loss) and related tax impact, see Note 27e.



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





F-7








GAZIT-GLOBE
LTD.

CONSOLIDATED
STATEMENTS OF CHANGES IN EQUITY



|                                                                                                                   |  | Equity
    attributable to equity holders of the Company   |     |  |                   |  |       |                       | 
|------------------------------------------------------------------------------------------------------------------ |  | ---------------------------------------------------------- | --- |  | ----------------- |  | ----- | --------------------- | 
|                                                                                                                   |  | Share
    capital                                          |     |  | Share
    premium |  |       | Retained
    earnings | 
|                                                                                                                   |  | Convenience
    translation into U.S. dollars (Note 2d(1)) |    
|                                                                                                                   |  | In
    millions                                            |    
|Balance
    as of January 1, 2016                                                                                  |  |                                                            | 65  |  |                   |  | 1,296 |                       | 
|Net
    income                                                                                                     |  |                                                            | -   |  |                   |  | -     |                       | 
|Other
    comprehensive income (loss)                                                                              |  |                                                            | -   |  |                   |  | -     |                       | 
|Total
    comprehensive income (loss)                                                                              |  |                                                            | -   |  |                   |  | -     |                       | 
|Exercise
    and forfeiture of share options into Company's shares                                                 |  |                                                            | *)- |  |                   |  | 2     |                       | 
|Cost
    of share-based payment                                                                                    |  |                                                            | -   |  |                   |  | -     |                       | 
|Dividend
    paid (Note 27g)                                                                                       |  |                                                            | -   |  |                   |  | -     |                       | 
|Non-controlling
    interest in sold subsidiary                                                                    |  |                                                            | -   |  |                   |  | -     |                       | 
|Charging
    the non-controlling interests' share in equity deficit of subsidiary to equity holders of the Company |  |                                                            | -   |  |                   |  | -     |                       | 
|Capital
    issuance to non-controlling interests                                                                  |  |                                                            | -   |  |                   |  | -     |                       | 
|Sale
    of shares to non-controlling interests                                                                    |  |                                                            | -   |  |                   |  | -     |                       | 
|Acquisition
    of  non-controlling interests                                                                      |  |                                                            | -   |  |                   |  | -     |                       | 
|Re-purchase
    of convertible debentures in subsidiary                                                            |  |                                                            | -   |  |                   |  | -     |                       | 
|Dividend
    to non-controlling interests                                                                          |  |                                                            | -   |  |                   |  | -     |                       | 
|Balance
    as of December 31, 2016                                                                                |  |                                                            | 65  |  |                   |  | 1,298 |                       | 





*)
Represents an amount of less than U.S.$ 1 million.

**)
For additional details regarding other reserves, see Note 27d.





The
accompanying notes are an integral part of these consolidated financial statements





F-8








GAZIT-GLOBE
LTD.

CONSOLIDATED
STATEMENTS OF CHANGES IN EQUITY





|                                                                                                                   |  | Equity
    attributable to equity holders of the Company |     |  |               |  |       |                   | 
|------------------------------------------------------------------------------------------------------------------ |  | -------------------------------------------------------- | --- |  | ------------- |  | ----- | ----------------- | 
|                                                                                                                   |  | Share capital                                            |     |  | Share premium |  |       | Retained earnings | 
|                                                                                                                   |  | NIS
    in millions                                      |    
|Balance
    as of January 1, 2016                                                                                  |  |                                                          | 249 |  |               |  | 4,983 |                   | 
|Net
    income                                                                                                     |  |                                                          | -   |  |               |  | -     |                   | 
|Other
    comprehensive income (loss)                                                                              |  |                                                          | -   |  |               |  | -     |                   | 
|Total
    comprehensive income (loss)                                                                              |  |                                                          | -   |  |               |  | -     |                   | 
|                                                                                                                   |  |                                                          |     |  |               |  |       |                   | 
|Exercise
    and forfeiture of share options into company's shares                                                 |  |                                                          | *)- |  |               |  | 9     |                   | 
|Cost
    of share-based payment                                                                                    |  |                                                          | -   |  |               |  |       |                   | 
|Dividend
    paid (Note 27g)                                                                                       |  |                                                          | -   |  |               |  | -     |                   | 
|Non-controlling
    interest in sold subsidiary                                                                    |  |                                                          | -   |  |               |  | -     |                   | 
|Charging
    the non-controlling interests' share in equity deficit of subsidiary to equity holders of the Company |  |                                                          | -   |  |               |  | -     |                   | 
|Capital
    issuance to non-controlling interests                                                                  |  |                                                          | -   |  |               |  | -     |                   | 
|Sale
    of shares to non-controlling interests                                                                    |  |                                                          | -   |  |               |  | -     |                   | 
|Acquisition
    of  non-controlling interests                                                                      |  |                                                          | -   |  |               |  | -     |                   | 
|Re-purchase
    of convertible debentures in subsidiary                                                            |  |                                                          | -   |  |               |  | -     |                   | 
|Dividend
    to non-controlling interests                                                                          |  |                                                          | -   |  |               |  | -     |                   | 
|Balance
    as of December 31, 2016                                                                                |  |                                                          | 249 |  |               |  | 4,992 |                   | 





*)
Represents an amount of less than NIS 1 million.

**)
For additional details regarding other reserves, see Note 27d.





The
accompanying notes are an integral part of these consolidated financial statements





F-9








GAZIT-GLOBE
LTD.

CONSOLIDATED
STATEMENTS OF CHANGES IN EQUITY



|                                                                                                              |  | Equity
    attributable to equity holders of the Company |     |  |               |  |       |                   | 
|------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------- | --- |  | ------------- |  | ----- | ----------------- | 
|                                                                                                              |  | Share capital                                            |     |  | Share premium |  |       | Retained earnings | 
|                                                                                                              |  | NIS
    in millions                                      |    
|Balance
    as of January 1, 2015                                                                             |  |                                                          | 232 |  |               |  | 4,411 |                   | 
|Net
    income                                                                                                |  |                                                          | -   |  |               |  | -     |                   | 
|Other
    comprehensive loss                                                                                  |  |                                                          | -   |  |               |  | -     |                   | 
|Total
    comprehensive income (loss)                                                                         |  |                                                          | -   |  |               |  | -     |                   | 
|                                                                                                              |  |                                                          |     |  |               |  |       |                   | 
|Issue
    of shares net of issuance expenses                                                                  |  |                                                          | 17  |  |               |  | 569   |                   | 
|Exercise
    and forfeiture of Company's share options into Company shares                                    |  |                                                          | *)- |  |               |  | 3     |                   | 
|Repayment
    of loans to purchase shares                                                                     |  |                                                          | -   |  |               |  | -     |                   | 
|Cost
    of share-based payment                                                                               |  |                                                          | -   |  |               |  | -     |                   | 
|Dividend
    paid                                                                                             |  |                                                          | -   |  |               |  | -     |                   | 
|Non-controlling
    interest in initially consolidatedsubsidiaries                                            |  |                                                          | -   |  |               |  | -     |                   | 
|Charging
the non-controlling interests share in equity deficit of subsidiary to equity holders of the Company |  |                                                          | -   |  |               |  | -     |                   | 
|Capital
    issuance to non-controlling interests                                                             |  |                                                          | -   |  |               |  | -     |                   | 
|Sale
    of shares to non-controlling interests                                                               |  |                                                          | -   |  |               |  | -     |                   | 
|Acquisition
    of non-controlling interests                                                                  |  |                                                          | -   |  |               |  | -     |                   | 
|Early
    redemption, conversion and re-purchase ofconvertible
    debentures in subsidiary                   |  |                                                          | -   |  |               |  | -     |                   | 
|Dividend
    to non-controlling interests                                                                     |  |                                                          | -   |  |               |  | -     |                   | 
|Balance
    as of December 31, 2015                                                                           |  |                                                          | 249 |  |               |  | 4,983 |                   | 



*)
Represents an amount of less than NIS 1 million.

**)
For additional details regarding other reserves, see Note 27d.





The
accompanying notes are an integral part of these consolidated financial statements





F-10








GAZIT-GLOBE
LTD.

CONSOLIDATED
STATEMENTS OF CHANGES IN EQUITY



|                                                                                                              |  | Equity
    attributable to equity holders of the Company |     |  |               |  |       |                   | 
|------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------- | --- |  | ------------- |  | ----- | ----------------- | 
|                                                                                                              |  | Share capital                                            |     |  | Share premium |  |       | Retained earnings | 
|                                                                                                              |  | NIS
    in millions                                      |    
|Balance
    as of January 1, 2014                                                                             |  |                                                          | 229 |  |               |  | 4,288 |                   | 
|Net
    income                                                                                                |  |                                                          | -   |  |               |  | -     |                   | 
|Other
    comprehensive income                                                                                |  |                                                          | -   |  |               |  | -     |                   | 
|Total
    comprehensive income                                                                                |  |                                                          | -   |  |               |  | -     |                   | 
|                                                                                                              |  |                                                          |     |  |               |  |       |                   | 
|Issue
    of shares net of issuance expenses                                                                  |  |                                                          | 3   |  |               |  | 113   |                   | 
|Exercise
    of share options into Company's shares                                                           |  |                                                          | *)- |  |               |  | 10    |                   | 
|Revaluation
    of loans to purchase shares                                                                   |  |                                                          | -   |  |               |  | -     |                   | 
|Cost
    of share-based payment                                                                               |  |                                                          | -   |  |               |  | -     |                   | 
|Dividend
    paid                                                                                             |  |                                                          | -   |  |               |  | -     |                   | 
|Charging
the non-controlling interests share in equity deficit of subsidiary to equity holders of the Company |  |                                                          | -   |  |               |  | -     |                   | 
|Capital
    issuance to non-controlling interests                                                             |  |                                                          | -   |  |               |  | -     |                   | 
|Acquisition
    of non-controlling interests                                                                  |  |                                                          | -   |  |               |  | -     |                   | 
|Dividend
    to non-controlling interests                                                                     |  |                                                          | -   |  |               |  | -     |                   | 
|Balance
    as of December 31, 2014                                                                           |  |                                                          | 232 |  |               |  | 4,411 |                   | 



*)
Represents an amount of less than NIS 1 million.

**)
For additional details regarding other reserves, see Note 27d.



The
accompanying notes are an integral part of these consolidated financial statements





F-11








GAZIT-GLOBE
LTD.

CONSOLIDATED
STATEMENTS OF CASH FLOW



|                                                                                                          |  | Convenience       |      |   |                  |  |        |      |  |  |        |  
|--------------------------------------------------------------------------------------------------------- |  | ----------------- | ---- | - | ---------------- |  | ------ | ---- |  |  | ------ | -
|                                                                                                          |  | translation       |      |   |                  |  |        |      |  |  |        |  
|                                                                                                          |  | (Note
    2d(1))  |      |   |                  |  |        |      |  |  |        |  
|                                                                                                          |  | Year
    ended    |      |   | Year
    ended   | 
|                                                                                                          |  | December 31,      |      |   | December
    31, | 
|                                                                                                          |  | 2016              |      |   | 2016             |  |        | 2015 |  |  | 2014   |  
|                                                                                                          |  | U.S.
    dollars  |      |   | NIS              | 
|                                                                                                          |  | (In
    millions) |     
|Cash
    flows from operating activities:                                                                 |  |                   |      |   |                  |  |        |      |  |  |        |  
|Net
    income                                                                                            |  |                   | 827  |   |                  |  | 3,180  |      |  |  | 2,306  |  
|Adjustments
    required to present net cash provided by operating activities:                            |  |                   |      |   |                  |  |        |      |  |  |        |  
|Adjustments
    to the profit or loss items:                                                              |  |                   |      |   |                  |  |        |      |  |  |        |  
|Finance
    expenses, net                                                                                 |  |                   | 395  |   |                  |  | 1,520  |      |  |  | 991    |  
|Company’s
    share in earnings of equity-accounted investees, net                                        |  |                   | (39  | ) |                  |  | (151   | )    |  |  | (242   | )
|Fair
    value gain from investment property and investment property under development, net               |  |                   | (541 | ) |                  |  | (2,081 | )    |  |  | (711   | )
|Depreciation
    and amortization (including goodwill impairment)                                         |  |                   | 14   |   |                  |  | 53     |      |  |  | 89     |  
|Taxes
    on income                                                                                       |  |                   | 163  |   |                  |  | 629    |      |  |  | 183    |  
|Impairment
    loss of other assets                                                                       |  |                   | 2    |   |                  |  | 6      |      |  |  | 20     |  
|Capital
    (gain) loss, net                                                                              |  |                   | (2   | ) |                  |  | (6     | )    |  |  | 106    |  
|Change
    in employee benefit liability                                                                  |  |                   | -    |   |                  |  | -      |      |  |  | 1      |  
|Change
    in provision for legal claims, net                                                             |  |                   | 41   |   |                  |  | 158    |      |  |  | 88     |  
|Loss
    from revaluation of investees, net                                                               |  |                   | -    |   |                  |  | -      |      |  |  | 1,531  |  
|Net
    loss from sale of subsidiary (Note 9g)                                                            |  |                   | 60   |   |                  |  | 230    |      |  |  | -      |  
|Gain
    from bargain purchase                                                                            |  |                   | -    |   |                  |  | -      |      |  |  | (1,065 | )
|Cost
    of share-based payments                                                                          |  |                   | 12   |   |                  |  | 47     |      |  |  | 45     |  
|                                                                                                          |  |                   | 105  |   |                  |  | 405    |      |  |  | 1,036  |  
|Changes
    in assets and liabilities items:                                                              |  |                   |      |   |                  |  |        |      |  |  |        |  
|Decrease
    (Increase) in trade receivables and other accounts receivable                                |  |                   | (9   | ) |                  |  | (38    | )    |  |  | 57     |  
|Decrease
    inventories of buildings and land less advances from customers and buyers of apartments, net |  |                   | -    |   |                  |  | -      |      |  |  | 29     |  
|Decrease
    (Increase) in trade and other accounts payable                                               |  |                   | 4    |   |                  |  | 17     |      |  |  | (143   | )
|Increase
    in tenants’ security deposits, net                                                           |  |                   | -    |   |                  |  | -      |      |  |  | 1      |  
|                                                                                                          |  |                   | (5   | ) |                  |  | (21    | )    |  |  | (56    | )
|Net
    cash provided by operating activities before interest, dividend and taxes                         |  |                   | 927  |   |                  |  | 3,564  |      |  |  | 3,286  |  
|Cash
    received and paid during the year for:                                                           |  |                   |      |   |                  |  |        |      |  |  |        |  
|Interest
    paid                                                                                         |  |                   | (434 | ) |                  |  | (1,668 | )    |  |  | (1,830 | )
|Interest
    received                                                                                     |  |                   | 16   |   |                  |  | 62     |      |  |  | 43     |  
|Dividend
    received                                                                                     |  |                   | 9    |   |                  |  | 36     |      |  |  | 70     |  
|Taxes
    paid                                                                                            |  |                   | (23  | ) |                  |  | (90    | )    |  |  | (55    | )
|Tax
    refund received                                                                                   |  |                   | 1    |   |                  |  | 5      |      |  |  | -      |  
|                                                                                                          |  |                   | (431 | ) |                  |  | (1,655 | )    |  |  | (1,772 | )
|Net
    cash provided by operating activities                                                             |  |                   | 496  |   |                  |  | 1,909  |      |  |  | 1,514  |  



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





F-12








GAZIT-GLOBE
LTD.

CONSOLIDATED
STATEMENTS OF CASH FLOW



|                                                                                         |  | Convenience       |        |   |                  |  |                                               |      |  |  |                                               |  
|---------------------------------------------------------------------------------------- |  | ----------------- | ------ | - | ---------------- |  | --------------------------------------------- | ---- |  |  | --------------------------------------------- | -
|                                                                                         |  | translation       |        |   |                  |  |                                               |      |  |  |                                               |  
|                                                                                         |  | (Note
    2d(1))  |        |   |                  |  |                                               |      |  |  |                                               |  
|                                                                                         |  | Year
    ended    |        |   | Year
    ended   | 
|                                                                                         |  | December 31,      |        |   | December
    31, | 
|                                                                                         |  | 2016              |        |   | 2016             |  |                                               | 2015 |  |  | 2014                                          |  
|                                                                                         |  | U.S.
    dollars  |        |   | NIS              | 
|                                                                                         |  | (In
    millions) |       
|Cash
    flows from investing activities:                                                |  |                   |        |   |                  |  |                                               |      |  |  |                                               |  
|Initial
    consolidation of investment previously accounted for using equity method (a) |  |                   | -      |   |                  |  | -                                             |      |  |  | 1,145                                         |  
|Acquisition
    of initially consolidated subsidiary (b)                                 |  |                   | -      |   |                  |  | -                                             |      |  |  | (2,233                                        | )
|Deconsolidation
    of previously consolidated subsidiary (c)                            |  |                   | (27    | ) |                  |  | (105                                          | )    |  |  | -                                             |  
|Investment
    return and proceeds from sale of investees                                |  |                   | 38     |   |                  |  | 148                                           |      |  |  | 185                                           |  
|Investment
    in and loans to investees                                                 |  |                   | (22    | ) |                  |  | (86                                           | )    |  |  | (1,193                                        | )
|Acquisition,
    construction and development of investment property                     |  |                   | (1,195 | ) |                  |  | (4,594                                        | )    |  |  | (3,338                                        | )
|Investments
    in fixed assets                                                          |  |                   | (7     | ) |                  |  | (26                                           | )    |  |  | (15                                           | )
|Proceeds
    from sale of investment property net of tax paid                            |  |                   | 381    |   |                  |  | 1,465                                         |      |  |  | 1,164                                         |  
|Proceeds
    from sale of fixed assets                                                   |  |                   | 3      |   |                  |  | 11                                            |      |  |  | *)
                                         - |  
|Grant
    of long-term loans                                                             |  |                   | (31    | ) |                  |  | (119                                          | )    |  |  | (61                                           | )
|Collection
    of long-term loans                                                        |  |                   | 32     |   |                  |  | 122                                           |      |  |  | 97                                            |  
|Short-term
    investments, net                                                          |  |                   | (190   | ) |                  |  | (729                                          | )    |  |  | (19                                           | )
|Investment
    in financial assets                                                       |  |                   | (34    | ) |                  |  | (130                                          | )    |  |  | (529                                          | )
|Proceeds
    from sale of financial assets and deposits withdrawal                       |  |                   | 192    |   |                  |  | 737                                           |      |  |  | 360                                           |  
|Net
    cash used in investing activities                                                |  |                   | (860   | ) |                  |  | (3,306                                        | )    |  |  | (4,437                                        | )
|                                                                                         |  |                   |        |   |                  |  |                                               |      |  |  |                                               |  
|Cash
    flows from financing activities:                                                |  |                   |        |   |                  |  |                                               |      |  |  |                                               |  
|                                                                                         |  |                   |        |   |                  |  |                                               |      |  |  |                                               |  
|Issue of shares
    net of issue expenses                                                |  |                   | -      |   |                  |  | -                                             |      |  |  | 586                                           |  
|Repayment
    of loans granted for purchase of Company’s shares                          |  |                   | -      |   |                  |  | *)
                                         - |      |  |  | -                                             |  
|Exercise of share
    options into Company’s shares                                      |  |                   | -      |   |                  |  | *)
                                         - |      |  |  | *)
                                         - |  
|Capital
    issuance to non-controlling interests, net                                   |  |                   | 351    |   |                  |  | 1,348                                         |      |  |  | 2,284                                         |  
|Acquisition
    of non-controlling interests                                             |  |                   | (91    | ) |                  |  | (349                                          | )    |  |  | (197                                          | )
|Sale
    of shares to non-controlling interests net of tax paid                          |  |                   | 85     |   |                  |  | 326                                           |      |  |  | 482                                           |  
|Dividend
    paid to equity holders of the Company                                       |  |                   | (77    | ) |                  |  | (295                                          | )    |  |  | (328                                          | )
|Dividend
    paid to non-controlling interests                                           |  |                   | (328   | ) |                  |  | (1,260                                        | )    |  |  | (1,087                                        | )
|Receipt
    of long-term loans                                                           |  |                   | 737    |   |                  |  | 2,835                                         |      |  |  | 3,224                                         |  
|Repayment
    of long-term loans                                                         |  |                   | (728   | ) |                  |  | (2,800                                        | )    |  |  | (4,251                                        | )
|Receipt
    (Repayment) of long-term credit facilities from banks, net                   |  |                   | (20    | ) |                  |  | (77                                           | )    |  |  | 482                                           |  
|Receipt
    (repayment) of short-term credit from banks and others, net                  |  |                   | (21    | ) |                  |  | (80                                           | )    |  |  | 428                                           |  
|Repayment
    and early redemption of debentures and convertible debentures              |  |                   | (482   | ) |                  |  | (1,855                                        | )    |  |  | (2,582                                        | )
|Issue
    of debentures and convertible debentures                                       |  |                   | 814    |   |                  |  | 3,131                                         |      |  |  | 5,624                                         |  
|Unwinding
    of hedging transactions                                                    |  |                   | 1      |   |                  |  | 3                                             |      |  |  | -                                             |  
|Net
    cash provided by (used in) financing activities                                  |  |                   | 241    |   |                  |  | 927                                           |      |  |  | 4,665                                         |  
|Exchange
    differences on balances of cash and cash equivalents                        |  |                   | (18    | ) |                  |  | (70                                           | )    |  |  | (267                                          | )
|Increase
    (decrease) in cash and cash equivalents                                     |  |                   | (141   | ) |                  |  | (540                                          | )    |  |  | 1,475                                         |  
|Cash
    and cash equivalents at the beginning of the year                               |  |                   | 553    |   |                  |  | 2,125                                         |      |  |  | 650                                           |  
|Cash
    and cash equivalents attributed to discontinued operations                      |  |                   | (17    | ) |                  |  | (65                                           | )    |  |  | -                                             |  
|Cash
    and cash equivalents at the end of the year                                     |  |                   | 395    |   |                  |  | 1,520                                         |      |  |  | 2,125                                         |  



*)
Represents an amount of less than NIS 1 million.



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





F-13








GAZIT-GLOBE
LTD.

CONSOLIDATED
STATEMENTS OF CASH FLOW



|    |                                                                                                                        |  | Convenience       |     |   |                  |  |      |      |  |  |         |  
|--- | ---------------------------------------------------------------------------------------------------------------------- |  | ----------------- | --- | - | ---------------- |  | ---- | ---- |  |  | ------- | -
|    |                                                                                                                        |  | translation       |     |   |                  |  |      |      |  |  |         |  
|    |                                                                                                                        |  | (Note
    2d(1))  |     |   |                  |  |      |      |  |  |         |  
|    |                                                                                                                        |  | Year
    ended    |     |   | Year
    ended   | 
|    |                                                                                                                        |  | December 31,      |     |   | December
    31, | 
|    |                                                                                                                        |  | 2016              |     |   | 2016             |  |      | 2015 |  |  | 2014    |  
|    |                                                                                                                        |  | U.S.
    dollars  |     |   | NIS              | 
|    |                                                                                                                        |  | (In
    millions) |    
|(a) | Initial consolidation
    of investment previously accounted for using the equity method (Note 9f6)                    |  |                   |     |   |                  |  |      |      |  |  |         |  
|    | Working
    capital (excluding cash and cash equivalents):                                                             |  |                   |     |   |                  |  |      |      |  |  |         |  
|    | Current
    assets                                                                                                     |  |                   | -   |   |                  |  | -    |      |  |  | (245    | )
|    | Current
    liabilities                                                                                                |  |                   | -   |   |                  |  | -    |      |  |  | 360     |  
|    |                                                                                                                        |  |                   | -   |   |                  |  | -    |      |  |  | 115     |  
|    | Non-current
    assets                                                                                                 |  |                   | -   |   |                  |  | -    |      |  |  | (13,375 | )
|    | Non-current
    liabilities                                                                                            |  |                   | -   |   |                  |  | -    |      |  |  | 6,345   |  
|    | Non-controlling
    interests                                                                                          |  |                   | -   |   |                  |  | -    |      |  |  | 4,111   |  
|    | Realization
    of capital reserves                                                                                    |  |                   | -   |   |                  |  | -    |      |  |  | 452     |  
|    | Realization
    of investment accounted for using the equity method                                                    |  |                   | -   |   |                  |  | -    |      |  |  | 3,963   |  
|    | Loss
    on revaluation of previous investment                                                                         |  |                   | -   |   |                  |  | -    |      |  |  | (1,531  | )
|    | Gain
    from bargain purchase                                                                                         |  |                   | -   |   |                  |  | -    |      |  |  | 1,065   |  
|    | Increase
    in cash and cash equivalents                                                                              |  |                   | -   |   |                  |  | -    |      |  |  | 1,145   |  
|    |                                                                                                                        |  |                   |     |   |                  |  |      |      |  |  |         |  
|(b) | Acquisition
    of initially consolidated subsidiaries (Note 9c2)                                                      |  |                   |     |   |                  |  |      |      |  |  |         |  
|    | Working
    capital (excluding cash and cash equivalents):                                                             |  |                   |     |   |                  |  |      |      |  |  |         |  
|    | Current
    assets, net                                                                                                |  |                   | -   |   |                  |  | -    |      |  |  | (34     | )
|    | Non-current
    assets                                                                                                 |  |                   | -   |   |                  |  | -    |      |  |  | (6,294  | )
|    | Non-current
    liabilities                                                                                            |  |                   | -   |   |                  |  | -    |      |  |  | 4,758   |  
|    | Non-controlling
    interests in initially consolidated subsidiary                                                     |  |                   | -   |   |                  |  | -    |      |  |  | 139     |  
|    | Goodwill
    generated in the acquisition                                                                              |  |                   | -   |   |                  |  | -    |      |  |  | (802    | )
|    | Increase
    in cash and cash equivalents                                                                              |  |                   | -   |   |                  |  | -    |      |  |  | (2,233  | )
|    |                                                                                                                        |  |                   |     |   |                  |  |      |      |  |  |         |  
|(c) | Deconsolidated
    of previously consolidated subsidiary (Note 9g)                                                     |  |                   |     |   |                  |  |      |      |  |  |         |  
|    | Assets
    and liabilities of consolidated subsidiaries at date of sale:                                               |  |                   |     |   |                  |  |      |      |  |  |         |  
|    | Working
    capital (excluding cash and cash equivalents):                                                             |  |                   | (20 | ) |                  |  | (79  | )    |  |  |         |  
|    | Non-current
    assets                                                                                                 |  |                   | 21  |   |                  |  | 82   |      |  |  |         |  
|    | Non-controlling
    liabilities                                                                                        |  |                   | (79 | ) |                  |  | (305 | )    |  |  |         |  
|    | Non-controlling
    interests                                                                                          |  |                   | (5  | ) |                  |  | (18  | )    |  |  |         |  
|    | Gain
    from sale of previously consolidated subsidiaries                                                             |  |                   | 43  |   |                  |  | 164  |      |  |  |         |  
|    | Capital
    reserves                                                                                                   |  |                   | 13  |   |                  |  | 51   |      |  |  |         |  
|    | Decrease
    in cash and cash equivalents:                                                                             |  |                   | (27 | ) |                  |  | (105 | )    |  |  |         |  
|(d) | Significant
    non-cash transactions:                                                                                 |  |                   |     |   |                  |  |      |      |  |  |         |  
|    | Acquisition
    of investment property net of loans assigned, for consideration of shares of equity accounted investee |  |                   | -   |   |                  |  | -    |      |  |  | 167     |  
|    | Conversion,
    early redemption and interest payment of convertible debentures for subsidiary’s shares                |  |                   | 53  |   |                  |  | 202  |      |  |  | 175     |  
|    | Acquisition
    of investment property against trade payables                                                          |  |                   | 87  |   |                  |  | 334  |      |  |  | -       |  
|    | Sale
    of Investment property against providing a loan to the buyer                                                  |  |                   | 26  |   |                  |  | 101  |      |  |  | -       |  
|    | Dividend
    payable to non-controlling interests                                                                      |  |                   | 26  |   |                  |  | 101  |      |  |  | 76      |  
|    |                                                                                                                        |  |                   |     |   |                  |  |      |      |  |  |         |  
|(e) | Additional
    information:                                                                                            |  |                   |     |   |                  |  |      |      |  |  |         |  
|    | Tax
    paid included under investing and financing activities                                                         |  |                   | 10  |   |                  |  | 38   |      |  |  | 142     |  



|(f) | For
    details regarding cash flows attributed to discontinued operations, refer to Notes 9d and 9g.
|--- | -----------------------------------------------------------------------------------------------------



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





F-14






GAZIT-GLOBE
LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS







|NOTE
    1:- | GENERAL
|------------ | -------







| | a. | The
                                         Company and its business activities
| | -- | --------------------------------------------------------------------------------



Gazit
Globe, Ltd. (“the Company”), through its public and private investees ("the Group"), is engaged in the acquisition,
development and management of supermarket-anchored shopping centers in over 20 countries throughout the world, focusing in growth
urban markets. Furthermore, the group operates to explore and realize business opportunities by acquiring shopping centers and/or
companies within its core business (including with partners) both in regions where it currently operates and also in new regions.
Until January 2016, the Group operated in the development and construction sector primarily of residential projects in Israel
and in Central-Eastern Europe (refer to Note 9g).



For
details regarding the merger agreement between Equity One Inc. and Regency Central Corporation ("REG") in November 2016,
for which Equity One Inc. is classified as a discontinued operation in these consolidated financial statements, see Notes 2ff,
8 and 9d .



The
Company's securities are listed for trading on the Tel-Aviv Stock Exchange (TASE), the New York Stock Exchange (NYSE) and the
Toronto Stock Exchange (TSX) all under the ticker "GZT".



| | b. | Definitions
                                         in these financial statements
| | -- | ----------------------------------------------------------------------------------







| | The parent
    company             | - | Norstar
    Holdings Inc. ("Norstar") through its wholly-owned subsidiary (collectively, "Norstar Group").                                                                                                                                                                                                                     
| | ---------------------------------- | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                    |   |                                                                                                                                                                                                                                                                                                                                
| | Subsidiaries                       | - | Companies
    that are controlled (including de facto control) by the Company (as defined in IFRS 10) and whose accounts are consolidated
    with those of the Company.                                                                                                                                                       
| |                                    |   |                                                                                                                                                                                                                                                                                                                                
| | Joint
    ventures                 | - | Companies
    owned by a number of entities that have a contractual arrangement for joint control, and whose accounts are accounted for
    using the equity method.                                                                                                                                                           
| |                                    |   |                                                                                                                                                                                                                                                                                                                                
| | Joint
    operations               | - | Companies
    owned by a number of entities that have a contractual arrangement for the rights to the assets and obligations for the liabilities
    relating to the arrangement and are presented in the Company's financial reports according its share in the arrangement's
    assets and liabilities, income and expenses.
| |                                    |   |                                                                                                                                                                                                                                                                                                                                
| | Jointly
    controlled    entities | - | Joint
    ventures and joint operation.                                                                                                                                                                                                                                                                                        
| |                                    |   |                                                                                                                                                                                                                                                                                                                                
| | Associates                         | - | Companies
    over which the Company has significant influence (as defined in IAS 28) and that are not subsidiaries or joint ventures or
    joint operations in which the Company's account for the investment in the financial statements using the equity method.                                                           
| |                                    |   |                                                                                                                                                                                                                                                                                                                                
| | Investees                          | - | Subsidiaries,
    jointly controlled entities and associates                                                                                                                                                                                                                                                                   
| |                                    |   |                                                                                                                                                                                                                                                                                                                                
| | The
    Group                      | - | The
    Company, its subsidiaries and jointly-controlled entities listed in the appendix to the financial statements                                                                                                                                                                                                           
| |                                    |   |                                                                                                                                                                                                                                                                                                                                
| | Related
    parties                | - | As
                                         defined in IAS 24 (Revised).                                                                                                                                                                                                                                                       



F-15








GAZIT-GLOBE
LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS







|NOTE
    1: - | GENERAL
    (Cont.)
|------------- | -------------------



| | EQY                                                         | - | Equity
    One Inc., consolidated entity. (Note 9d)                    
| | ----------------------------------------------------------- | - | -----------------------------------------------------------------------
| |                                                             |   |                                                                        
| | FCR                                                         | - | First
    Capital Reality Inc., consolidated entity. (Note 9e)         
| |                                                             |   |                                                                        
| | CTY                                                         | - | Citycon
    Oyj, consolidated entity. (Note 9f)                        
| |                                                             |   |                                                                        
| | ATR                                                         | - | Atrium
    European Real Estate Limited, consolidated entity. (Note 9c)
| |                                                             |   |                                                                        
| | The reporting
                                         date | - | December
                                         31, 2016.            



| | c. | The
                                         Company’s financial statements as of and for the year ended December 31, 2016 were approved by the Company’s
                                         board of directors on March 26, 2017.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|NOTE
    2: - | SIGNIFICANT
    ACCOUNTING POLICIES
|------------- | -----------------------------------



| | a. | Basis
                                         of presentation of the financial statements
| | -- | ------------------------------------------------------------------------------------------



The
consolidated financial statements of the Group have been prepared on a cost basis, except for investment property, investment
property under development, and certain financial instruments including derivative instruments that are measured at fair value.



The
Company presents profit or loss items using the "function of expense" method.



The
basis of preparation of the financial statements



These
consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS")
as issued by the International Accounting Standards Board ("IASB").



Consistent
accounting policy



The
accounting policy in the financial statements is consistent in all periods presented, unless otherwise stated.



F-16










GAZIT-GLOBE
LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS







|NOTE
    2:- | SIGNIFICANT
    ACCOUNTING POLICIES (Cont)
|------------ | ------------------------------------------





| | b. | Significant
                                         accounting judgments, estimates and assumptions used in the preparation of the financial
                                         statements
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The
preparation of the Group's consolidated financial statements requires management to exercise judgments and make estimates and
assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities,
in the reporting period. However, uncertainty about these assumptions and estimates could result in outcomes that require a material
adjustment to the carrying amount of the assets or liabilities affected in future periods.



Judgments



In
the process of applying the significant accounting policies, the Group has applied its judgment and has considered the following
issues which have the most significant effect on the amounts recognized in the financial statements:



|Topic                                                                                                                    |  | Main
    Considerations                                                                                                                                                                                                                                                                                                                                                                                                                                                |  | Reference/Possible
    Effect                                                                                                                                                                
|------------------------------------------------------------------------------------------------------------------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Existence
    of effective control                                                                                       |  | ●      Materiality
                                         of percentage of voting rights relative to the holdings of the other holders of voting
                                         rights
        ●Degree
        to which the other holdings are diversified
        ●      Voting
        patterns at prior meetings of shareholders                                                                                                                        |  | Consolidation
    of financial statements or application of the equity method and relevant measurement impact– refer to Note 2c and Note
    9d, e and f                                     
|Classification
    of Leasing of investment property                                                                     |  | Classification
    as a finance lease or as an operating lease in accordance with the transfer of risks and rewards criteria with respect to
    the leased property                                                                                                                                                                                                                                                                                                   |  | Recording
    the investment as property and the income as rental income or recording it as a financial investment and interest income –
    refer to Note 2t                                
|Acquisitions
    of subsidiaries that are not business combinations                                                      |  | Analysis
    of the transaction in light of the definition of a “business” in IFRS 3, in order to decide whether the transaction
    constitutes a business combination or asset acquisition                                                                                                                                                                                                                                                                           |  | Recording
    the acquisition consideration as an investment in an asset, or recording an investment in net identifiable assets, including
    goodwill and deferred taxes – refer to Note 2o
|Reliable
                                         measurement of the fair value of investment property under development |  | ●      Location
                                         of the property under development in a developed and liquid market
        ●Existence
        of a reliable estimate of the construction costs
        ●      Availability
        of relevant regulatory consent for the utilization of the land rights, and applicable zoning, city plan and building permits
        exist
        ●      The
        lease up of a major percentage of the leasable areas |  | Measurement
    of investment property under construction at cost or at fair value – refer to Note 13                                                                                        
|Reporting
    income on a net basis or on a gross basis                                                                  |  | Who
    primarily bears the risks and rewards arising from the transaction?                                                                                                                                                                                                                                                                                                                                                                                            |  | Reporting
    rental income on a gross or net basis – refer to Note 2z                                                                                                                       



F-17












GAZIT-GLOBE
LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





|NOTE
    2:- | SIGNIFICANT
    ACCOUNTING POLICIES (Cont)
|------------ | ------------------------------------------







Key
estimates and assumptions



The
key assumptions made in the financial statements concerning uncertainties at the balance sheet date and the critical estimates
calculated by the Group that may cause a material adjustment to the carrying amounts of assets and liabilities in the next financial
year are discussed below:



|Topic                                                                                                               |  | Estimates
    and Main Assumptions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  | Reference/Possible
    Effect                                                                                                                                   
|------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
|Valuation
                                         of investment property and investment property under development |  | The
    required yields on the Group’s properties, future rental rates, occupancy rates, lease renewal rates, the probability
    of leasing out vacant plots and the date thereof, property operating expenses, the financial strength of the tenants and required
    capital expenditure                                                                                                                                                                                                                                                                                                                                                                                                                          |  | Determination
    of the fair value of investment property vis-à-vis the fair value gains (losses) in the statement of income - refer
    to Note 12 and Note 13
|Impairment
                                         of goodwill                                                     |  | The
    anticipated cash flows and the appropriate capitalization rate for measuring the recoverable amount with the addition of certain
    adjustments of group of cash-generation units to which the goodwill is allocated                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  | Determination
    whether to record an impairment - refer to Note 2w and Note 15                                                                                
|Bargain
    purchase gain                                                                                           |  | Identifying
    the assets and liabilities, net that were acquired in the transaction and their reliable measurement in order to reflect the
    figures of the acquired company                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  | Determination
    of the goodwill or the bargain purchase gain arising from the acquisition - refer to Note 9c and Note 33a                                     
|Recording
                                         of deferred tax assets and provision for income taxes.           |  | Expectation
    of current and future taxable income considering the timing, the amount of the expected taxable income and the tax planning
    strategy                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  | Note
    2y and Note 25p                                                                                                                                        
|Determination
    of fair value of nonmarketable financial derivatives (swap contract)                              |  | Discounting
    the future cash flows by interbank yield curve, with adjustments for the inter-currency liquidity spreads, inflation expectations
    and the credit risk of the parties                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  | Revaluation
    of financial derivatives in profit or loss or in other comprehensive income – refer to Note 36b                                                 
|                                                                                                                    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |                                                                                                                                                                 
|Determination
    of the fair value of share-based compensation transactions                                        |  | Use
    of a standard options pricing model based on the share price and the exercise price data and on assumptions regarding expected
    volatility, expected duration and expected dividend                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  | Recording
    of salary expenses against capital reserve – refer to Note 2x and Note 28                                                                         
|                                                                                                                    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |                                                                                                                                                                 
|Revenue
    recognition from construction contracts                                                                 |  | Estimation
    of percentage of completion including estimations regarding collection ability, project costs and total revenues                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  | Timing
    and amounts of revenue recognition and costs recognized, refer to Note 2z                                                                            
|Provision
    for legal claims                                                                                      |  | In
                                         estimating the likelihood of outcome of legal claims filed against the Company and its
                                         investees, the companies rely on the opinion of their legal counsel. These estimates
                                         are based on the legal counsel's best professional judgment, taking into account the
                                         stage of proceedings and legal precedents in respect of the different issues. Since the
                                         outcome of the claims will be determined in courts, the results could differ from these
                                         estimates. |  | Recognition
    of provision for legal claims based on the estimation of chances to be accepted, refer to note 26d                                              



F-18














GAZIT-GLOBE
LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





|NOTE
    2:- | SIGNIFICANT
    ACCOUNTING POLICIES (Cont)
|------------ | ------------------------------------------







| | c. | Consolidated
                                         financial statements
| | -- | --------------------------------------------------------------------------



The
consolidated financial statements include the financial statements of the Company as well as the entities that are controlled
by the Company (subsidiaries). Control exists when the Company has power over the investee, exposure, or rights, to variable returns
from its involvement with the investee and the ability to use its power over the investee to affect the amount of the investor's
returns. In assessing control, potential voting right are only considered if they are substantive. Financial statements are consolidated
from the date control is obtained until the date that control ceases.



Consolidation
due to effective control

The
Group consolidates certain subsidiaries on the basis of effective control in accordance with IFRS 10.



Below
is part of the aspects considered by the Group which, when evaluating the overall circumstances, may evidence the existence of
effective control:



| | 1. | Holding
                                         a significant voting interest (even if less than half of the voting rights).                                                                                                                                                                                                   
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2. | Wide
                                         diversity of public holdings of the remaining shares conferring voting rights and the
                                         absence of other single entity beside the Group that holds a significant portion of the
                                         investee's shares.
| | 3. | The
                                         non-controlling interests have no participating rights or other preferential rights,
                                         excluding standard protective rights.                                                                                                                



The
Company carries out ongoing evaluation to the existence of effective control over the investee according to the three components
of control as defined on section 7 to IFRS10.

Based
on the above criteria and the following circumstances:



| | 1. | The
                                         Group has consolidated in its financial statements due to effective control the accounts
                                         of CTY, inter alia, due to its holding of a significant voting interest of 43.9% in CTY
                                         at the reporting date (43.3% on fully diluted basis), the wide diversity of the public
                                         holdings of the remaining shares, restriction on other shareholders to hold above 30%
                                         of CTY's shares without issuing tender offer, the Group has ownership of a majority of
                                         the voting power that participates in the general meetings, enabling inter alia its ability
                                         to appoint the majority of the directors and indirectly, the senior management of CTY.
                                         In addition the Group has a voting agreement with other shareholders refer to Note 26a3.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2. | The
                                         Group has consolidated in its financial statements due to effective control the accounts
                                         of FCR, inter alia, due to a significant holding interest and voting rights of 36.4%
                                         in FCR at the reporting date (34.5% on a fully diluted basis), wide diversity of public
                                         holdings of the remaining shares, the Group has ownership of a high voting power in the
                                         general meetings enabling inter alia its ability to appoint the majority of directors
                                         and indirectly, the senior management of FCR. In accordance with securities laws in Canada
                                         any shareholder holding more than 20% of the Company's share capital may acquire in the
                                         stock exchange during a calendar year up to additional 5%, as for excess purchase a submission
                                         of general tender offer is required. It is clarified that this restriction does not apply
                                         in cases of share offerings by FCR and in off-market acquisitions. In April 2016, the
                                         shareholders’ agreement between the Company and Alony-Hetz, with respect to their
                                         holdings in FCR, was cancelled. The Company determined that the cancellation of the agreement
                                         had no effect on its ability to control FCR and thus no implication on the Consolidated
                                         Financial Statements. Subsequent to the reporting period, the Company entered in to an
                                         agreement with a syndication of underwriters for the sale of 9 million shares of FCR
                                         and also granted the underwriters an option to purchase up to an additional 1.35 million
                                         shares of FCR. After the completion of the sale, the Company holds 32.7% of the shares
                                         capital and voting rights in FCR (without exercising the option granted to the underwriters).
                                         Following the sale, the Company will deconsolidate FCR in its consolidated financial
                                         statements and will recognize its investment in FCR according to the Equity method. For
                                         details regarding the aforesaid sale, subsequent the reporting period, refer to Note
                                         39a.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-19
















GAZIT-GLOBE
LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





|NOTE
    2:- | SIGNIFICANT
    ACCOUNTING POLICIES (Cont)
|------------ | ------------------------------------------







| | 3. | The
                                         Group has consolidated in its financial statements due to effective control the accounts
                                         of EQY, inter alia, due to a significant holding interest and voting rights of 34.3%
                                         in EQY at the reporting date (34.2% on a fully diluted basis), wide diversity of public
                                         holdings of the remaining shares, restriction under EQY's charter on any other shareholder
                                         from holding above 10% interest in EQY, the Group has ownership of a high voting power
                                         of the participating voting power in the general meetings enabling inter alia its ability
                                         to appoint the majority of directors and the senior management of EQY. Furthermore, according
                                         to EQY’s charter, a majority of at least 2/3 of the shareholders is required in
                                         order to assemble an extraordinary general meeting of the shareholders for the appointment
                                         of directors. As of December 31, 2016 the company held more than 1/3 of the voting rights,
                                         without the Company’s consent the possibility of replacing the existing directors
                                         is limited to the annual general meeting. On November 2016, EQY entered into a merger
                                         agreement with REG. Due to the agreement, EQY is classified as a discontinued operation
                                         in these consolidated financial statements and following the closing of the merger transaction,
                                         on March 1, 2017 the Company will deconsolidate EQY in its consolidated financial statements.
                                         The REG shares which will be held by the company will account as financial assets according
                                         to IAS39, Financial instruments: Recognition and Measurement.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Non-controlling
interests represent the equity in subsidiaries that are not attributable, directly or indirectly, to the parent company. Profit
or loss and each component of other comprehensive income are attributed to the Company and non-controlling interests. Losses are
attributed to non-controlling interests even if the non-controlling interests balance reported in the consolidated statement of
financial position is negative.



In
cases where the Company provides loans and/or guarantees for a subsidiary’s debts in excess of its percentage interest therein,
the Company recognizes its equity in the comprehensive income/loss of the subsidiary in accordance with the percentage interest
in the subsidiary. This notwithstanding, in the Statement of Changes in Equity, the Company makes a “reattribution”
of the losses generated, so that the non-controlling interests are not presented at an amount that is less than the amount of
financing to which they have committed.



When
the Group acquires non-controlling interests the difference between the consideration and the carrying amount of the acquired
interest is recorded as a reduction or increase in equity under transactions with non-controlling interests. Upon disposal of
rights in a subsidiary that does not result in a loss of control, an increase or decrease in equity is recognized as the difference
between the consideration received by the Group and the carrying amount of the non controlling interests in the subsidiary adjusted
for the disposal of goodwill in the subsidiary, if any, and amounts recognized in other comprehensive income, if any. Transaction
costs in respect of transactions with non-controlling interests are also recorded in equity.



Significant
intragroup balances and transactions and gains or losses resulting from intragroup transactions are eliminated in full in the
consolidated financial statements.



The
financial statements of the Company and of the consolidated investees are prepared as of the same dates and periods. The accounting
policies in the financial statements of those investees are applied consistently and uniformly with the policy applied in the
financial statements of the Company.



If
the Company loses control of a subsidiary, it shall:



| | - | Derecognize
                                         the assets (including any goodwill) and liabilities of the subsidiary.                                                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | - | Derecognize
                                         the carrying amount of any non-controlling interest.                                                                                                                                                                                                                                        
| | - | Derecognize
                                         adjustment resulting from exchange differences on translation recognized in equity.                                                                                                                                                                                                         
| | - | Recognize
                                         the fair value of the consideration received.                                                                                                                                                                                                                                                 
| | - | Recognize
                                         any investment retained in the former subsidiary at its fair value.                                                                                                                                                                                                                           
| | - | Recognize
                                         amounts previously recognized in other comprehensive income on relation to that subsidiary
                                         on the same basis as would be required if the Company had directly disposed of the related
                                         assets or liabilities.
| | - | Recognize
                                         any requesting difference (gain or loss) in profit or loss attributable to the Company.                                                                                                                                                                                                       



F-20






GAZIT-GLOBE
LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





|NOTE
    2:- | SIGNIFICANT
    ACCOUNTING POLICIES (Cont)
|------------ | ------------------------------------------







| | d. | Functional
                                         and foreign currencies
| | -- | --------------------------------------------------------------------------



| | 1. | Functional
                                         and presentation currency
| | -- | -----------------------------------------------------------------------------



The
presentation currency of the financial statements is the NIS.

For
the convenience of the reader, the reported NIS amounts as of December 31, 2016 have been translated into U.S. dollars, at the
representative rate of exchange on December 31, 2016 (U.S.$ 1 = NIS 3.845). The U.S. dollar amounts presented in these financial
statements should not be construed as representing amounts that are receivable or payable in dollars or convertible into U.S.
dollars, unless otherwise indicated.

The
U.S. dollar amounts were rounded to whole numbers of convenience.



The
functional currency, which is the currency that best reflects the economic environment in which the Company operates and conducts
its transactions, is determined separately for each Group entity, including entities accounted for using the equity method, and
is used to measure its financial position and operating results. The functional currency of the Company is the NIS.



When
an Investee's functional currency differs from the functional currency of the Company, that Investee represents a foreign operation
whose financial statements are translated so that they can be included in the consolidated financial statements as follows:



| | a) | Assets
                                         and liabilities for each balance sheet item presented (including goodwill and purchase
                                         adjustments) are translated at the closing rate as of the reporting date.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) | Income
                                         and expenses for each period presented in the income statement are translated at average
                                         exchange rates for the presented periods; however, if exchange rates fluctuate significantly,
                                         income and expenses are translated at the exchange rates at the date of the transactions.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c) | Share
                                         capital and capital reserves are translated at the exchange rate prevailing at the date
                                         of incurrence.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | d) | Retained
                                         earnings are translated based on the opening balance translated at the exchange rate
                                         at that date and other relevant transactions during the period are translated as described
                                         in b) and c) above.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | e) | Exchange
                                         differences are recognized in other comprehensive income (loss).
| | -- | ------------------------------------------------------------------------------------------------------------------



Intra-group
loans for which settlement is neither planned nor likely to occur in the foreseeable future are, in substance, a part of the investment
in that foreign operation and are accounted for as part of the investment and the exchange differences arising from these loans
are recognized in other comprehensive income (loss).



Upon
disposal of a foreign operation that leads to loss of control of a subsidiary, or in disposal of foreign operation accounted for
equity method, the cumulative amount of the exchange differences relating to that foreign operation, recognized in other comprehensive
income, is transferred to the income statement. In addition, on partial disposal of a subsidiary that includes a foreign operation
that does not leads to loss of control the Group re-attributes the proportionate share of the cumulative amount of the exchange
differences recognized in other comprehensive income to the non-controlling interests.



| | 2. | Transactions
                                         in foreign currency
| | -- | -------------------------------------------------------------------------

Transactions
denominated in foreign currency are recorded on initial recognition at the exchange rate at the date of the transaction. After
initial recognition, monetary assets and liabilities denominated in foreign currency are translated at each reporting date into
the functional currency at the exchange rate at that date. Exchange differences, other than those capitalized to qualifying assets
or recorded in other comprehensive income, are recognized in the income statement. Non-monetary assets and liabilities measured
at cost are translated at the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in
foreign currency and measured at fair value are translated into the functional currency using the exchange rate prevailing at
the date when the fair value was determined.



F-21










GAZIT-GLOBE
LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





|NOTE
    2:- | SIGNIFICANT
    ACCOUNTING POLICIES (Cont)
|------------ | ------------------------------------------





| | 3. | Index-linked
                                         monetary items
| | -- | --------------------------------------------------------------------



Monetary
assets and liabilities linked to the changes in the Israeli Consumer Price Index ("Israeli CPI") are adjusted at the
relevant index at each reporting date according to the terms of the agreement. Linkage differences arising from the adjustment,
as above, other than those capitalized to qualifying assets, are recognized in profit or loss.



| | e. | The
                                         operating cycle
| | -- | ------------------------------------------------------------



The
Group has two operating cycles. The average operating cycle of construction and sale of buildings and apartments’ activity
is three years. The operating cycle of the investment property and of the construction works activities is one year. Accordingly,
the assets and liabilities directly attributable to these activities are classified in the statement of financial position as
current assets and liabilities based on the operating cycle.



| | f. | Cash
                                         equivalents
| | -- | ---------------------------------------------------------



Cash
equivalents are highly liquid investments, including short-term bank deposits which are not restricted by liens, whose original
term to maturity is up to three months from the investment date.



| | g. | Short-term
                                         deposits
| | -- | ------------------------------------------------------------



Short-term
bank deposits are deposits with maturities of more than three months from investment and do not meet the definition of cash equivalents.
Deposits are presented in accordance with their terms of deposit.



| | h. | Allowance
                                         for doubtful accounts
| | -- | ------------------------------------------------------------------------



The
allowance for doubtful accounts is determined in respect of specific debts whose collection, in the opinion of Group Companies'
managements, is doubtful. Furthermore, with respect to trade receivables for which no specific allowance was recognized, subject
to materiality, an additional impairment is recognized estimated on a group base according to credit risks characteristics. Impaired
trade receivables are derecognized when they are assessed as uncollectible.



| | i. | Inventory
                                         of buildings and apartments for sale
| | -- | ---------------------------------------------------------------------------------------



Cost
of inventory of buildings and apartments for sale includes direct identifiable costs with respect to acquisition cost of land,
such as purchase tax, fees and levies as well as construction costs. The Company also capitalizes to the cost of inventory of
buildings and apartments for sale borrowing costs incurred from the period when the Company commences development activities.



Inventory
of buildings and apartments for sale is measured at the lower of cost and net realizable value. Net realizable value is the estimated
selling price in the ordinary course of business less estimated costs of completion and the estimated selling costs.



Inventory
under construction is measure on cost basis. The cost includes borrowing costs that apply to financing the project until its completion,
planning and designing costs, indirect construction cost that were allocated and other related costs.



Inventories
of land include acquisitions by the Group in an exchange transaction in which in consideration for the land, the vendor is provided
units in the completed project. Such land is measured at fair value and a corresponding liability is recognized for construction
services.

Inventories
of land include acquisitions by the Group in a transaction where the Group undertakes to pay cash based on the selling price of
the units in the completed project. Such land is measured upon initial recognition by reference to the fair value of the property
and the financial liability in respect of the expected future payments. In subsequent periods, the financial liability is adjusted
based on the revised expected cash outflows. The changes in the fair value of the liability are recorded as project costs.



F-22












GAZIT-GLOBE
LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





|NOTE
    2:- | SIGNIFICANT
    ACCOUNTING POLICIES (Cont)
|------------ | ------------------------------------------







| | j. | Receivables
                                         from construction contracts
| | -- | --------------------------------------------------------------------------------



Income
receivable from construction contracts is separately calculated for each construction contract and presented in the statement
of financial position at the aggregate amount of total costs incurred and total recognized profits less total recognized losses
and progress billings. Progress billings are amounts billed for work performed up to the reporting date, whether settled or not
settled. The financial asset, receivables for construction contracts, is reviewed for impairment and derecognition as discussed
below regarding impairment of financial assets presented at amortized cost and the derecognition of financial assets, respectively.



Costs
of projects based on construction contracts are recognized at cost that includes identifiable direct costs and shared indirect
costs. Shared indirect costs are allocated between the projects using a relevant basis.



When
the amounts received for a particular project exceed total costs incurred with the addition of the total profits recognized and
net or the total losses recognized, the net amounts received will be presented as a liability for customer advances.



| | k. | Financial
                                         instruments
| | -- | --------------------------------------------------------------



All
financial assets are recognized initially at fair value plus, in the case of investments not at fair value through profit or loss,
directly attributable transaction costs.



| | 1. | Financial
                                         assets at fair value through profit or loss
| | -- | ----------------------------------------------------------------------------------------------



Financial
assets that are measured at fair value through profit or loss comprise of financial assets held for trading and financial assets
designated upon initial recognition at fair value through profit or loss.



Financial
assets held for trading include derivatives that are not designated as hedging instruments. These derivatives are measured at
fair value with changes in fair value recognized in the income statement.



| | 2. | Loans
                                         and receivables and investments held to maturity
| | -- | -----------------------------------------------------------------------------------------------



The
Group has loans and receivables that are financial assets (non-derivative) with fixed or determinable payments that are not quoted
in an active market. Investments held to maturity are financial assets (non-derivative) with fixed or determinable payments in
which the Group has the intention and ability to hold to maturity. After initial recognition, loans and receivables and investments
held to maturity ("the investments") are measured based on their terms at amortized cost using the effective interest
method taking into account directly attributable transaction costs. Short-term receivables recognized based on their terms, normally
at face value. As for recognition of interest income, see y below.



| | 3. | Available-for-sale
                                         financial assets
| | -- | ----------------------------------------------------------------------------



Available-for-sale
financial assets are 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. Gains or
losses from fair value adjustments, except for exchange differences and interest that relate to monetary debt instruments and
dividend that relates to equity instrument that are carried to profit or loss, are recognized in other comprehensive income (loss).
When the investment is disposed of or in case of impairment, the equity reserve in other comprehensive income (loss) is reclassified
to profit or loss, presented under "Decrease in value of financial investments", or under "loss from sale of marketable
securities", as applicable. As for recognition of interest income on debt instruments and dividends earned on equity instruments,
see z below.



| | 4. | Offsetting
                                         financial instruments
| | -- | -------------------------------------------------------------------------



Financial
assets and financial liabilities are offset, and the net amount is presented in the statement of financial position, provided
there is a legally enforceable right to offset 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. The right to offset needs to be legally enforceable not just
during the normal course of business but also in the event of bankruptcy or insolvency of one the parties. In order for the right
to offset to be currently available, it cannot be contingent on a future event, nor can there be periods during which it will
not apply or events that will cause its expiration.



F-23












GAZIT-GLOBE
LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





|NOTE
    2:- | SIGNIFICANT
    ACCOUNTING POLICIES (Cont)
|------------ | ------------------------------------------







| | 5. | Financial
                                         liabilities measured at amortized cost
| | -- | -----------------------------------------------------------------------------------------



Interest-bearing
loans and borrowings are initially recognized at fair value less directly attributable transaction costs (such as loan raising
costs). After initial recognition, loans, including debentures, are measured based on their terms at amortized cost using the
effective interest method taking into account directly attributed transaction costs. Short-term credit is disclosed according
to it terms, usually in its nominal value.



| | 6. | Compound
                                         financial instruments
| | -- | -----------------------------------------------------------------------



Convertible
debentures that were issued in the issuing company's functional currency which are unlinked to certain index and not stated in
foreign currency and which contain both an equity component in respect of conversion options and a liability component, are separated
into an equity component (net of the tax effect) and a liability component. Each component is presented separately net of the
respective transaction costs. This separation is calculated by determining the liability component first based on the fair value
of an equivalent non-convertible liability. The value of the equity component is determined as the residual value. For convertible
debentures that were issued by subsidiaries, the equity component is included within non-controlling interests.



The
liability component is accounted for after initial recognition as described above in respect of financial liabilities measured
at amortized cost and presented in the statement of financial position as a current or non-current liability based on the settlement
date in cash.



| | 7. | Embedded
                                         derivatives
| | -- | -------------------------------------------------------------



The
Group assesses whether embedded derivatives are required to be separated from host contracts when the Group first becomes party
to the contract. Reassessment is only required if there is a change in the terms of the contract that significantly modifies the
cash flows from the contract.



| | 8. | Issue
                                         of a bundle of securities
| | -- | ------------------------------------------------------------------------



The
issue of a bundle of securities involves the allocation of the proceeds received (before issue expenses) to the components of
the securities issued in the bundle based on the following hierarchy: fair value is initially determined for derivatives and the
financial instruments measured at fair value at each reporting period, then the fair value is determined for financial liabilities
that are measured at each reporting period at amortized cost, while the proceeds allocated in respect of equity instruments are
determined as a residual value. Direct issue costs are allocated to each component pro rata to the amounts determined for each
component. Allocation of proceeds between components in the same level of hierarchy is based on relative fair value of those components.



| | 9. | Treasury
                                         shares
| | -- | --------------------------------------------------------



Company
shares held by the Company are recognized at cost and deducted from equity. Any purchase, sale, issue or cancellation of treasury
shares is recognized directly in equity.



| | 10. | Derecognition
                                         of financial assets
| | --- | --------------------------------------------------------------------------



A
financial asset is derecognized when the contractual rights to the cash flows from the financial asset expire or the company has
transferred its contractual rights to receive cash flows from the financial asset or assumes an obligation to pay the cash flows
in full without material delay to a third party and has transferred substantially all the risks and rewards of the asset, or has
neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.



F-24












GAZIT-GLOBE
LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





|NOTE
    2:- | SIGNIFICANT
    ACCOUNTING POLICIES (Cont)
|------------ | ------------------------------------------





| | 11. | Derecognition
                                         of financial liabilities
| | --- | -------------------------------------------------------------------------------



A
financial liability is derecognized when it is extinguished, meaning, when the obligation is discharged, cancelled or expires.
A financial liability is extinguished when the debtor (the Group):



| | ● | discharges
                                         the liability by paying in cash, other financial assets, goods or services; or
| | - | ----------------------------------------------------------------------------------------------------------------------------------
| | ● | is
                                         legally released from the liability.                                                  



Where
an existing financial liability is exchanged with another liability from the same lender on substantially different terms, or
the terms of an existing liability are substantially modified, such an exchange or modification is accounted for as an extinguishment
of the original liability and the recognition of a new liability. The difference between the carrying amount of the above liabilities
is recognized in the profit or loss. If the exchange or modification is immaterial, it is accounted for as a change in the terms
of the original liability and no gain or loss is recognized from the exchange. When determining whether an exchange transaction
of a debt instrument constitutes material change, the Group takes into consideration quantitative as well as qualitative criteria.



| | l. | Impairment
                                         of financial assets
| | -- | -----------------------------------------------------------------------



The
Group assesses at each reporting date whether there is any objective evidence that the following financial asset or group of financial
assets is impaired:



| | 1. | Financial
                                         assets carried at amortized cost
| | -- | -----------------------------------------------------------------------------------



There
is objective evidence of impairment of debt instruments, loans and receivables measured at amortized cost as a result of one or
more events that has occurred after the initial recognition of the asset and that loss event has a negative impact on the estimated
future cash flows. The amount of the loss carried to 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 original effective interest rate. If the financial asset bears a variable interest rate, the discount rate is the current
effective interest rate. In subsequent periods, the amount of the impairment loss is reversed if the recovery of the asset can
be related objectively to an event occurring after the impairment was recognized.



The
amount of the reversal, as abovementioned, is recognized as profit or loss up to the amount of any previous impairment.



| | 2. | Available-for-sale
                                         financial assets
| | -- | ----------------------------------------------------------------------------



For
equity instruments classified as available-for-sale financial assets, the objective evidence includes, inter alia, a significant
or prolonged decline in the fair value of the asset below its cost. The examination of a significant or prolonged impairment depends
on the circumstances at each balance sheet date. The examination considers historical volatility in fair value and the existence
of a continuous decline in fair value. Where there is evidence of impairment, the cumulative loss is reclassified from other comprehensive
income to profit or loss. In subsequent periods, reversal of impairment loss is recognized as other comprehensive income.



| | m. | Financial
                                         derivatives and hedge accounting
| | -- | -----------------------------------------------------------------------------------



In
line with its risk management policy, the Group occasionally enters into derivative contracts such as cross-currency swaps of
principle and interest ("swap"), currency forward contracts and Interest Rate Swaps ("IRS") to hedge its risks
associated with changes in interest rates and currency exchange fluctuations. Such financial derivatives are presented as current
or non-current based on their maturity dates.



F-25














GAZIT-GLOBE
LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





|NOTE
    2:- | SIGNIFICANT
    ACCOUNTING POLICIES (Cont)
|------------ | ------------------------------------------







After
initial recognition, derivatives are measured at fair value. Any gains or losses arising from changes in fair value on derivatives
that do not qualify for hedge accounting are carried to profit or loss.

Subsequent
to initial recognition, the financial derivatives are measured at fair value when losses or gains in respect of derivatives in
respect of which the Company does not apply hedge accounting are charged as losses or gains in the statement of income.



Hedges
qualify for hedge accounting, among others, when at inception of the hedging relationship there is a formal designation and documentation
of the hedging relationship and of the Group's risk management objective and strategy for undertaking the hedge. Hedges are assessed
on an ongoing basis to determine whether they are highly effective during the reporting period for which the hedge is designated.
Hedges are accounted for as follows:



Cash
flow hedges



The
effective portion of the gain or loss on the hedging instrument is recognized in other comprehensive income, while any ineffective
portion is recognized immediately in profit or loss. Amounts recognized as other comprehensive income are reclassified to profit
or loss when the hedged transaction affects profit or loss, or when a forecasted transaction or firm commitment is no longer expected
to occur.



If
the hedging instrument expires or is sold, terminated or exercised, or if its designation as a hedge is revoked, amounts previously
recognized as other comprehensive income remain in other comprehensive income until the forecasted transaction or the firm commitment
occurs.



On
unwinding hedging transactions, whether or not they are designated as an accounting hedge, when the transaction includes a hedge
of cash flows with respect to principal and interest, the cash flows received or paid are classified in the statement of cash
flow under financing activity, in respect of the cash flows representing the hedge of the principal component, and under operating
activity, in respect of the cash flows representing the hedge of the interest component. With regard to unwinding of interest
rate swap (IRS) the cash flows received or paid are classified in the statement of cash flow under operating activity.



Hedges
of a net investment in a foreign operation



Hedges
of a net investment in a foreign operation, including a hedge of a monetary item that is accounted for as part of the net investment,
are accounted for similar to cash flow hedges. Upon disposal of foreign operation, the cumulative translation difference in comprehensive
income is reclassified to profit or loss.



Fair
value hedges



The
fair value of a derivative (the hedged item) and the hedging item are recognized through profit or loss. When the derivative derogated
the adjustment to fair value that has not yet amortized is recognized at that date to profit or loss.



| | n. | 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. Fair measurement is based on the assumption that the transaction takes place in the principal
market of the asset or the liability, or, in the absence of a principal market, in the most advantageous market. The fair value
of an asset or a liability is measured using the assumption that market participants will assume, at the time of pricing the asset
or the liability that market participants act in their economic best interest.



The
fair value of financial instruments that are traded in active markets is determined by reference to quoted market prices at each
reporting date. For investments where there is no active market, fair value is determined using appropriate valuation techniques.
Such techniques include using recent arm's length market transactions; reference to the current market value of another instrument
that is substantially the same; a discounted cash flow analysis or other valuation models. Further details are provided in Note 36b.



F-26














GAZIT-GLOBE
LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





|NOTE
    2:- | SIGNIFICANT
    ACCOUNTING POLICIES (Cont)
|------------ | ------------------------------------------







Fair
value measurement of a non-financial asset takes into account the ability of a market participant to generate economic benefits
through making the highest and best use of the asset or by selling it to another market participant who will make the highest
and best use of it.



The
Group uses valuation techniques 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 that are measured at fair value or whose fair value is disclosed are divided into categories within a fair
value hierarchy, based on the lowest level input that is significant to the entire fair value measurement:

| | Level
    1: | Prices
    quoted (un-adjusted) on active markets of similar assets and liabilities.                                   
| | ------------ | -----------------------------------------------------------------------------------------------------------------------
| | Level
    2: | Data
    other than quoted prices included in level 1, which may be directly or indirectly observed.                   
| | Level
    3: | Data
    not based on observable market information (valuation techniques not involving use of observable market data).



For
additional information regarding the fair value of assets and liabilities measured at fair value or that their fair value is disclosed,
refer to Note 36b and c.



| | o. | Business
                                         combinations and goodwill
| | -- | ---------------------------------------------------------------------------



Business
combinations are accounted for by applying the acquisition method. Under this method, the assets and liabilities of the acquired
business are identified at fair value on the acquisition date. The cost of the acquisition is the aggregate fair value of the
assets acquired, liabilities assumed and equity rights issued by the acquirer on the date of acquisition. In respect of each business
combinations, non-controlling interests are measured either at fair value on the acquisition date or at the relative share of
the non-controlling interests in the acquiree's net identifiable assets. The Direct acquisition costs are recognized immediately
as an expense in profit or loss.



In
a business combination achieved in stages, equity rights in the acquiree that had been previously held by the acquirer prior to
obtaining control are measured at the acquisition date at fair value and are included in the acquisition consideration by recognizing
the gain or loss resulting from the fair value measurement. In addition, amounts previously recorded in other comprehensive income
are reclassified to profit and loss.



Goodwill
is initially measured at cost which represents the excess acquisition consideration and non-controlling interests over the net
identifiable assets acquired and liabilities assumed as measured on the acquisition date. If the excess is negative, the difference
is recorded as a gain from bargain purchase in profit and loss upon acquisition.



Acquisitions
of subsidiaries that are not business combinations



Upon
the acquisition of operations that do not constitute a business, the acquisition consideration is only allocated between the acquired
identifiable assets and liabilities based on their relative fair values on the acquisition date without attributing any amount
to goodwill or to deferred taxes, whereby the non-controlling interests, if any, participate at their relative share of the fair
value of the net identifiable assets on the acquisition date. Directly attributed costs are recognized as part of the acquisition
cost.



| | p. | Investments
                                         in associates and joint ventures
| | -- | -------------------------------------------------------------------------------------



The
investment in associates or joint ventures is accounted for using the equity method. Under the equity method, the investment in
associates or joint ventures is accounted for in the financial statements at cost plus changes in the Group's share of net assets,
including other comprehensive income (loss), of the associates or joint ventures. The equity method is applied until the loss
of significant influence or joint control or classification of the investment as non-current asset held-for-sale.



F-27
















GAZIT-GLOBE
LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





|NOTE
    2:- | SIGNIFICANT
    ACCOUNTING POLICIES (Cont)
|------------ | ------------------------------------------







The
Group continues to apply the equity method in cases which the associate become a joint venture and vice versa. The Company applies
the provision of IFRS 5 with regards to the investment or part of the investment in associate or Joint venture that is classified
as held for sale. The remaining of the investment not classified as held for sale is still measured according to the equity method.



Goodwill
relating to the acquisition of associates or joint ventures and to the increase in holding interest is initially measured as the
difference between the acquisition cost and the Group's share in the net fair value of the associates or joint ventures' net identifiable
assets. After initial recognition, goodwill is measured at cost less, if applicable, any accumulated impairment loss and is not
systematically amortized. Goodwill is examined for impairment as part of the investment in the associate or joint ventures as
a whole. In case the acquisition cost is lower than the net fair value of the associated net identified assets the difference
is recognized as a gain from bargain purchase in profit or loss.



Profits
and losses resulting from transactions between the Group and associates or joint ventures are eliminated to the extent of the
interest in the investees.



The
financial statements of the Company and of the associates or joint ventures are prepared as of the same dates and periods. The
accounting policy in the financial statements of the associates and joint ventures has been applied consistently and uniformly
with the policy applied in the financial statements of the Group.



| | q. | Investment
                                         property
| | -- | ------------------------------------------------------------



An
investment property is property (land or a building or both) held by the owner 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 sale in the ordinary course of business.



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 balance sheet date. Gains or losses arising from changes
in fair value of investment property are recognized in profit or loss when they arise. Investment property is not systematically
depreciated.



Investment
property under development, designated for future use as investment property, is also measured at fair value, provided that fair
value can be reliably measured. However, when fair value is not reliably determinable, such property is measured at cost, less
any impairment losses, if any, until either development is completed, or its fair value becomes reliably determinable, whichever
is earlier. The cost of investment property under development includes the cost of land, construction costs, borrowing costs used
to finance construction, direct incremental planning and development costs and leasing costs.



In
order to determine the fair value of investment property, the Group uses valuations performed mainly by accredited independent
appraisers who hold a recognized and relevant professional qualification and by the Group's managements that have extensive professional
knowledge and deeply familiar with the type of assets and markets in which the Group operates. For further details refer to Notes
12 and 13.



Investment
properties are derecognized on disposal or when the investment property is permanently withdrawn from use and no future economic
benefits are expected from its disposal. The difference between the net disposal proceeds and the carrying amount of the asset
is recognized in profit or loss in the period of the disposal.



F-28
















GAZIT-GLOBE
LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





|NOTE
    2:- | SIGNIFICANT
    ACCOUNTING POLICIES (Cont)
|------------ | ------------------------------------------





| | r. | Fixed
                                         assets
| | -- | -----------------------------------------------------



Items
of fixed assets are measured at cost with the addition of direct acquisition costs, less accumulated depreciation and accumulated
impairment losses, if any, and excluding day-to-day servicing expenses.



Depreciation
is calculated for every significant item separately on a straight-line basis over the useful life of the assets at annual rates
as follows:



| |                                                                       |  | % |       |  | 
| | --------------------------------------------------------------------- |  | - | ----- |  | 
| |                                                                       |  |   |       |  | 
| | Buildings                                                             |  |   | 2     |  | 
| | Motor vehicles                                                        |  |   | 15    |  | 
| | Equipment                                                             |  |   | 2.5-5 |  | 
| | Computers, software, office furniture,
    office equipment and other |  |   | 6-33  |  | 



Leasehold
improvements are depreciated on a straight-line basis over the shorter of the lease term (including the extension option held
by the Group and intended to be exercised) and the expected useful life of the improvement.



The
useful life and the residual value of an asset are reviewed at least once at each year-end and the changes, if any, are accounted
for prospectively as a change in accounting estimate. Depreciation of an asset ceases at the earlier of the date that the asset
is classified as held for sale and the date that the asset is derecognized.



| | s. | Intangible
                                         assets
| | -- | ----------------------------------------------------------



Intangible
assets acquired in a business combination are recognized at fair value at the acquisition date. Intangible assets, that according
to management's assessment, have a finite useful life are amortized over their useful life using the straight-line method (refer
to Note 15) and reviewed for impairment whenever there is an indication that the intangible assets may be impaired. The useful
life and residual value are reviewed at least once a year.



| | t. | Leases
| | -- | ------



The
tests 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 principles set out in IAS 17.



F-29






GAZIT-GLOBE
LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





|NOTE
    2:- | SIGNIFICANT
    ACCOUNTING POLICIES (Cont)
|------------ | ------------------------------------------





Operating
leases - the Group as lessee

Lease
agreements are classified as an operating lease if they do not transfer substantially all the risks and rewards incidental to
ownership of the leased asset. Lease payments are recognized as an expense in profit or loss on a straight-line basis over the
lease term.



Finance
leases - the Group as lessee

Finance
leases transfer to the Group substantially all the risks and benefits incidental to ownership of the leased asset. At the commencement
of the lease term, the leased assets are measured at the fair value of the leased asset or, if lower, at the present value of
the minimum lease payments. The liability for lease payments is presented at its present value and the lease payments are apportioned
between finance charges and a reduction of the lease liability using the effective interest method. The leased asset is amortized
over the shorter of its useful life or the lease period.



Operating
leases - the Group as lessor

Lease
agreements where the Group does not transfer substantially all the risks and rewards incidental to ownership of the leased asset
are classified as operating leases. Initial direct costs incurred in respect of the lease agreement are added to the carrying
amount of the leased asset and recognized as an expense in parallel with the lease income (regarding investment property - as
part of the fair value adjustments).



Finance
leases - the Group as lessor

A
lease is classified as a finance lease where all the risks and rewards incident to ownership of the asset are transferred to the
lessee. The leased asset is derecognized and replaced with a financial asset, "Receivables with respect to finance lease",
at an amount equal to the present value of the lease payments. Subsequent to the initial recognition, lease payments are allocated
between finance income and settlement of the receivables with respect to the lease.



| | u. | Impairment
                                         of non-financial assets
| | -- | ---------------------------------------------------------------------------



The
Company examines the need to recognize an impairment of non-financial assets whenever events or changes in circumstances indicate
that their carrying amount is not recoverable. If the carrying amount of non-financial assets exceeds their recoverable amount,
the carrying amounts is reduced to their recoverable amount. The recoverable amount is the higher of fair value less costs to
sell and value in use. In measuring value in use, the estimated net operating future cash flows are discounted using a pre-tax
discount rate that reflects the risks specific to the asset. Impairment loss is recognized in profit or loss.



An
impairment loss of an asset, other than goodwill, is reversed only if there have been changes in the estimates used to determine
the asset's recoverable amount since the last impairment loss was recognized. Reversal of an impairment loss, as above, shall
not be increased above the lower of the carrying amount that would have been determined (less depreciation) had no impairment
loss been recognized for the asset in prior periods and its recoverable amount. A reversal of an impairment loss of an asset measured
at cost is recognized as income in profit or loss.



The
following criteria are applied in assessing impairment for the following specific assets:



| | 1. | Goodwill
                                         in respect of subsidiaries
| | -- | ----------------------------------------------------------------------------



For
the purpose of impairment testing, goodwill acquired in a business combination is allocated, at acquisition date, to each of the
cash generating units that are expected to benefit from the synergies of the combination.



The
Group reviews goodwill for impairment once a year on December 31, or more frequently, if events or changes in circumstances indicate
that impairment has occurred.



F-30






GAZIT-GLOBE
LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





|NOTE
    2:- | SIGNIFICANT
    ACCOUNTING POLICIES (Cont)
|------------ | ------------------------------------------





Impairment
test for goodwill is carried out by determining the recoverable amount of the cash-generating unit (or group of cash-generating
units) to which the goodwill belongs. In certain circumstances for impairment test of goodwill, the recoverable amount is adjusted
for the difference between the carrying amount of recognized deferred tax liability and its fair value. If the recoverable amount
of the cash-generating unit (or group of cash generating units), to which goodwill has been allocated, is lower than its carrying
amount, an impairment loss is recognized and attributed first to reduce the carrying amount of goodwill. Impairment losses recognized
for goodwill cannot be reversed in subsequent periods. For additional information, refer to Note 15.



| | 2. | Investments
                                         in associates and joint ventures
| | -- | -------------------------------------------------------------------------------------



After
application of the equity method of accounting, the Group examines whether it is necessary to recognize any additional impairment
loss with respect to investments in the associates or joint ventures. The recoverable amount is the higher of fair value and value
in use which is determined based on the estimated net cash flows to be generated by the associate or joint venture. Impairment
loss, as above, is not attributed specifically to goodwill. Therefore, it may be reversed in full in subsequent periods, up to
the recognized impairment loss, if the recoverable amount of the investment increases.



| | v. | Non-current
                                         assets classified as held for sale
| | -- | ---------------------------------------------------------------------------------------



A
non-current asset or a group of assets (disposal group) are classified as held for sale if their carrying amount will be recovered
principally through a sale transaction rather than through continuing use. For this to be the case, the assets must be available
for immediate sale in their present condition, the Group must be committed to sell, there is a plan to locate a buyer and it is
highly probable that a sale will be completed within one year from the date of classification. The depreciation of the assets
ceases upon initial classification date, and they are presented separately in the statement of financial position as current assets,
and measured at the lower of their carrying amount and fair value less costs to sell.



Investment
property measured at fair value and classified as held for sale, as above, continues to be measured at fair value and presented
separately in the statement of financial position as assets classified as held for sale.



When
the parent company decides to realize part of its holdings in a subsidiary so that after the disposal the company is left with
non-controlling interest, assets and liabilities attributed to the subsidiary are classified as held for sale by applying the
provisions of IFRS 5, including classification as for discontinued operations.

A
discontinued operation is an activity disposed or classified as held for sale as mentioned above, and it represents a business
sector or geographical location of operations which is considered separate and major.



| | w. | Taxes
                                         on income
| | -- | --------------------------------------------------------



The
tax results in respect of current or deferred taxes are recognized as profit or loss except to the extent that the tax arises
from items which are recognized in other comprehensive income or directly in equity.



| | 1. | Current
                                         taxes
| | -- | ------------------------------------------------------



The
current tax liability is measured using the tax rates and tax laws that have been enacted or substantively enacted by the reporting
date as well as adjustments required in connection with the tax liability in respect of previous years.



F-31










GAZIT-GLOBE
LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE
    2:- | SIGNIFICANT
    ACCOUNTING POLICIES (Cont)
|------------ | ------------------------------------------



| | 2. | Deferred
                                         taxes
| | -- | -------------------------------------------------------



Deferred
tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or
the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at the reporting date.



Deferred
tax assets are reviewed at each reporting date and reduced to the extent that it is not probable that the related tax benefit
will be utilized. Deductible carryforward losses and temporary differences for which deferred tax assets had not been recognized
are reviewed at each reporting date and a respective deferred tax asset is recognized to the extent that their utilization is
probable. Any resulting reduction or reversal is recognized in profit or loss.



Nevertheless,
deferred taxes are recognized for distribution of earnings by a subsidiary which qualifies as a REIT for tax purposes, due to
the REIT’s policy to distribute most of its taxable income to its shareholders. The abovementioned deferred taxes are recognized
based on the Group’s interests in the REIT (further details are provided in Note 25b).



In
situations where the Group holds single asset entities and where the manner in which the Group expects to realize the investment
is by selling the shares of the single asset entity rather than by disposing of the asset itself, the Group recognizes deferred
taxes both in relation to the temporary inside differences arising from the gap between the tax basis of the asset and its book
value and, if relevant, also in relation to the outside temporary differences arising from the gap between the tax basis of the
shares of the single asset entity and the share of the Group that holds the net assets of the single asset entity in the consolidated
financial statements.



Taxes
that would apply in the event of the sale of investments in subsidiaries have not been taken into account in recognizing deferred
taxes, as long as the realization of the investments is not expected in the foreseeable future. Also, deferred taxes with respect
to distribution of earnings by investee companies as dividend are not been taken into account in recognizing deferred taxes, since
dividend distribution does not involve additional tax liability and, since it is the Group’s policy not to initiate dividend
distributions that trigger additional tax liability.



Deferred
taxes are offset if there is a legally enforceable right to set off a current tax asset against a current tax liability and the
deferred taxes relate to the same taxpayer and the same taxation authority.



| | x. | Share-based
                                         payment transactions
| | -- | -------------------------------------------------------------------------



The
Group’s employees and officers are entitled to remuneration in the form of share-based payment transactions as consideration
for equity instruments (“equity-settled transactions”) and certain employees and officers are entitled to cash-settled
benefits based on the increase in the Group companies’ share price (“cash-settled transactions”).



Equity-settled
transactions



The
cost of equity-settled transactions with employees and officers is measured at the fair value of the equity instruments granted
at grant date. The fair value is determined using a standard pricing model.



The
cost of equity-settled transactions (refer to Note 28) is recognized in profit or loss, together with a corresponding increase
in equity, during the period in which the service conditions are satisfied (the “vesting period”), ending on the date
on which the relevant employees become fully entitled to the award. In cases where the vesting period was not completed, due to
reasons other than market conditions, the cumulative expense recognized is recorded as income.



In
cases where the Company performs modification of equity instruments granted (“modification”), which increases the
aggregate fair value of the granted compensation or benefits the grantee, an additional expense in recognized incremental to the
original expense, according to the fair value measured immediately before and after the modification (“incremental expense”).
If the modification occurs during the vesting period, the incremental expense is recognized over the remainder of the vesting
period, whereas if the modification occurs after the vesting date, the incremental expense is recognized immediately, or over
the additional vesting period if applicable.





F-32






GAZIT-GLOBE
LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE
    2:- | SIGNIFICANT
    ACCOUNTING POLICIES (Cont)
|------------ | ------------------------------------------



Cancellation
of a grant is accounted for as if it had vested on the date of cancellation, and any expense not yet recognized for the grant
is immediately recognized. However, if the cancelled grant is replaced by a new grant and is intended to be a replacement grant,
the cancelled and new grants are accounted for together as a modification of the original grant, as described above.



Cash-settled
transactions



The
cost of cash-settled transactions is measured at fair value based on the expected cash amount the Group is required to pay on
settlement. The fair value is recognized as an expense over the vesting period and a corresponding liability is recognized. The
liability is remeasured at fair value at each reporting date until settled with any changes in fair value recognized in profit
and loss.



| | y. | Employee
                                         benefit liabilities
| | -- | ---------------------------------------------------------------------



The
Group has several employee benefit plans:



| | 1. | Short-term
                                         employee benefits
| | -- | ---------------------------------------------------------------------



Short-term
employee benefits are benefits that are expected to be settled in full within 12 month after the reporting date in which the employees
provide the relevant services. Those benefits include salaries, paid annual leave, paid sick leave, recreation and social security
contributions and are recognized as expenses as the services are rendered. A liability in respect of a cash bonus or a profit-sharing
plan is recognized when the Group has a legal or constructive obligation to make such payment as a result of past service rendered
by an employee and a reliable estimate of the amount can be made.



| | 2. | Post-employment
                                         benefits
| | -- | -----------------------------------------------------------------



The
plans are normally financed by contributions to insurance companies and classified as defined contribution plans or as defined
benefit plans.



The
Group companies have defined contribution plans under which the Group pays fixed contributions and will have no legal or constructive
obligation to pay further contributions if the fund does not have sufficient amounts to pay all employee benefits relating to
employee service in the current and prior periods. Contributions in the defined contribution plan in respect of severance pay
or compensation are recognized as an expense when due to be contributed to the plan simultaneously with receiving the employee’s
services and no additional provision is required in the financial statements.



The
Group also operates a defined benefit plan in respect of severance pay pursuant to the severance pay laws in the relevant countries
of operation. According to these laws, employees are entitled in certain circumstances to severance pay upon dismissal or retirement.
If applicable and subject to materiality, the liability in the financial statements is estimated based on an actuarial assumption,
refer to Note 24.



| | z. | Revenue
                                         recognition
| | -- | ------------------------------------------------------------



Revenues
are recognized in the income statement when the revenues can be measured reliably, it is probable that the economic benefits associated
with the transaction will flow to the Group and the costs incurred or to be incurred in respect of the transaction can be measured
reliably.



Rental
income



Rental
income under an operating lease is recognized on a straight-line basis over the lease term. Rental income, where there is a fixed
and known increase in rental fees over the term of the contract, is recognized as revenues on a straight-line basis as an integral
part of total rental income over the lease period. Similarly, lease incentives granted to tenants, in cases where the tenants
are the primary beneficiary of such incentives, are considered as an integral part of total rental income and recognized on a
straight-line basis over the lease term as a reduction of revenues.





F-33






GAZIT-GLOBE
LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE
    2:- | SIGNIFICANT
    ACCOUNTING POLICIES (Cont)
|------------ | ------------------------------------------



Revenues
from sale of real estate and residential apartments



Revenues
from sale of real estate and residential apartments are recognized when the principal risks and rewards of ownership have been
passed to the buyer. Revenues are recognized when significant uncertainties regarding the collection of the consideration no longer
exist, the related costs are known and there is no continuing managerial involvement with the real estate or residential apartment
delivered. These criteria are usually met once a significant portion of construction has been completed, the residential apartment
has been delivered to the buyer and the buyer has fully paid the consideration for the apartment. As for the land, the criteria
are usually met once the possession in the land is transferred.



Revenues
from construction contracts



Revenues
from construction contracts are recognized by the percentage of completion method when all the following conditions are satisfied:
the revenues are known or can be estimated reliably, collection is probable, costs related to performing the work are determinable
or can be reasonably determined, there is no substantial uncertainty regarding the Group’s ability (as the contractor) to
complete the contract and meet the contractual terms and the percentage of completion can be estimated reliably. The percentage
of completion is determined based on the proportion of costs incurred to date to the estimated total costs. If not all the criteria
for recognition of revenue from construction contracts are met, then revenue is recognized only to the extent of costs whose recoverability
is probable (“zero profit margin” presentation). An expected loss on a contract is recognized immediately irrespective
of the stage of completion and classified within cost of revenues.



| | aa. | Earnings
                                         per share
| | --- | -----------------------------------------------------------



Earnings
per share are calculated by dividing the net income attributable to equity holders of the Company by the weighted average number
of ordinary shares outstanding during the period. Basic earnings per share only include shares that were actually outstanding
during the period. Potential ordinary shares are only included in the computation of diluted earnings per share when their conversion
decreases earnings per share, or increases loss per share, from continuing operations. Furthermore, potential ordinary shares
that are converted during the period are included in diluted earnings per share only until the conversion date and from that date
in basic earnings per share. The Company’s share of earnings of investees is included based on the basic and diluted earnings
per share of the investees multiplied by the number of shares held by the Company, as applicable.



| | bb. | Provisions
| | --- | ----------



A
provision in accordance with IAS 37 is recognized when the Group has a present legal or constructive obligation as a result of
a past event and 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.

Levies
imposed on the Company by government entities through legislation, are accounted for pursuant to IFRIC 21 according to which the
liability for the levy is recognized only when the activity that triggers payment occurs.



| | cc. | Borrowing
                                         costs in respect of qualifying assets
| | --- | ----------------------------------------------------------------------------------------



A
qualifying asset is an asset that necessarily takes a substantial period of time to be prepared for its intended use or sale,
including investment property under development or redevelopment and inventories of buildings and apartments for sale that require
a substantial period of time to bring them to a saleable condition. The Group capitalizes borrowing costs that are attributable
to the acquisition and development of qualifying assets.





F-34






GAZIT-GLOBE
LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE
    2:- | SIGNIFICANT
    ACCOUNTING POLICIES (Cont)
|------------ | ------------------------------------------



As
for investment property under development, measurement of these assets at fair value does not include the amount of borrowing
costs incurred during their development period. The Group presents financing costs in profit or loss net of borrowing costs that
had been capitalized on such assets before measuring them at fair value.



The
capitalization of borrowing costs commences when expenditures in respect of the asset are being incurred, borrowing costs are
being incurred and the activities to prepare the asset are in progress 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.



| | dd. | Operating
                                         segments
| | --- | -----------------------------------------------------------



An
operating segment is a component of the Group that meets the following three criteria:



| | 1. | It
                                         is engaged in business activities from which it may earn revenues and incur expenses,
                                         including revenues and expenses relating to intragroup transactions;
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2. | Its
                                         operating results are regularly reviewed by the Group’s chief operating decision
                                         maker to make decisions about resources to be allocated to the segment and assess its
                                         performance; and
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3. | Separate
                                         financial information of the segment is available.
| | -- | ----------------------------------------------------------------------------------------------------



| | ee. | Disclosure
                                         of new IFRS’s in the period prior to their adoption
| | --- | -------------------------------------------------------------------------------------------------------



IFRS
15, Revenue from Contracts with Customers



The
Standard introduces the following five-step model that applies to revenue from contracts with customers:



Step
1: Identify the contract with a customer, including reference to contract consolidation and accounting for contract modifications.



Step
2: Identify the distinct performance obligations in the contract.



Step
3: Determine the transaction price, including reference to variable consideration, financing components that are significant to
the contract, non-cash consideration and any consideration payable to the customer.



Step
4: Allocate the transaction price to the separate performance obligations on a relative stand-alone selling price basis using
observable information, if it is available, or by making estimates and assessments.



Step
5: Recognize revenue when (or as) the entity satisfies a performance obligation over time or at a point in time.



The
Amendment will be adopted retrospectively from the financial statements for annual periods beginning on January 1, 2018 or thereafter.
Earlier application is permitted.



The
Company is evaluating the effect of the adoption of IFRS 15 The Company believes that the adoption is not expected to have a material
effect on the consolidated financial statements.



IFRS
9, Financial Instruments



In
July 2014, the IASB published the full and final text of IFRS 9 Financial Instruments (herein after-“The Standard”),
which replaces IAS 39 Financial Instruments: Recognition and Measurement.





F-35






GAZIT-GLOBE
LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE
    2:- | SIGNIFICANT
    ACCOUNTING POLICIES (Cont)
|------------ | ------------------------------------------



The
Standard prescribes that, at initial recognition, all the financial assets are to be measured at fair value. In subsequent periods,
debt instruments are to be measured at amortized cost only if the two following cumulative 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 arising therefrom.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | In
                                         accordance with the contractual terms of the financial asset, the company is entitled,
                                         on specified dates, to receive cash flows that are solely payments of principal and interest
                                         on the principal amount outstanding.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The
subsequent measurement of all other debt instruments and other financial assets will be at fair value. The Standard makes a distinction
between debt instruments to be measured at fair value through profit or loss and debt instruments to be measured at fair value
through other comprehensive income.



Financial
assets that are equity instruments are to be measured in subsequent periods at fair value.



With
regard to derecognition and financial liabilities, the Standard prescribes the same provisions as are required under the provisions
of IAS 39 with regard to derecognition and financial liabilities for which the fair value option has not been elected.



The
Standard is effective for periods beginning on or after January 1, 2018, with early adoption permitted. The Company is studying
the effects of the Standard, The Company believes that the adoption is not expected to have a material effect on the consolidated
financial statements.



IFRS
16, Leases:



In
January 2016, the IASB issued IFRS 16, “Leases”, (“the new Standard”). According to the new Standard,
a lease is a contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time
in exchange for consideration.

According
to the new Standard:



| | a. | In
                                         respect of all leases, lessees are required to recognize an asset against a liability,
                                         representing the right to use an underlying asset during the lease term in the statement
                                         of financial position (except in certain cases) similarly to the accounting treatment
                                         of finance leases according to the existing IAS 17, “Leases”.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b. | Lessees
                                         are required to initially recognize a lease liability for the obligation to make lease
                                         payments against right-of-use asset. Interest expenses and depreciation expenses will
                                         be recognized separately.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c. | Variable
                                         lease payments that are not CPI or interest dependent on performance or use (such as
                                         percentage of turnover) will be recognized as expenses by the lessees or as income by
                                         the lessors as incurred.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | d. | In
                                         the event of change in variable lease payments that are CPI-linked, lessees will reevaluate
                                         the lease liability and the effect of the change will be carried to the right-of-use
                                         asset.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | e. | The
                                         new Standard prescribes two exceptions according to which lessees are permitted to make
                                         an election, on a lease-by-lease basis, to apply a method similar to current operating
                                         lease accounting to leases for which the underlying asset is of low value or leases with
                                         a lease term of 12 months or less.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | f. | Lessors’
                                         accounting treatment remains substantially unchanged, namely classification of the lease
                                         as finance lease or operating lease.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





F-36






GAZIT-GLOBE
LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE
    2:- | SIGNIFICANT
    ACCOUNTING POLICIES (Cont)
|------------ | ------------------------------------------



The
new Standard is effective for annual periods beginning on or after January 1, 2019. Earlier application is permitted provided
that IFRS 15, “Revenue from Contracts with Customers”, is simultaneously applied.



The
new Standard permits lessees to use either a full retrospective or a modified retrospective approach on transition for leases
existing at the date of transition, with options to use certain transition reliefs whereby no restatement of comparative figures
is required.



The
Company is studying the possible effect of the new Standard. At this stage, the Company is unable to quantify the impact of adoption
on the consolidated financial statements.



| | ff. | Reclassified
| | --- | ------------



On
January 14, 2016, Gazit’s Development’s entire interest (held directly and indirectly) in the shares of Luzon Development
and Energy Group Ltd. (“Luzon Group” formerly – U. Dori Group Ltd.) was sold. As a result of the sale, with
effect from the first quarter of 2016, the Company ceased to consolidate Luzon Group’s activities in its financial statements.
The comparative data with respect to Luzon Group’s results are presented separately as a discontinued operation.



On
November 15, 2016, EQY, entered into a merger agreement with REG, a Real Estate Investment Trust (REIT), whose its securities
are listed for trading on the NYSE. EQY will be merged with and into REG, resulting in REG being the surviving company. The merger
transaction was completed on March 1, 2017. Following the merger agreement EQY is presented in these consolidated statements of
financial position under section assets and liabilities classified as held for sale and in the consolidated statements of profit
or loss under discontinued operations. The comparative data with respect to EQY results are presented separately as a discontinued
operation. REG securities which are held by the Company, after the reporting period, will be recognized in the consolidate financial
statements as financial instrument.



Regarding
the impact of the reclassification on the consolidated financial statements, see Notes 9d and 9g below.



|NOTE
    2A: - | LEGISLATION
    IMPACT ON THE FINANCIAL STATEMENTS
|-------------- | --------------------------------------------------



The
Law to Promote Competition and Reduce Concentration



In
December 2013, the Law to Promote Competition and Reduce Concentration, 2013 (the “Concentration Law”) was published
in the official records of the State of Israel. The Concentration Law aims to reduce the concentration level in the Israeli economy
through three major actions: (a) imposing structural limitations and corporate governance rules on interests held in the form
of a pyramid structure; (b) separation between interests in a significant real activity and a significant financial activity;
(c) imposing limitations on the allocation of state assets. In the Company’s opinion the impact of the Concentration Law
on the financial statements as of December 31, 2016 is not material.



In
addition, due to the sale of the shares of Luzon Group in January 2016, the Group meets of the Concentration Law requirements
with respect to interest held in the form of a pyramid structure.





F-37








GAZIT-GLOBE
LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE
    3: - | CASH
    AND CASH EQUIVALENTS
|------------- | -----------------------------



| | a. | Composition
| | -- | -----------



| |  |                                            |  | December
    31‎    |      
| |  | ------------------------------------------ |  | ------------------- | -----
| |  |                                            |  | 2016                |      
| |  |                                            |  | NIS in
    millions |      
| |  | Cash in
    banks and on hand              |  |                     | 924  
| |  | Cash
    equivalents - short-term deposits |  |                     | 596  
| |  |                                            |  |                     | 1,520



| | b. | Part
                                         of the cash in banks bears floating interest based on daily bank deposits rates (as of
                                         the reporting date – up to 2%).
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c. | Deposits
                                         in the amount of NIS 383 million earn annual interest at the rate of up to 13.9%, the
                                         rest of the deposits earn annual interest at the rate of up to 0.05%, based on their
                                         respective term.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | d. | As
                                         for the linkage basis of cash and cash equivalents, refer to Note 36.
| | -- | -----------------------------------------------------------------------------------------------------------------



|NOTE
    4a: - | SHORT-TERM
    INVESTMENTS AND LOANS
|-------------- | ------------------------------------



| | a. | Composition
| | -- | -----------





| |  |                                               |  | December
    31‎    |   
| |  | --------------------------------------------- |  | ------------------- | --
| |  |                                               |  | 2016                |   
| |  |                                               |  | NIS
    in millions |   
| |  | Loans:                                        |  |                     |   
| |  | Current
    maturities of long-term loans (1) |  |                     | 48
| |  | Loans                                         |  |                     | 2 
| |  |                                               |  |                     | 50
| |  | Deposits:                                     |  |                     |   
| |  | Restricted
    cash in banks                  |  |                     | - 
| |  | Bank
    deposits (2)                         |  |                     | 3 
| |  | Purchase
    contract deposits and others (3) |  |                     | 43
| |  |                                               |  |                     | 46
| |  |                                               |  |                     | 96



| | (1) | Loans
                                         granted by FCR, secured by properties, for further details refer to Note 10(a)(1).                                                                                     
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                       
| | (2) | Includes
                                         bank deposits that bear a negligible annual interest rate based on the respective term
                                         of the deposits.                    
| |     |                                                                                                                                                                                                                       
| | (3) | Includes
                                         NIS 11 million purchase contract deposits which bear no interest and NIS 26 million restricted
                                         cash which bear no interest.



| | b. | As
                                         for the linkage basis of short-term investments and loans, refer to Note 36.
| | -- | ------------------------------------------------------------------------------------------------------------------------



|NOTE
    4b:- | MARKETABLE
    SECURITIES
|------------- | -------------------------



| |  |                                                  |  | December
    31‎    |    
| |  | ------------------------------------------------ |  | ------------------- | ---
| |  |                                                  |  | 2016                |    
| |  | Fair value
    through profit or loss securities |  | NIS
    in millions |    
| |  | Shares                                           |  |                     | 10 
| |  | Debentures                                       |  |                     | 27 
| |  |                                                  |  |                     | 37 
| |  | Securities
    available for sale (Note 11)      |  |                     | 175
| |  |                                                  |  |                     | 212





F-38






GAZIT-GLOBE
LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE
     5: - | TRADE
    RECEIVABLES
|-------------- | ---------------------



| | a. | Composition
| | -- | -----------



| |                                            |  | December
    31‎    |    
| | ------------------------------------------ |  | ------------------- | ---
| |                                            |  | 2016                |    
| |                                            |  | NIS
    in millions |    
| | Open
    accounts, net (see d and e below) |  |                     | 163
| | Checks
    receivable                      |  |                     | -  
| | Receivables
    for construction contracts |  |                     | -  
| | Total                                      |  |                     | 163



| | b. | Trade
                                         receivables do not bear interest. As for the linkage basis of trade receivables, refer
                                         to Note 36.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c. | In
                                         2016 and 2015, the Group had no major tenant which contributed more than 10% to the total
                                         rental income.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | d. | There
                                         are no significant past due and impaired receivables except those that have been included
                                         in the allowance for doubtful accounts.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | e. | Movement
                                         in allowance for doubtful accounts:
| | -- | -------------------------------------------------------------------------------------



| |                                                                     |  | December
    31‎    |    
| | ------------------------------------------------------------------- |  | ------------------- | ---
| |                                                                     |  | 2016                |    
| |                                                                     |  | NIS
    in millions |    
| | At the beginning
    of the year                                    |  |                     | 111
| | Provision
    during the year                                       |  |                     | 18 
| | Repayment
    during the year                                       |  |                     | (3 
| | Write-down of accounts                                              |  |                     | (15
| | Initially
    consolidated company                                  |  |                     | -  
| | Transfer
    to assets held for sale due to discontinued operations |  |                     | (15
| | Translation
    differences                                         |  |                     | (3 
| | At
    the end of the year                                          |  |                     | 93 





F-39






GAZIT-GLOBE
LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE
    6:- | OTHER
    ACCOUNTS RECEIVABLE
|------------ | -----------------------------



| | a. | Composition
| | -- | -----------



| |                                             |  | December
    31‎    |    
| | ------------------------------------------- |  | ------------------- | ---
| |                                             |  | 2016                |    
| |                                             |  | NIS
    in millions |    
| | Government
    institutions                 |  |                     | 49 
| | Prepaid
    expenses                        |  |                     | 90 
| | Receivables
    from sale of real estate    |  |                     | 2  
| | Finance
    lease receivable                |  |                     | -  
| | Interest
    receivable from joint ventures |  |                     | 11 
| | Advances
    to suppliers                   |  |                     | -  
| | Co-owners
    in investees                  |  |                     | 3  
| | Others (1)                                  |  |                     | 174
| |                                             |  |                     | 329



| | (1) | Includes
                                         restricted cash in ATR in total amount of NIS 109 million as security for the compensation
                                         arrangement, refer to Note 26d2.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b. | As
                                         for the linkage basis of other accounts receivable, refer to Note 36.
| | -- | -----------------------------------------------------------------------------------------------------------------



|NOTE
    7: - | INVENTORY
    OF BUILDINGS AND APARTMENTS FOR SALE
|------------- | --------------------------------------------------



| | a. | Inventory
                                         comprises land and buildings under construction which, in part, are constructed with
                                         partners.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Balances of inventory of buildings and advances by primary countries are as follows:





| |                                                          |  | Inventory
    of lands and buildings |    |  | Advances
    from customers and apartment buyers | 
| | -------------------------------------------------------- |  | ------------------------------------ | -- |  | ------------------------------------------------ | 
| |                                                          |  | December
    31‎                     |   
| |                                                          |  | 2016                                 |    |  | 2015                                             | 
| |                                                          |  | NIS
    in millions                  |   
| | Apartments
    under construction in Israel and Slovakia |  |                                      | -  |  |                                                  | 
| | Lands
    reserves in Canada                             |  |                                      | 14 |  |                                                  | 
| | Total                                                    |  |                                      | 14 |  |                                                  | 



*)
In January 2016, all Luzon Group shares were sold. For further details see Note 9g.





F-40






GAZIT-GLOBE
LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE
    8: - | ASSETS
    AND LIABILITIES CLASSIFIED AS HELD FOR SALE
|------------- | ------------------------------------------------------



| | a. | On
                                         November, 2016, EQY had entered into a merger agreement with REG. Following to the merger
                                         transaction EQY is presented as assets and liabilities classified as held for sale. The
                                         merger transaction was completed on March 1, 2017. For further details and for financial
                                         information of EQY attributed to discontinued operation, see Note 9d.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b. | Composition
                                         of assets held for sale:
| | -- | -----------------------------------------------------------------------------



| |                                                           |  | December
    31‎    |       
| | --------------------------------------------------------- |  | ------------------- | ------
| |                                                           |  | 2016                |       
| |                                                           |  | NIS
    in millions |       
| | Assets classified
    as held for sale- EQY (see Note 9d) |  |                     | 20,454
| | Investment
    property *)                                |  |                     | 568   
| | Land                                                      |  |                     | 99    
| | Others                                                    |  |                     | 11    
| |                                                           |  |                     | 21,132



| | *) | Balance
                                         of assets held for sale is mainly comprised of non-core income producing properties in
                                         CTY and FCR.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c. | Liabilities
                                         attributed to assets classified as held for sale as of December 31,2016 primarily consist
                                         of liabilities arising from holdings in EQY (refer to Note 9d) and deferred taxes.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|NOTE
    9: - | INVESTMENTS
    IN INVESTEES
|------------- | ----------------------------



| | a. | Composition
                                         of the investment in entities accounted for by the equity method (including purchase
                                         accounting adjustments):
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |                        |  | December
    31‎    |      
| | ---------------------- |  | ------------------- | -----
| |                        |  | 2016                |      
| |                        |  | NIS
    in millions |      
| | Joint
    ventures (1) |  |                     | 1,580
| | Associates             |  |                     | 116  
| |                        |  |                     | 1,696
| | Loans
    (2)          |  |                     | 401  
| |                        |  |                     | 2,097



| | (1) | Includes,
                                         inter alia, joint ventures that manage, operate and develop income producing properties,
                                         and as of the reporting date includes NIS 700 in Czech Republic (2015- NIS 719 million),
                                         NIS 279 million in Sweden (2015- NIS 255 million), NIS 417 million in Canada (2015- NIS
                                         451 million). Comparative data, includes Luzon Group investment in Ronson Europe N.V
                                         of NIS 182 million, investment in U. Dori Energy infrastructure Ltd. of NIS 71 million
                                         and investment in the United States of NIS 237 million, which is classified as assets
                                         held for sale.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Includes
                                         a loan of € 82 million (NIS 331 million) which bears a fixed annual interest rate
                                         of 6% and mature on January 2023.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b. | Group’s
                                         share in the results of equity-accounted investees including amortization of fair value
                                         adjustment (based on the interest therein during the period):
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





F-41








GAZIT-GLOBE
LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE
    9: - | INVESTMENTS
    IN INVESTEES (Cont.)
|------------- | ------------------------------------



Joint
ventures



| |                                        |  | Year
    ended December 31‎ |    
| | -------------------------------------- |  | --------------------------- | ---
| |                                        |  | 2016                        |    
| |                                        |  | NIS
    in millions         |    
| | Loss - ATR
    (see section c)**)      |  |                             | -  
| | Net income
    of other Joint Ventures |  |                             | 141
| | Other
    comprehensive income (loss)  |  |                             | 1  
| | Comprehensive
    income (loss)        |  |                             | 142



*)
Reclassified, refer to Note 2ff.

**)
The above includes ATR data until its initial consolidation, as in section c2 below.



| | Associates | 
| | ---------- | 



| |                       |  | Year
    ended December 31‎ |  
| | --------------------- |  | --------------------------- | -
| |                       |  | 2016                        |  
| |                       |  | NIS
    in millions         |  
| | Net
    income (loss) |  |                             | 1



*)
Reclassified, refer to Note 2ff.



Additional
information regarding investees:



| | c. | Investment
                                         in ATR (a subsidiary)
| | -- | -------------------------------------------------------------------------



| | 1. | As
                                         of December 31, 2016, the Company owns 59.5% interest in ATR’s share capital and
                                         voting rights (59.0% on a fully diluted basis). ATR’s shares are listed for trading
                                         on the Vienna Stock Exchange and on the Euronext Stock Exchange in Amsterdam. As of December
                                         31, 2016, the market price of ATR share was € 3.93 and ATR has approximately 376.7
                                         million shares outstanding.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2. | On
                                         January 22, 2015 (“acquisition date”) the Company acquired approximately
                                         52.1 million shares of ATR representing approximately 13.87% of ATR’s issued share
                                         capital and voting rights. The shares were acquired from an entity that is part of the
                                         founders’ group of the consortium managed by CPI at a price of € 4.4 per share,
                                         for a total consideration of approximately € 229.1 million (NIS 1.05 billion) in
                                         an off-market transaction (“the acquisition”) and the agreement for joint
                                         control was terminated. As a result at the acquisition the Company’s interest in
                                         ATR increased to 55% and the Company became the sole controlling shareholder in ATR,
                                         and commencing with its financial statements for the first quarter of 2015, the Company
                                         consolidates ATR’s financial statements.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



As
a result of the acquisition the Company recognized in 2015 a net loss from gaining control of approximately NIS 14 million, comprise
of revaluation of previous investment in ATR at an amount of NIS 1,079 million (according to ATR share price at the acquisition
date) net of gain from bargain purchase of ATR’s shares at an amount of NIS 1,065 million, that was reported in other expense
line item, at net amount.



In
addition, the Company reclassified capital reserves (mainly translation reserve of foreign operation) accumulated from the investment
in ATR and were recognized in the past as other comprehensive loss before tax, at an amount of NIS 452 million to profit or loss.
The net non cash impact on profit or loss was a loss of NIS 466 million.





F-42








GAZIT-GLOBE
LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE
    9: - | INVESTMENTS
    IN INVESTEES (Cont.)
|------------- | ------------------------------------



| | 3. | Summarized
                                         IFRS financial information of ATR-
| | -- | --------------------------------------------------------------------------------------



Summarized
statement of financial position -



| |                                               |  | December
    31     |       
| | --------------------------------------------- |  | ------------------- | ------
| |                                               |  | 2016                |       
| |                                               |  | NIS
    in millions |       
| | Current
    assets                            |  |                     | 843   
| | Non-current
    assets                        |  |                     | 11,915
| | Current
    liabilities                       |  |                     | (583  
| | Non-current
    liabilities *)                |  |                     | (4,477
| | Net
    assets                                |  |                     | 7,698 
| |                                               |  |                     |       
| | Allocted
    to:                              |  |                     |       
| | Equity
    holders of the Company             |  |                     | 4,510 
| | Non-
    controlling interests                |  |                     | 3,188 
| |                                               |  |                     | 7,698 
| |                                               |  |                     |       
| | *)
    Including acquisition-adjustments, net |  |                     | 155   



Summarized
statements of the comprehensive income -



| |                                                       |  | Year
    ended December 31 |      
| | ----------------------------------------------------- |  | -------------------------- | -----
| |                                                       |  | 2016                       |      
| |                                                       |  | NIS
    in millions        |      
| | Revenues                                              |  |                            | 1,092
| | Net
    income (loss) *)                              |  |                            | 312  
| | Other
    comprehensive income (loss)                 |  |                            | 15   
| | Total
    comprehensive income (loss)                 |  |                            | 327  
| |                                                       |  |                            |      
| | Allocted
    to:                                      |  |                            |      
| | Equity
    holders of the Company                     |  |                            | 178  
| | Non-
    controlling interests                        |  |                            | 149  
| |                                                       |  |                            | 327  
| |                                                       |  |                            |      
| | Dividends
    to Non- controlling interests           |  |                            | 280  
| | *)
    Includes acquisition- adjustments amortization |  |                            |      





F-43










GAZIT-GLOBE
LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE
    9: - | INVESTMENTS
    IN INVESTEES (Cont.)
|------------- | ------------------------------------



Summarized
statements of cash flows -



| |                                                                  |  | Year
    Ended December 31 |     
| | ---------------------------------------------------------------- |  | -------------------------- | ----
| |                                                                  |  | 2016                       |     
| |                                                                  |  | NIS
    in millions        |     
| | Net cash
    provided by operating activities                    |  |                            | 398 
| | Net cash
    provided by (used in) investing activities          |  |                            | 43  
| | Net cash used in financing activities                            |  |                            | (941
| | Exchange
    differences on balances of cash and cash equivalent |  |                            | (12 
| | Decrease
    in cash and cash equivalents                        |  |                            | (512





| | 4. | The
                                         outstanding share options of ATR as of December 31, 2016
| | -- | -----------------------------------------------------------------------------------------------------



| | Series                                                              |  | Average
    exercise price per share |      |  | Expiration
    date |           | Number
    of options (in thousands*) | 
| | ------------------------------------------------------------------- |  | ------------------------------------ | ---- |  | ------------------- | --------- | ------------------------------------- | 
| | Options
    to employees and officers in ATR  (2009 and 2013 plans) |  | €                                    | 3.85 |  |                     | 2017-2023 |                                       | 



*)
As of December 31, 2016, 3,036 thousand share options are fully vested; These options includes share options granted to the Company’s
Chairman of the Board who also serves as ATR’s Chairman of the Board.



| | 5. | ATR
                                         operates a compensation plan for Group Executive Team, and other key senior executives,
                                         of whom rights are granted for allotment of ATR shares, upon fulfillment of certain terms
                                         ("share allocation rights"). As of the reporting date 400 thousand units were
                                         allotted in the plan framework. In addition, ATR operates a plan for deferred shares
                                         units (DSU) to directors in lieu of salary, which can be converted into ATR ordinary
                                         shares. As of the reporting date, approximately 103 thousand deferred units (DSU) were
                                         allocated.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 6. | During
                                         2016, a wholly-owned subsidiary of the Company acquired, through exchange trades and
                                         off-exchange trades, 17.6 million ATR shares for a consideration of EUR 67 million
                                         (NIS 285 million). As a result of these acquisitions, the Company’s interest in
                                         ATR increased to 59.5% and the Company recognized an increase in equity in the amount
                                         of NIS 99 million, which was carried to capital reserves.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 7. | As
                                         for lawsuits filed against ATR, refer to Note 26d.
| | -- | ----------------------------------------------------------------------------------------------



F-44












GAZIT-GLOBE
LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE
    9: - | INVESTMENTS
    IN INVESTEES (Cont.)
|------------- | ------------------------------------



| | d. | Investment
                                         in EQY (a subsidiary)
| | -- | -------------------------------------------------------------------------



| | 1. | As
                                         of December 31, 2016, the Company owns a 34.3% interest in EQY's share capital and voting
                                         rights (34.2% on a fully diluted basis). EQY's shares are listed for trading on the New
                                         York Stock Exchange. As of December 31, 2016 the market price of EQY's share was U.S.$ 30.69
                                         and EQY has approximately 144.9 million shares outstanding.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In
November, 2016, EQY, entered into a merger agreement with REG, a Real Estate Investment Trust (REIT) pursuant to which EQY will
be merged with and into REG, resulting in REG being the surviving company. Upon closing of the merger, EQY’s shareholders
(including the Company) will receive, in lieu of their EQY shares, REG shares at an exchange ratio of 0.45 REG share for each
EQY share, which reflects a premium of 13.7% for EQY’s shareholders above EQY’s market value as of the date of signing
the mergers agreement. The merger transaction was completed on March 1, 2017 and the Company received 13.2% of the merged company
and is REG’s largest shareholder. For details regarding the subsequent sale of 2.8 million shares of REG by the Company,
refer to Note 39b. In addition, on the date of closing, three additional directors were appointed to REG’s board of directors:
two independent directors on behalf of EQY and one director on behalf of the Company Mr. Chaim Katzman serves as the initial director
and the non-executive Vice Chairman of the Board of REG.



Following
the closing of the merger transaction, the Company will deconsolidate EQY and is expected to recognize a gain (net of taxes) of
NIS 0.6 billion. The expected gain includes a loss which will be reclassified to profit or loss due to realization of reserves,
The REG shares that will be held by the Company will be presented in its financial statements as a financial instrument available
for sale, in accordance with International Accounting Standard No. 39, Financial Instruments.



As
of December 31, 2016 EQY’s assets and liabilities are presented in the consolidated
statements of financial positions as assets and liabilities of a disposal group, held for sale. EQY profit or loss is presented
in the consolidated statement of income under income after tax from discontinued operations. Comparative information was reclassified
in accordance with International Accounting Standard No. 5, "Non-current Assets Held for Sale and Discontinued Operations".



F-45










GAZIT-GLOBE
LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE
    9: - | INVESTMENTS
    IN INVESTEES (Cont.)
|------------- | ------------------------------------



| | 2. | IFRS
                                         Financial information of EQY attributed to discontinued operation:
| | -- | ----------------------------------------------------------------------------------------------------------------



Statements
of financial position attributed to discontinued operation –



| |                                              |  |  | December
                                         31     | 
| | -------------------------------------------- |  |  | -------------------------------------------------------- | 
| |                                              |  |  | 2016                                                     | 
| |                                              |  |  | NIS
                                         in millions | 
| | Current
    Assets                           |  |  |                                                          | 
| | Cash
    and cash equivalents                |  |  | 65                                                       | 
| | Short-term
    investments and loans         |  |  | 6                                                        | 
| | Trade
    receivables                        |  |  | 47                                                       | 
| | Other
    accounts receivable                |  |  | 99                                                       | 
| | Income
    taxes receivable                  |  |  | 1                                                        | 
| |                                              |  |  | 218                                                      | 
| | Assets classified
    as held for sale       |  |  | 90                                                       | 
| |                                              |  |  | 308                                                      | 
| | Non-Current
    Assets                       |  |  |                                                          | 
| | Equity-accounted
    investees               |  |  | 252                                                      | 
| | Other
    investments, loans and receivables |  |  | 36                                                       | 
| | Financial
    derivatives                    |  |  | 1                                                        | 
| | Investment
    property                      |  |  | 19,693                                                   | 
| | Investment
    property under development    |  |  | 94                                                       | 
| | Fixed
    assets, net                        |  |  | 9                                                        | 
| | Intangible
    assets, net *)                |  |  | 51                                                       | 
| | Deferred
    taxes                           |  |  | 10                                                       | 
| |                                              |  |  | 20,146                                                   | 
| |                                              |  |  | 20,454                                                   | 



F-46














GAZIT-GLOBE
LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





|NOTE
    9: - | INVESTMENTS
    IN INVESTEES (Cont.)
|------------- | ------------------------------------



| |                                                  |  |  | December
                                         31     | 
| | ------------------------------------------------ |  |  | -------------------------------------------------------- | 
| |                                                  |  |  | 2016                                                     | 
| |                                                  |  |  | NIS
                                         in millions | 
| | Current
    liabilities                          |  |  |                                                          | 
| | Credit
    from banks and others                 |  |  | 15                                                       | 
| | Trade
    payables                               |  |  | 142                                                      | 
| | Other
    accounts payable                       |  |  | 91                                                       | 
| | Income
    taxes payable                         |  |  | 1                                                        | 
| |                                                  |  |  | 249                                                      | 
| |                                                  |  |  |                                                          | 
| | Non-current
    liabilities                      |  |  |                                                          | 
| | Debentures                                       |  |  | 1,910                                                    | 
| | Interest-bearing
    loans from banks and others |  |  | 3,498                                                    | 
| | Financial
    derivatives                        |  |  | 4                                                        | 
| | Other
    liabilities                            |  |  | 75                                                       | 
| | Deferred
    taxes *)                            |  |  | 104                                                      | 
| |                                                  |  |  | 5,591                                                    | 
| | Net assets                                       |  |  | 14,614                                                   | 
| | Allocated
    to:                                |  |  |                                                          | 
| | Equity holders
    of the company                |  |  | 4,995                                                    | 
| | Non-controlling
    interests                    |  |  | 9,619                                                    | 
| |                                                  |  |  | 14,614                                                   | 



*)
Includes goodwill and adjustment for deferred tax liability (refer to Note 15).



F-47
















GAZIT-GLOBE
LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE
    9: - | INVESTMENTS
    IN INVESTEES (Cont.)
|------------- | ------------------------------------



Attributed
to discontinued operation-

Statements
of comprehensive income attributed to discontinued operation –



| |                                                                                             |  | Year
    ended December 31‎ |      
| | ------------------------------------------------------------------------------------------- |  | --------------------------- | -----
| |                                                                                             |  | 2016                        |      
| |                                                                                             |  | NIS
    in millions         |      
| | Rental
    income                                                                           |  |                             | 1,385
| | Property
    operating expenses                                                             |  |                             | 348  
| | Net
    operating rental income                                                             |  |                             | 1,037
| | Fair
    value gain from investment property and investment property under development, net |  |                             | 1,196
| | General
    and administrative expenses                                                     |  |                             | (148 
| | Other
    income                                                                            |  |                             | 9    
| | Other
    expenses                                                                          |  |                             | (24  
| | Company’s
    share in earnings of equity-accounted investees, net                          |  |                             | 9    
| | Operating
    income                                                                        |  |                             | 2,079
| | Finance
    expenses                                                                        |  |                             | (246 
| | Finance
    income *)                                                                       |  |                             | 1    
| | Income
    before taxes on income                                                           |  |                             | 1,834
| | Taxes
    on income  *)                                                                     |  |                             | 195  
| | Net
    income from discontinued operation, net                                             |  |                             | 1,639
| | Other
    comprehensive income from discontinued operations                                 |  |                             | (9   
| | Total
    comprehensive income from discontinued operation                                  |  |                             | 1,630
| | Allocated
    to:                                                                           |  |                             |      
| | Equity
    holders of the Company                                                           |  |                             | 452  
| | Non-controlling
    interest                                                                |  |                             | 1,178
| |                                                                                             |  |                             | 1,630
| | Dividends
    to non-controlling interests                                                  |  |                             | 319  





*)
Includes adjustments for deferred tax expenses, see Note 25b.



Cash
flows statements attributed to discontinued operation and provided by (used in) activities–



| |                                                         |  | Year
    ended December 31‎ |     
| | ------------------------------------------------------- |  | --------------------------- | ----
| |                                                         |  | 2016                        |     
| |                                                         |  | NIS
    in millions         |     
| | Net Cash
    provided by operating activities           |  |                             | 732 
| | Net Cash
    provided by (used in) investing activities |  |                             | (842
| | Net Cash
    provided by (used in) financing activities |  |                             | 92  
| | Increase
    (decrease) in cash and cash equivalents    |  |                             | (18 





| | 3. | In
                                         January 2016, Liberty International Holdings Limited ("LIH") converted its
                                         convertible units into 11.4 million EQY shares and sold EQY shares to the public through
                                         a public offering published by EQY in the United States. As a result of the conversion,
                                         the Group's interest in EQY decreased from 38.4% to 35.3% and the Group recognized an
                                         equity decrease during the first quarter of 2016 in the amount of NIS 51 million,
                                         which was carried to capital reserves.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-48














GAZIT-GLOBE
LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





|NOTE
    9: - | INVESTMENTS
    IN INVESTEES (Cont.)
|------------- | ------------------------------------



| | 4. | In
                                         February 2016, EQY early redeemed debentures in the amount of U.S.$ 101 million (NIS
                                         394 million) that bear interest of 6.25% and whose original maturity date fell in January
                                         2017. As a result of the early redemption EQY recognized a loss in the amount of U.S.$
                                         5.2 million (NIS 20 million) during the first quarter of 2016.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In
addition, in July 2016, EQY early redeemed debentures in the amount of U.S.$ 117 million (NIS 450 million) that bear interest
of 6.00% and whose original maturity date fell in September 2017. As a result of the early redemption, EQY recognized a loss from
early redemption in the amount of U.S.$ 7.3 million (NIS 28 million) during the third quarter of 2016.



| | 5. | In
                                         August 2016, EQY announced that it had adopted an ongoing equity issuance plan, within
                                         the framework of which a public offering would be made of up to 8.5 million ordinary
                                         share (which will constitute, after the offering, 5.6% of EQY’s share capital).
                                         The plan replaces the previous plan from November, 2015. In addition, on the same date,
                                         a wholly-owned subsidiary of the Company entered into an agreement with EQY granting
                                         the Company an option to acquire, in a private offering, up to 20% of the quantity of
                                         shares to be sold by EQY within the framework of the plan in any calendar quarter and,
                                         in any event, up to a quantity of 1,400 thousand EQY shares (constituting 16.47% of the
                                         total scope of the plan).
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



During
the third quarter of 2016, EQY issued, within the framework of the aforesaid plan, 1.9 million shares for a total net consideration
of U.S.$ 59 million (NIS 222 million). As a result of the issuance, the Group's interest in EQY decreased from 34.7%
to 34.3% and the Group recognized an increase in equity of NIS 24 million, which was carried to capital reserves.



| | e. | Investment
                                         in FCR (a subsidiary)
| | -- | -------------------------------------------------------------------------



| | 1. | As
                                         of December 31, 2016, the Company owns 36.4% interest in FCR's share capital and voting
                                         rights (34.5% on a fully diluted basis). FCR's shares are listed for trading on the Toronto
                                         Stock Exchange (TSX). As of December 31, 2016 the market price of FCR's share was C$ 20.67
                                         and FCR has approximately 243.5 million shares outstanding.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The
Company consolidates FCR in its financial statements, although its interest in FCR's potential voting rights is less than 50%,
due to effective control over FCR, as stated in Note 2c.



On
March 2, 2017, 9 million FCR shares were sold by the Company, for further details regarding the sale, refer to Note 39a.



| | 2. | Summarized
                                         financial information of FCR
| | -- | --------------------------------------------------------------------------------



Summarized
statements of financial position -



| |                                   |  | December
    31‎    |        
| | --------------------------------- |  | ------------------- | -------
| |                                   |  | 2016                |        
| |                                   |  | NIS
    in millions |        
| | Current
    assets                |  |                     | 495    
| | Non-current
    assets *)         |  |                     | 25,496 
| | Current
    liabilities           |  |                     | (2,079 
| | Non-current
    liabilities       |  |                     | (11,810
| | Net assets                        |  |                     | 12,102 
| | Allocated
    to:                 |  |                     |        
| | Equity holders
    of the company |  |                     | 4,356  
| | Non-controlling
    interests     |  |                     | 7,746  
| |                                   |  |                     | 12,102 





*)
Includes goodwill, refer to Note 15



F-49










GAZIT-GLOBE
LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE
    9: - | INVESTMENTS
    IN INVESTEES (Cont.)
|------------- | ------------------------------------



Summarized
statements of comprehensive income -



| |                                             |  | Year
    ended December 31‎ |      
| | ------------------------------------------- |  | --------------------------- | -----
| |                                             |  | 2016                        |      
| |                                             |  | NIS
    in millions         |      
| | Revenues                                    |  |                             | 1,960
| | Net income                                  |  |                             | 1,125
| | Other comprehensive
    income (loss)       |  |                             | 16   
| | Total comprehensive
    income              |  |                             | 1,141
| | Allocated
    to:                           |  |                             |      
| | Equity holders
    of the Company           |  |                             | 424  
| | Non-controlling
    interests               |  |                             | 717  
| |                                             |  |                             | 1,141
| | Dividends
    to non-controlling  interests |  |                             | 369  





Summarized
statements of cash flows -



| |                                                      |  | Year
    ended December 31‎ |       
| | ---------------------------------------------------- |  | --------------------------- | ------
| |                                                      |  | 2016                        |       
| |                                                      |  | NIS
    in millions         |       
| | Net cash
    provided by operating activities        |  |                             | 744   
| | Net cash
    used in investing activities            |  |                             | (1,652
| | Net cash
    provided by financing activities        |  |                             | 948   
| | Increase
    (decrease) in cash and cash equivalents |  |                             | 40    





| | 3. | FCR's
                                         share options outstanding as of December 31, 2016
| | -- | ------------------------------------------------------------------------------------------------



| | Series                                                |  | Average
    exercise price per share |         |  | Expiration
    date |           | Number
    of exercisable  shares in thousands | 
| | ----------------------------------------------------- |  | ------------------------------------ | ------- |  | ------------------- | --------- | ---------------------------------------------- | 
| | Share
    options to employees and officers in FCR *) |  |                                      | C$18.15 |  |                     | 2017-2026 |                                                | 



| | *) | Includes
    all of the share options granted to employees and officers of FCR, and the Executive Vice Chairman of the Board of the Company
    as part of his service on the board of FCR (see Notes 37(2)b). Including unvested options that are exercisable to 2,336 thousand
    shares.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 4. | FCR
                                         operates plans for granting restricted share units (RSU), deferred share units (DSU)
                                         and performance share units (PSU) to officers and directors ("units"), which
                                         are convertible for no consideration into ordinary shares of FCR. As of the reporting
                                         date 376 thousand units are available to be granted (regarding units that were granted
                                         to the Company’s Chairman of the Board and the Executive Vice Chairman of the Board
                                         as part of their service on the Board of FCR, see Notes 37(2)b). As of the reporting
                                         date, 746 thousand share units that were granted are unvested.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 5. | During
                                         January 2016, the company sold 6.5 million FCR shares to the public in Canada for a consideration
                                         of C$ 117 million (NIS 326 million). As a result of the sale, the Group's interest in
                                         FCR decreased from 42.2% to 39.3% and the Group recognized an equity increase during
                                         the first quarter of 2016 in the amount of NIS 31 million, which was carried to capital
                                         reserves.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-50












GAZIT-GLOBE
LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE
    9: - | INVESTMENTS
    IN INVESTEES (Cont.)
|------------- | ------------------------------------



| | 6. | In
                                         May 2016, FCR entered into an agreement with a consortium of underwriters to raise equity
                                         by means of the sale of 4.7 million shares at a price of C$ 21.10 per share and in the
                                         total amount of C$ 100 million (NIS 291 million). As part of the agreement, FCR granted
                                         the underwriters an option to acquire up to 711 thousand additional shares at the offer
                                         price. This option was exercised in full, resulting in the total offering consideration
                                         amounting to C$ 115 million (NIS 342 million). Following the offering, the Company’s
                                         holding interest in FCR decreased to 37.7% and the Group recognized an increase in equity
                                         of NIS 29 million, which was carried to capital reserves.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In
addition, in August 2016, FCR entered into an agreement with a consortium of underwriters to raise equity by means of the sale
of 6.64 million shares at a price of C$ 22.6 per share and in the total amount of C$ 150 million (NIS 445 million). As part of
the agreement, FCR has granted the underwriters an option to acquire up to 996 thousand additional shares at the offer price.
This option was exercised in full, resulting in the total offering consideration amounting to C$ 173 million (NIS 509 million).
Following the offering, the Company’s holding interest in FCR decreased to 36.5% and the Group recognized an increase in
equity of NIS 46 million, which was carried to capital reserves.



| | f. | Investment
                                         in CTY (a subsidiary)
| | -- | -------------------------------------------------------------------------



| | 1. | As
                                         of December 31, 2016, the Company owns 43.9% interest in CTY's share capital and voting
                                         rights (43.3% on a fully diluted basis). CTY's shares are listed for trading on the Helsinki
                                         Stock Exchange, Finland (OMX). As of December 31, 2016 the market price of CTY share
                                         was € 2.34 and CTY has 890 million shares outstanding.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The
Company consolidates CTY in its financial statements, although its potential ownership interest in CTY is less than 50%, due to
effective control over CTY, as stated in Note 2c.



| | 2. | Summarized
                                         IFRS financial information of CTY
| | -- | -------------------------------------------------------------------------------------



Summarized
statements of financial position -



| |                                   |  | December
    31     |       
| | --------------------------------- |  | ------------------- | ------
| |                                   |  | 2016                |       
| |                                   |  | NIS
    in millions |       
| | Current
    assets                |  |                     | 558   
| | Non-current
    assets *)         |  |                     | 19,260
| | Current
    liabilities           |  |                     | (1,559
| | Non-current
    liabilities       |  |                     | (8,909
| | Net assets                        |  |                     | 9,350 
| | Allocated
    to:                 |  |                     |       
| | Equity holders
    of the company |  |                     | 4,094 
| | Non-controlling
    interests     |  |                     | 5,256 
| |                                   |  |                     | 9,350 





*)
Includes goodwill, refer to Note 15.



F-51














GAZIT-GLOBE
LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE
    9: - | INVESTMENTS
    IN INVESTEES (Cont.)
|------------- | ------------------------------------



Summarized
statements of comprehensive income -



| |                                            |  | Year
    ended December 31 |      
| | ------------------------------------------ |  | -------------------------- | -----
| |                                            |  | 2016                       |      
| |                                            |  | NIS
    in millions        |      
| | Revenues                                   |  |                            | 1,410
| | Net income
    *)                          |  |                            | 682  
| | Other comprehensive
    income (loss)      |  |                            | 164  
| | Total comprehensive
    income *)          |  |                            | 846  
| | Allocated
    to:                          |  |                            |      
| | Equity holders
    of the Company          |  |                            | 363  
| | Non-controlling
    interests              |  |                            | 483  
| |                                            |  |                            | 846  
| | Dividends
    to non-controlling interests |  |                            | 317  





*)
Includes goodwill impairment, refer to Note 15.



Summarized
cash flow statements -



| |                                                                   |  | Year
    ended December 31 |     
| | ----------------------------------------------------------------- |  | -------------------------- | ----
| |                                                                   |  | 2016                       |     
| |                                                                   |  | NIS
    in millions        |     
| | Net cash
    provided by operating activities                     |  |                            | 580 
| | Net cash
    used in investing activities                         |  |                            | (692
| | Net cash
    provided by financing activities                     |  |                            | 64  
| | Exchange
    differences on balances of cash and cash equivalents |  |                            | (2  
| | Decrease
    in cash and cash equivalents                         |  |                            | (50 





| | 3. | The
                                         share options of CTY outstanding as of December 31, 2016
| | -- | -----------------------------------------------------------------------------------------------------



| | Series                                                 |  | Average
    exercise price per share*) |      |  | Expiration
    date |  |      | Number
    of exercisable shares in thousands*) | 
| | ------------------------------------------------------ |  | -------------------------------------- | ---- |  | ------------------- |  | ---- | ----------------------------------------------- | 
| | Options
    to plan employees and officers (2011 plan) |  | €                                      | 2.47 |  |                     |  | 2018 |                                                 | 



| | *) | The
    exercise price and exchange ratio are adjusted for right issue, dividend distribution and return of equity. As of the reporting
    date, all of the share options are exercisable.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 4. | In
                                         February 2015, CTY’s board of directors approved a performance share compensation
                                         plan, for the years 2015-2017, 2016-2018 and 2017-2019 pursuant to which up to 4,300
                                         thousand shares would be allotted to officers and employees. Through the reporting date,
                                         units had been allotted under the plan for 2015-2017 and 2016-2018 that are exercisable
                                         into up to 1,271 thousand shares and up to 1,521 thousand shares, respectively, and their
                                         exercise is contingent on the allottee’s employment continuing until at least the
                                         end of 2017 and 2018, respectively and on the attainment of a minimum return per share.
                                         The compensation will be paid to the allottees primarily in shares, but also partly in
                                         cash. In addition, on the same date, CTY’s board of directors approved a compensation
                                         plan based on restricted share units (RSUs), in a scope of up to 500 thousand RSUs, to
                                         officers and employees, over a vesting period of two or three years, and which will be
                                         paid primarily in shares, but also partly in cash. Through the reporting date, 261 thousand
                                         shares had been allotted under the plan.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-52














GAZIT-GLOBE
LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





|NOTE
    9: - | INVESTMENTS
    IN INVESTEES (Cont.)
|------------- | ------------------------------------



| | 5. | During
                                         2016, the Company acquired 4.6 million CTY shares for a consideration of EUR 9.6
                                         million (NIS 40 million). As a result of the acquisitions, the Company’s holdings
                                         in CTY increased from 43.4% to 43.9% and the Group recognized in 2016 an increase in
                                         equity of NIS 10 million, which was carried to its capital reserves.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 6. | Sektor’s
                                         acquisition by CTY and its initial consolidation
| | -- | --------------------------------------------------------------------------------------------------



On
July 14, 2015 ("acquisition date") CTY completed the acquisition of 100% of Sektor Gruppen (“Sektor”) share
capital for a consideration amounting to € 1.5 billion (NIS 6.5 billion), comprising € 571 million (NIS 2.4 billion)
in cash and the balance through the assumption and redemption of debt (the “acquisition”).



Sektor
was a private company that focuses on the ownership, operation and development of supermarket-anchored shopping centers in Norway,
where it was ranked the second largest operator in the sector. Sektor had a property portfolio comprising, as of the acquisition
date, 20 properties (which are either wholly or mainly owned by Sektor), having a GLA of 400 thousand square meters, 4 properties
in which Sektor holds a minority interest, 2 properties under leasehold and 8 properties under its management. Most of the properties
(approximately 95%) are located in Norway’s three major economic centers (Oslo, Bergen and Stavanger). The total GLA of
all the properties managed by Sektor amounts to 600 thousand square meters.



CTY
financed the acquisition by means of a rights offering as well as by means of a bridge loan in an amount of € 222 million
(NIS 0.9 billion) through a bank syndicate. Furthermore, the banks that have extended finance to Sektor have consented to continue
extending finance totaling € 671 million (NIS 2.8 billion) even after the transaction was closed. CTY issued debentures in
order to replace Sektor’s existing indebtedness. In December 2015, CTY closed the funding of the transaction by means of
obtaining a secured loan in an amount of EUR 140 million, which replaced Sektor’s existing loans. CTY has entered into a
currency-forward transaction, to hedge its currency exposure regarding its commitment for the acquisition’s closing payments,
whose settlement was recognized as part of the acquisition cost.



| | g. | Discontinued
                                         operation-Investment in Luzon Group
| | -- | -----------------------------------------------------------------------------------------



On
January 14, 2016, Gazit’s Development’s entire interest in the shares of Luzon Group was sold, mainly within the framework
of an off-exchange trade, for a total consideration of NIS 10.7 million.



As
a result of the sale, with effect from the first quarter of 2016, the Company ceased to consolidate Luzon Group’s activities
in its financial statements.



As
a result of the sale of Luzon Group’s shares as referred to above, the Company, in its financial statements as of March
31, 2016, presented its investment in the aforesaid capital notes and loans of Luzon Group at their fair value in the amount of
NIS 135 million. Accordingly, in the first quarter of 2016, the Group recognized a net loss from selling the shares, due to impairment
of the capital notes and loans, including the realization of capital reserves on translation of foreign operations at the amount
of NIS 230 million (the Company's share – NIS 195 million). In the financial statements as of December 31, 2016, the investment
in the capital notes and the loans granted to Luzon Group are presented at fair value and at amortized cost, respectively, in
a total amount of NIS 137 million. For further details refer to Note 10(5). The net loss from the sale of Luzon Group as stated
is presented separately as a discontinued operation in the financial statements. The comparative data with respect to Luzon Group’s
results are presented separately as a discontinued operation.



F-53














GAZIT-GLOBE
LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE
    9: - | INVESTMENTS
    IN INVESTEES (Cont.)
|------------- | ------------------------------------



Below
are the results of operations relating to discontinued operation*:





| |                                                                            |  | Year
    ended December 31 |      
| | -------------------------------------------------------------------------- |  | -------------------------- | -----
| |                                                                            |  | 2015                       |      
| |                                                                            |  | Audited                    |      
| |                                                                            |  | NIS
    in millions        |      
| |                                                                            |  |                            |      
| | Revenues
    from sale of buildings, land and construction works performed |  |                            | 1,153
| | Cost of
    buildings sold, land and construction works performed          |  |                            | 1,249
| | Gross loss                                                                 |  |                            | (96  
| | General
    and administrative expenses                                    |  |                            | (68  
| | Other expenses                                                             |  |                            | (3   
| | Company’s
    share in earnings of equity-accounted investees, net         |  |                            | 8    
| | Operating
    loss                                                         |  |                            | (159 
| | Finance
    expenses                                                       |  |                            | (21  
| | Finance
    income                                                         |  |                            | 9    
| | Taxes on
    income                                                        |  |                            | (17  
| | Loss from
    discontinued operation, net                                  |  |                            | (188 
| | Attribute
    to:                                                          |  |                            | (98  
| | Equity holders
    of the Company                                          |  |                            | (90  
| | Non-controlling
    interest                                               |  |                            | (188 



Below
is the net cash flows relating to discontinued operation and that provided by (used in) activities:





| |                                                         |  | Year
    ended December 31 |     
| | ------------------------------------------------------- |  | -------------------------- | ----
| |                                                         |  | 2015                       |     
| |                                                         |  | Audited                    |     
| |                                                         |  | NIS
    in millions        |     
| |                                                         |  |                            |     
| | Net cash
    used in operating activities               |  |                            | (132
| | Net cash
    provided by investing activities           |  |                            | 46  
| | Net cash
    provided by (used in) financing activities |  |                            | (146
| | Decrease
    in cash and cash equivalents               |  |                            | (232



| | *) | Results
    of discontinued operation for the year ended December 31, 2016, was immaterial since the operation was sold on January 14,
    2016.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------





F-54






GAZIT-GLOBE
LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE
    9: - | INVESTMENTS
    IN INVESTEES (Cont.)
|------------- | ------------------------------------





| | h. | Supplementary
                                         information for other operating subsidiaries owned by the Company:
| | -- | -------------------------------------------------------------------------------------------------------------------------



| | December 31, 2016                         |  | Country of incorporation |         |  | Holding stake in equity and in voting rights |  |     | Investment carrying amount |  |  | Loans and Capital bills | 
| | ----------------------------------------- |  | ------------------------ | ------- |  | -------------------------------------------- |  | --- | -------------------------- |  |  | ----------------------- | 
| |                                           |  |                          |         |  | %                                            |  |     | NIS in millions            | 
| |                                           |  |                          |         |  |                                              |  |     |                            |  |  |                         | 
| | Gazit Germany Beteilingungs GmbH & Co. KG |  |                          | Germany |  |                                              |  | 100 |                            |  |  | 141                     | 
| | Gazit Globe Israel (Development) Ltd. *)  |  |                          | Israel  |  |                                              |  | 100 |                            |  |  | 111                     | 
| | Gazit Brazil Ltd.                         |  |                          | Brazil  |  |                                              |  | 100 |                            |  |  | 2,276                   | 



| | December 31, 2015                         |  | Country of incorporation |         |  | Holding stake in equity and in voting rights |  |       | Investment carrying amount |  |  | Loans | 
| | ----------------------------------------- |  | ------------------------ | ------- |  | -------------------------------------------- |  | ----- | -------------------------- |  |  | ----- | 
| |                                           |  |                          |         |  | %                                            |  |       | NIS in millions            | 
| |                                           |  |                          |         |  |                                              |  |       |                            |  |  |       | 
| | Gazit Germany Beteilingungs GmbH & Co. KG |  |                          | Germany |  |                                              |  | 100   |                            |  |  | 170   | 
| | Gazit Globe Israel (Development) Ltd.*)   |  |                          | Israel  |  |                                              |  | 84.65 |                            |  |  | 221   | 
| | Gazit Brazil Ltd.                         |  |                          | Brazil  |  |                                              |  | 100   |                            |  |  | 1,403 | 



| | *) | In
                                         March 2016, the Company, a company controlled by Mr. Ronen Ashkenazi, who owns 15.3%
                                         of the shares of Gazit Development (“Ashkenazi's Company”) and Gazit Development
                                         entered into an agreement pursuant to which Gazit Development has granted the Company
                                         an interest bearing perpetual capital note in an amount of NIS 375 million that bears
                                         interest at the rate of Prime plus 2.5% (which is payable only on the date of a dividend
                                         distribution or upon liquidation). The capital note is convertible into shares of Gazit
                                         Development any time after the elapse of 24 months from the date of its issuance. In
                                         parallel, Gazit Development has repaid the balance of its debt to the Company in an amount
                                         of NIS 375 million, whose due date for repayment was due by December 31, 2016.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    | In
                                         October 2016, the Company, Gazit Development and Ashkenazi's Company entered into an
                                         agreement (based on accords that the parties reached in May 2016), whereby, inter alia,
                                         it has been agreed that the holdings of Ashkenazi's Company in Gazit Development will
                                         be acquired by the Company. In addition, it has been agreed that Gazit Development, directly
                                         and indirectly, will sell to Ashkenazi's Company its rights in two plots of land, an
                                         office building in Israel (for which Ashkenazi's Company will be entitled to receive
                                         partial funding from Gazit Development) and some of the shares of a subsidiary that owns
                                         real estate in Bulgaria (with the balance of the shares continuing to be indirectly owned
                                         by Gazit Development), these properties are not part of the Company’s core operations.
                                         In December 2016 the parties closed the transaction and as of this date the Company owns
                                         all the shares of Gazit Development. Moreover, in accordance with the accords between
                                         the parties, Mr. Ashkenazi has terminated his service as CEO of Gazit Development. As
                                         a result of the aforementioned acquisition agreement, the company recognized a decrease
                                         in equity in the amount of NIS 15 million, which was carried to capital reserves.



| | i. | The
                                         applicable laws in some of the investee's jurisdictions contain customary terms
                                         regarding payments of dividends, interest and other distributions to equity holders by such
                                         investee. These conditions include, inter alia, a requirement that the investee have
                                         sufficient accumulated earnings or that certain solvency requirements are met before
                                         a distribution can be made. As of December 31, 2016 the Group does not consider any of
                                         these customary conditions to be a significant restriction.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | j. | For
                                         pledging of part of the shares of investees to secure Group liabilities, refer to Note
                                         29.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-55








GAZIT-GLOBE
LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE
    10:- | OTHER
    INVESTMENTS, LOANS AND RECEIVABLES
|------------- | --------------------------------------------



| | a. | Composition
| | -- | -----------



| |                                                                |  | December
    31     |      
| | -------------------------------------------------------------- |  | ------------------- | -----
| |                                                                |  | 2016                |      
| |                                                                |  | NIS
    in millions |      
| | Loans to
    co-owners in development projects (1) (2) (3) (5) |  |                     | 671  
| | Finance
    lease receivable                                   |  |                     | -    
| | Receivables
    for construction contracts                     |  |                     | -    
| | Other non-current
    deposits (4)                             |  |                     | 551  
| | Governmental
    institutions                                  |  |                     | 19   
| | Tenants
    and Others                                         |  |                     | 30   
| |                                                                |  |                     | 1,271
| | Less - current
    maturities                                  |  |                     | 48   
| |                                                                |  |                     | 1,223





| | (1) | Includes
                                         loans and mortgages amounted to C$ 147 million (NIS 420 million) granted by FCR
                                         that are secured by interests in investment properties or shares of entities owning investment
                                         properties. The loans bear an average annual effective interest rate of 6.9% which mature
                                         in the years 2017-2023.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (2) | Includes
                                         unsecured loans to third parties, loan amounted to € 3 million (NIS 12 million)
                                         that bears interest rate of Euribor + 1.5% in addition, includes a secured loan amounted
                                         to € 6 million (NIS 23 million) that bears annual interest rate of 6%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | (3) | Includes
                                         an amount of NIS 69 million that bears annual interest of 3.75% for Ashkenazi's Company
                                         which is entitled to receive partial funding from Gazit Development in the sale of its
                                         rights in two plots of land, an office building in Israel as part of agreement to purchase
                                         the interests of the Ashkenazi company in Gazit Development by the Company and includes
                                         credit facility to Gazit Development in the amount of NIS 15 million that bears an average
                                         annual interest rate of 4.74%. As of December 31, 2016 NIS 10 million was utilized out
                                         of the credit facility and as of the date of approval of the financial statement the
                                         whole amount was utilized.
| | (4) | Includes
                                         a non-interest bearing deposit of approximately C$ 189 million (approximately NIS 539
                                         million), deposited under an agreement for the acquisition of an investment property
                                         in FCR, the deposit bears interest rate of 4.5% until the purchase closing date.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | (5) | Including
                                         the investment in the capital notes, which is presented at fair value, and loans to Luzon
                                         Group presented at depreciated cost, aggregating NIS 137 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

In
December 2016, Gazit Development entered into a transaction with Luzon Group and the controlling shareholder therein for the liquidation
of its remaining investment in Luzon Group. Pursuant to the principals of the transaction, upon completion of the transaction:
(a) Luzon Group will issue NIS 120 million par value of unsecured marketable debentures to Gazit Development in lieu
of the credit facility in the same amount previously extended by Gazit Development to Luzon Group. Without prejudice to the blocking
provisions of the Securities Law and related regulations, the aforesaid debentures will be blocked for sale on the Stock Exchange
until June 30, 2018 (subject to breach or insolvency events in Luzon Group); (b) Gazit Development will convert part
of the convertible component of the capital notes that it holds into shares in Luzon Group at the original conversion rate (NIS 1.3130
per share), to the effect that, following the conversion, Gazit Development will hold 15% of the share capital in Luzon Group
(taking into account shares that would be held by Gazit Development as a result of the conversion of the interest component of
the aforesaid credit facility), subject to an undertaking by Gazit Development not to exceed a holding of 17% in the share capital
of Luzon Group); (c) the balance of the convertible note will be reduced to approximately NIS 108 million (instead of
NIS 125 million), convertible into 26% of the share capital in Luzon Group, and will be entitle Gazit Development solely
to conversion (at the original conversion rate) as well as the right to receive the balance of the capital note upon liquidation,
in preference to the equity holders, The amount deducted from the capital note (approximately NIS 17 million) will be added
to the non-convertible portion of the capital note; (d) the non-convertible capital notes (aggregating approximately NIS 387
million) will be sold to the controlling shareholder in Luzon Group in consideration of NIS 1 and will not confer upon him any
rights in relation to the Company, other than the receipt of the balance of the capital notes upon liquidation, solely as an equity
holder and in subordination to the share-holding public of Luzon Group; (e) the controlling shareholder in Luzon Group will
grant Gazit Development a non-transferable put option, for a period of one year from the date of completion of the transaction,
in relation to 10 million shares that it holds, this at a price of NIS 0.45 per share; (f) Luzon Group will undertake not
to carry out a distribution until December 31, 2018; (g) Luzon Group and subsidiaries that are under its control will issue
waivers to Gazit Development and related entities (including the Company) in respect of and claims pertaining to Luzon Group,
the cause of which arose and/or originated in the period prior to the signing of the agreement (subject to exceptions), and the
Company and Gazit Development will issue a corresponding waiver to Luzon Group and its subsidiaries.



F-56








GAZIT-GLOBE
LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





|NOTE
    10:- | OTHER
    INVESTMENTS, LOANS AND RECEIVABLES (Cont.)
|------------- | ----------------------------------------------------





The
completion of the transaction is subject to the fulfillment of suspending conditions, including obtaining the approval of the
boards of directors of the Company and Luzon Group, and the obtaining of regulatory approvals for the issue of the debentures
under a prospectus, as well as the approval of the Tax Authority, this by May 31, 2017 (or a later date, as shall be determined
by the parties).



Additionally,
shortly after the signing of the agreement, Luzon Group issued approximately to 3.6 million shares to Gazit Development, representing
1.5% of the share capital of Luzon Group, this in respect of interest accrued and unpaid on the credit facility until December 31,
2016, at a price per share of NIS 0.9. Additional shares will be issued to Gazit Development, at the same price, for any
additional interest accrued as above until the date of completion.



| | b. | Maturity
                                         dates
| | -- | -------------------------------------------------------





| |                                                 |  | December
    31     |      
| | ----------------------------------------------- |  | ------------------- | -----
| |                                                 |  | 2016                |      
| |                                                 |  | NIS
    in millions |      
| | Year 1 -
    current maturities                 |  |                     | 48   
| | Year 1 –
    acquisition of investment property |  |                     | 539  
| | Year 2                                          |  |                     | 39   
| | Year 3                                          |  |                     | 309  
| | Year 4                                          |  |                     | 45   
| | Year 5                                          |  |                     | 79   
| | Year 6 and
    thereafter                       |  |                     | 212  
| |                                                 |  |                     | 1,271





| | c. | As
                                         for the linkage basis of other investments, loans and receivable, refer to Note 36.
| | -- | -------------------------------------------------------------------------------------------------------------------------------



F-57






GAZIT-GLOBE
LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





|NOTE
    11:- | AVAILABLE-FOR-SALE
    FINANCIAL ASSETS
|------------- | ---------------------------------------



| | Composition | 
| | ----------- | 



| |                                                        |  | December
    31     |    
| | ------------------------------------------------------ |  | ------------------- | ---
| |                                                        |  | 2016                |    
| |                                                        |  | NIS
    in millions |    
| | Securities
    traded in Brazil(1)                     |  |                     | -  
| | Securities
    traded in Europe (2)                    |  |                     | 170
| | Shares traded
    in Canada                            |  |                     | 5  
| | Participating
    units in private equity funds (3)(4) |  |                     | 384
| |                                                        |  |                     | 559
| | Classified
    within current assets (2)               |  |                     | 175
| | Classified
    within non-current assets               |  |                     | 384
| |                                                        |  |                     | 559





| | (1) | During
                                         2016 the Company sold its holding in BR Malls Participacoes S.A., a public company for
                                         investments in shopping centers, which is one of the largest in this sector in Brazil,
                                         in consideration of BRL 532 million (NIS 611 million) and recognized profit of BRL 109
                                         million (NIS 125 million).
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | The
                                         financial assets available for sale of ATR include a diversified portfolio of traded
                                         shares with less than 1% holding interest in each of the investments. Financial assets
                                         available for sale are presented at fair value of EUR 42 million (NIS 170 million), based
                                         on quoted prices in active markets (level 1 in the fair value hierarchy).
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Includes
                                         an amount of NIS 73 million in an investment at an effective interest rate of 4.3% of
                                         participation certificates in a corporate which holds a shopping center in Brazil.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | In
                                         August 2007, the Company entered into an investment agreement with HIREF International
                                         LLC, an Indian real estate investment fund registered in Mauritius (the "Fund").
                                         The Fund was established at the initiative and under the management of the Housing Development
                                         Finance Corporation Limited ("HDFC") group, one of the largest financial institutions
                                         in India in which the subsidiary is one of four anchor investors in the Fund. According
                                         to the Fund's articles of incorporation and investment agreements, the Fund will invest,
                                         directly and indirectly, in real estate companies that operate in the development and
                                         construction sectors, as well as in other synergistic fields. The Fund investment commitments
                                         amounts to of U.S.$ 750 million and the Company portion is approximately U.S.$ 110 million.
                                         The Fund has a term of nine years, with two one-year optional term extensions. As of
                                         December 31, 2016, the Company's outstanding investment commitment amounted to approximately
                                         U.S.$ 15 million (approximately NIS 57 million). As of December 31, 2016 approximately
                                         U.S.$ 51 million (NIS 195 million) were paid cumulatively to the Company resulting from
                                         projects realization by the Fund).
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





As of December 31, 2016, the
Fund has investment agreements for 10 projects with a total investment of U.S.$ 442 million, which as of the reporting date
it was fully invested.



The fair value of the investments
is derived from the Fund's Net Asset Value as presented in the Fund's financial statements prepared according to IFRS, and amounts
to NIS 288 million and NIS 373 million as of December 31, 2016 and 2015, respectively.

The exposure of the investment's
fair value to market inputs mainly results from the currency exchange of Indian Rupee and U.S. dollar. A decrease of 5% in the
exchange rate will decrease the investment fair value in NIS 14 million, and an increase of 5% in the exchange rate will increase
the investment fair value in NIS 15 million.





F-58






GAZIT-GLOBE
LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





|NOTE
    12:- | INVESTMENT
    PROPERTY
|------------- | -----------------------



| | a. | Movement
| | -- | --------



| |                                                                    |  | December
    31     |        
| | ------------------------------------------------------------------ |  | ------------------- | -------
| |                                                                    |  | 2016                |        
| |                                                                    |  | NIS
    in millions |        
| | Balance as of January 1                                            |  |                     | 71,404 
| | Acquisitions
    and capital expenditures                          |  |                     | 4,348  
| | Initially
    consolidated subsidiaries                            |  |                     | -      
| | Transfer
    from investment property under development, net       |  |                     | 775    
| | Dispositions                                                       |  |                     | (1,440 
| | Transfer
    to assets held for sale due to discontinued operation |  |                     | (19,754
| | Valuation
    gains, net *)                                        |  |                     | 2,189  
| | Foreign
    exchange differences                                   |  |                     | (972   
| | Balance as of December 31                                          |  |                     | 56,550 
| |                                                                    |  |                     |        
| | Composition:                                                       |  |                     |        
| | Investment
    property                                            |  |                     | 55,982 
| | Assets classified
    as held for sale (Note 8)                    |  |                     | 568    
| |                                                                    |  |                     | 56,550 





| | *) | In
                                         2016, includes a revaluation from discontinued operation , includes a net revaluation
                                         gain of NIS 1,196 million, which was recognized in profit or loss as part of net income
                                         from discontinued operations, net. In 2015-NIS 62 million, which was recognized in profit
                                         or loss as part of net capital loss from selling a disposal group.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b. | Investment
                                         properties primarily consist of shopping centers and other retail sites, including properties
                                         under redevelopment and extension. Investment properties are stated at fair value, which
                                         has been determined based on valuations performed by external independent appraisers
                                         with recognized professional expertise and vast experience as to the location and category
                                         of the property being valued (53.1% as of December 31, 2016 and 68.6% during 2016 - in
                                         fair value terms) as well as by the Group companies managements. As of the reporting
                                         date fair value has been determined based on market conditions, with reference to recent
                                         observable real estate transactions involving properties in similar condition and location,
                                         as well as using valuations techniques such as the Direct Income Capitalization Method
                                         and the Discounted Cash Flow Method ("DCF"), in accordance with International
                                         Valuation Standards (IVS), as set out by the International Valuation Standards Committee
                                         (IVSC) or in accordance with the Royal Institution of Charted Surveyors (the "Red
                                         Book"), in addition to the local rules of valuation in the territories in which
                                         the Group operates.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The
valuations of properties that were appraised by income method or discounted cash flows are based on the estimated future cash
flows generated by the property from current lease contracts, taking into account the inherent risk of the cash flow as well as
by using estimations for potential rent contracts and renewal for rent contracts. In determining the property's fair values the
appraisers used discount rates based on the nature and designation of the property, its location and the quality of the occupying
tenants.



The
investment properties are measured at level 3 according to the fair value hierarchy. In 2016, there were no transfers of investment
property from level 3 and to level 3.



F-59








GAZIT-GLOBE
LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE
    12:- | INVESTMENT
    PROPERTY (Cont.)
|------------- | -------------------------------



| | c. | Following
                                         are the average capitalization rates (Cap Rates) and the average monthly market rent
                                         per square meter implied in the valuations of the Group's properties in its principal
                                         areas of operations:
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |                                                   |  | Canada |     |  | Northern
    Europe |  |      | Central
    and Eastern Europe  *) |  |  | Israel | 
| | ------------------------------------------------- |  | ------ | --- |  | ------------------- |  | ---- | ---------------------------------- |  |  | ------ | 
| | Average
    cap rates                             |  | %      |    
| | December 31, 2016                                 |  |        | 5.5 |  |                     |  | 5.5  |                                    |  |  | **)7.0 | 
| | December 31, 2015                                 |  |        | 5.7 |  |                     |  | 5.7  |                                    |  |  | **)7.3 | 
| |                                                   |  |        |     |  |                     |  |      |                                    |  |  |        | 
| |                                                   |  |        |     |  |                     |  |      |                                    |  |  |        | 
| |                                                   |  |        |     |  |                     |  |      |                                    |  |  |        | 
| | Monthly
    average market rent per square meters |  |        | C$  |  |                     |  | EUR  |                                    |  |  | EUR    | 
| | December 31, 2016                                 |  |        | -   |  |                     |  | 26.1 |                                    |  |  | 13     | 
| | December 31, 2015                                 |  |        | -   |  |                     |  | 25.1 |                                    |  |  | 13     | 





| | *) | Market
                                         rent, as customary in these markets, excludes management fees.
| | -- | --------------------------------------------------------------------------------------------------------------



| | **) | Excluding
                                         property under joint venture and assets held for sale- 7.2% (2015– 7.4%).
| | --- | ----------------------------------------------------------------------------------------------------------------------------



The
valuation of the Group's investment properties in Canada is mainly through the Income Method, therefore the impact of the change
in monthly average market rent per square meter is minor and not disclosed above. For sensitivity analysis of net operating income,
refer to the table below.



Following
is the sensitivity analysis of the fair value of investment properties (effect on pre-tax income (loss)) for the main parameters
that were used in the investment properties valuations in its principal areas of operations:



| |                                                         |  | Canada              |       |   | Northern
    Europe |  |       | Central
    and Eastern Europe |  |  | Israel |  
| | ------------------------------------------------------- |  | ------------------- | ----- | - | ------------------- |  | ----- | ------------------------------ |  |  | ------ | -
| | December
    31, 2016                                   |  | NIS
    in millions |      
| | Increase
    of 25 basis points in capitalization rate  |  |                     | (964  | ) |                     |  | (768  | )                              |  |  | (349   | )
| | Decrease
    of 25 basis point in capitalization rate   |  |                     | 1,083 |   |                     |  | 841   |                                |  |  | 377    |  
| | Increase
    of 5% in net operating rental income (NOI) |  |                     | 1,181 |   |                     |  | 883   |                                |  |  | 491    |  
| | Increase of 5% in
    average market rent               |  |                     | -     |   |                     |  | 1,196 |                                |  |  | 549    |  



| | d. | Investment
                                         properties under leasehold
| | -- | ------------------------------------------------------------------------------



As
of December 31, 2016 the Group has 9 properties with aggregate fair value of NIS 2.0 billion held under an operating ground
lease (2015 - 17 properties valued at NIS 2.8 billion) and 21 properties with aggregate fair value of NIS 5.2 billion
held under a finance ground lease (2015 - 23 properties valued at NIS 5.4 billion).



As
for liabilities relating to lease agreements of investment property, refer to Note 23.



| | e. | As
                                         for charges, refer to Note 29.
| | -- | --------------------------------------------------------------------------



F-60








GAZIT-GLOBE
LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE
    13:- | INVESTMENT
    PROPERTY UNDER DEVELOPMENT
|------------- | -----------------------------------------



| | a. | Movement
                                         and composition
| | -- | -----------------------------------------------------------------



| |                                                                    |  | December
    31     |      
| | ------------------------------------------------------------------ |  | ------------------- | -----
| |                                                                    |  | 2016                |      
| |                                                                    |  | NIS
    in millions |      
| | Balance as of January 1                                            |  |                     | 2,612
| | Acquisitions
    and development costs                             |  |                     | 454  
| | Initially
    consolidated subsidiary                              |  |                     | -    
| | Transfers
    to investment property                               |  |                     | (470 
| | Transfer
    to assets held for sale due to discontinued operation |  |                     | (94  
| | Transfer
    from inventory (to inventory)                         |  |                     | (15  
| | Dispositions                                                       |  |                     | (121 
| | Valuation
    losses, net                                          |  |                     | (122 
| | Foreign
    exchange differences                                   |  |                     | (32  
| | Balance as of December 31                                          |  |                     | 2,212
| |                                                                    |  |                     |      
| | Composition:                                                       |  |                     |      
| | Lands held
    for sale (note 8)                                   |  |                     | 99   
| | Land for
    future development                                    |  |                     | 1,538
| | Investment
    property under development                          |  |                     | 575  
| |                                                                    |  |                     | 2,212



| | b. | The
                                         fair value of investment property under development that includes shopping centers and
                                         other retail sites is determined based on market conditions, using the Residual Method
                                         based upon DCF. The fair value is determined by the Group companies’ managements
                                         and the external independent appraisers with recognized professional expertise and vast
                                         experience as to the location and category of the property being valued. The estimated
                                         fair value is based on the expected future cash flows from the completed project using
                                         yields adjusted to reflect the relevant development risks, including construction risk
                                         and lease up risk, that are higher than the current yields of similar completed property.
                                         The remaining estimated costs for completion are deducted from the estimated value of
                                         the completed project, as above.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Lands
for future development are measured at fair value, using among other the Comparative Method (65.4% in fair value terms). In the
implementation of the Comparison Method, the external appraisers and Group companies’ managements rely on market prices
of similar properties, applying necessary adjustments (for location, size, etc.), and in cases where comparison transactions are
not available, using the Residual Method as above, based on market yields adjusted as applicable.



The
investment property under development and lands are measured at level 3 according to the fair value hierarchy. In 2016 there were
no transfers of investment property under development and lands from level 3 and to level 3.



As
of December 31, 2016, the fair value of approximately 67.6% of the investment property under development and lands has been assessed
by external appraisers (approximately 67.6% during 2016), and the remainder was performed internally using standard valuation
techniques, inter alia, based on market inputs received from the external appraisers.



F-61










GAZIT-GLOBE
LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE
    13:- | INVESTMENT
    PROPERTY UNDER DEVELOPMENT (Cont.)
|------------- | -------------------------------------------------



| | c. | During
                                         2016, the Group capitalized to property under development borrowing costs amounting to
                                         NIS 89 million (in 2015 - NIS 135 million) and direct incremental costs, including
                                         payroll expenses, amounting to NIS 20 million (in 2015 - NIS 25 million).
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | d. | Below
                                         is a sensitivity analysis of the fair value of investment property under development,
                                         excluding projects and land that are immaterial to the financial statements (impact on
                                         pre-tax income (loss)):
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





| |                                                        |  | Canada |     |   | Northern
    Europe |  |     | Central
    and Eastern Europe |  |  | Israel |  
| | ------------------------------------------------------ |  | ------ | --- | - | ------------------- |  | --- | ------------------------------ |  |  | ------ | -
| | December
    31, 2016                                  |  |        |    
| | Increase
    of 5% in expected project cost            |  |        | (10 | ) |                     |  | (1  | )                              |  |  | (55    | )
| | Increase
    of 5% in expected NOI                     |  |        | -   |   |                     |  | 11  |                                |  |  | 56     |  
| | Increase
    of 25 basis points in capitalization rate |  |        | -   |   |                     |  | (11 | )                              |  |  | (32    | )
| | Decrease
    of 25 basis points in capitalization rate |  |        | -   |   |                     |  | 12  |                                |  |  | 38     |  
| | Increase
    of 5% in the selling price per sq.m       |  |        | -   |   |                     |  | -   |                                |  |  | 19     |  





| | e. | As
                                         of December 31, 2016, the group owns 9 land plots under leasehold (2015-10 land plots)
                                         with a total value of NIS 620 million (2015 - NIS 717 million).
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | f. | As
                                         for charges, refer to Note 29.
| | -- | --------------------------------------------------------------------------



|NOTE
    14:- | FIXED
    ASSETS, NET
|------------- | ---------------------



| | a. | Composition
| | -- | -----------





| |                                              |  | December
    31     |    
| | -------------------------------------------- |  | ------------------- | ---
| |                                              |  | 2016                |    
| |                                              |  | NIS
    in millions |    
| | Buildings                                    |  |                     | 28 
| | Construction
    equipment                   |  |                     | -  
| | Software,
    computers and office equipment |  |                     | 66 
| | Other (mainly
    leasehold improvements)    |  |                     | 58 
| |                                              |  |                     | 152





| | b. | Regarding
                                         depreciation expenses recognized in profit or loss, refer to Note 32.
| | -- | ------------------------------------------------------------------------------------------------------------------------



| | c. | As
                                         for charges, refer to Note 29.
| | -- | --------------------------------------------------------------------------



F-62










GAZIT-GLOBE
LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





|NOTE
    15:- | INTANGIBLE
    ASSETS, NET
|------------- | --------------------------



| | Composition | 
| | ----------- | 





| |                                                       |  | December
    31     |    
| | ----------------------------------------------------- |  | ------------------- | ---
| |                                                       |  | 2016                |    
| |                                                       |  | NIS
    in millions |    
| |                                                       |  |                     |    
| | Goodwill
    (1) (2)                                  |  |                     | 735
| | Value
    attributed to assets managed and leased (3) |  |                     | 72 
| | Other                                                 |  |                     | 8  
| |                                                       |  |                     | 815





| | (1) | The
                                         carrying amount of goodwill by cash-generating units:
| | --- | --------------------------------------------------------------------------------------------------



| |                                                                                |  | EQY                 |                                                          |   | CTY |  |     | FCR |  |  | Total | 
| | ------------------------------------------------------------------------------ |  | ------------------- | -------------------------------------------------------- | - | --- |  | --- | --- |  |  | ----- | 
| |                                                                                |  | NIS
    in millions |                                                         
| | December
    31, 2016                                                          |  |                     | -                                                        |   |     |  | 702 |     |  |  | 33    | 
| | December
    31, 2015                                                          |  |                     | 53                                                       |   |     |  | 733 |     |  |  | 33    | 
| |                                                                                |  |                     |                                                          |   |     |  |     |     |  |  |       | 
| | Movement
    in goodwill for the year ended December 31, 2016:                 |  |                     |                                                          |   |     |  |     |     |  |  |       | 
| |                                                                                |  |                     | NIS
                                         in millions |   |     |  |     |     |  |  |       | 
| | Balance
    as of January 1                                                    |  |                     | 819                                                      |   |     |  |     |     |  |  |       | 
| | Reclassification
    to held for sale due to discontinued operation (Note 9d1) |  |                     | (52                                                      | ) |     |  |     |     |  |  |       | 
| | Impairment
    of goodwill                                                     |  |                     | (23                                                      | ) |     |  |     |     |  |  |       | 
| | Foreign
    exchange differences                                               |  |                     | (9                                                       | ) |     |  |     |     |  |  |       | 
| | Balance
    as of December 31                                                  |  |                     | 735                                                      |   |     |  |     |     |  |  |       | 





| | (2) | Goodwill
                                         has been predominantly recognized due to the acquisition of Sektor by CTY in 2015 and
                                         from acquisition of non-controlling interests and through the Group's participation in
                                         share offerings in FCR. The goodwill was allocated to the cash generating units and for
                                         each, the recoverable amount was determined as of the reporting date. In respect of FCR
                                         the recoverable amount is determined based on the market price of the shares.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In
2016, CTY recognized goodwill impairment in an amount of NIS 18 million, due to a reduction in a similar amount in the balance
of deferred tax provision which is due to the decrease of tax rate in Norway, which explains part of the goodwill as referred
to above. Furthermore, the Company recognized goodwill impairment in the amount of NIS 5 million in CTY.



| | (3) | Attributed
                                         to assets recognized as part of the business combination with Sektor in their fair value
                                         in respect of investment properties owned by third party that are managed by the Group
                                         as well as properties leased under finance lease by the Group.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-63








GAZIT-GLOBE
LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE
    16:- | CREDIT
    FROM BANKS AND OTHERS
|------------- | --------------------------------



| | a. | Composition
| | -- | -----------



| |                                               |  |                        |  | Weighted
    average interest rate |     |  |                     |  |     |      | 
| | --------------------------------------------- |  | ---------------------- |  | ---------------------------------- | --- |  | ------------------- |  | --- | ---- | 
| |                                               |  |                        |  | December
    31                    |     |  | December
    31     | 
| |                                               |  |                        |  | 2016                               |     |  | 2016                |  |     | 2015 | 
| |                                               |  | Denomination           |  | %                                  |     |  | NIS
    in millions | 
| | Credit
    from banks:                        |  | CPI
    Linked NIS *)  |  |                                    | -   |  |                     |  | -   |      | 
| |                                               |  | Unlinked
    NIS *)    |  |                                    | 3.0 |  |                     |  | 114 |      | 
| |                                               |  | C$
    *)              |  |                                    | 1.4 |  |                     |  | 45  |      | 
| |                                               |  | €
    *)               |  |                                    | 1.1 |  |                     |  | 27  |      | 
| |                                               |  | Norwegian
    Krone *) |  |                                    | 2.3 |  |                     |  | 14  |      | 
| | Credit
    from other financial institutions: |  | €
    *)               |  |                                    | 0.3 |  |                     |  | 152 |      | 
| |                                               |  | Swedish
    Krona *)   |  |                                    | 0.1 |  |                     |  | 423 |      | 
| |                                               |  |                        |  |                                    |     |  |                     |  | 775 |      | 
| | Less
    - deferred costs                     |  |                        |  |                                    |     |  |                     |  | -   |      | 
| | Total
    short-term credit                   |  |                        |  |                                    |     |  |                     |  | 775 |      | 





*‎)
Variable interest.



| | b. | As
                                         for charges, see Note 29.
| | -- | ---------------------------------------------------------------------



|NOTE
    17:- | CURRENT
    MATURITIES OF NON-CURRENT LIABILITIES
|------------- | -------------------------------------------------



| | Composition | 
| | ----------- | 



| |                                                                    |  |              |    |  | December
    31     | 
| | ------------------------------------------------------------------ |  | ------------ | -- |  | ------------------- | 
| |                                                                    |  | Refer
    to |    |  | 2016                | 
| |                                                                    |  | Note         |    |  | NIS
    in millions | 
| | Current
    maturities of debentures                               |  |              | 20 |  |                     | 
| | Current
    maturities of debentures fully redeemed *)             |  |              | 20 |  |                     | 
| | Current
    maturities of convertible debentures                   |  |              | 21 |  |                     | 
| | Current
    maturities of interest bearing non-current liabilities |  |              | 22 |  |                     | 
| |                                                                    |  |              |    |  |                     | 





*)
On December 31, 2016 there was the date of final redemption of debentures (series B and F) of the Company. The debentures were
fully redeemed in January 2017 since the redemption date falls on a non-business day, therefore the actual payment accrued on
the first business date afterward.



|NOTE
    18:- | TRADE
    PAYABLES
|------------- | ------------------



| | a. | Composition
| | -- | -----------





| |                                        |  | December
    31     |    
| | -------------------------------------- |  | ------------------- | ---
| |                                        |  | 2016                |    
| |                                        |  | NIS
    in millions |    
| | Open accounts
    and accrued expenses |  |                     | 375
| | Checks payable                         |  |                     | 2  
| |                                        |  |                     | 377





| | b. | Trade
                                         payables do not bear interest. As for linkage basis of trade payables, see Note 36.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------



F-64








GAZIT-GLOBE
LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





|NOTE
    19:- | OTHER
    ACCOUNTS PAYABLE
|------------- | --------------------------



| | a. | Composition
| | -- | -----------



| |                                                        |  | December
    31     |      
| | ------------------------------------------------------ |  | ------------------- | -----
| |                                                        |  | 2016                |      
| |                                                        |  | NIS
    in millions |      
| | Interest
    payable                                   |  |                     | 519  
| | Government
    institutions                            |  |                     | 72   
| | Deferred
    income and deposits from tenants          |  |                     | 229  
| | Employees                                              |  |                     | 99   
| | Dividend
    payable to non-controlling interests      |  |                     | 101  
| | Payables
    for real estate transactions              |  |                     | 334  
| | Warranty
    and loss provision                        |  |                     | -    
| | Other provisions
    (including for legal proceedings) |  |                     | 235  
| | Accrued
    expenses                                   |  |                     | 205  
| | Other payables                                         |  |                     | 26   
| |                                                        |  |                     | 1,820





| | b. | As
                                         for linkage basis of other accounts payable, see Note 36.
| | -- | -----------------------------------------------------------------------------------------------------



F-65






GAZIT-GLOBE
LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





|NOTE
    20:- | DEBENTURES
|------------- | ----------







|                                            |  |      |    |  |              |                         | Outstanding par |  |       | Nominal  |  |  | Effective |  | Carrying
    amount | 
|------------------------------------------- |  | ---- | -- |  | ------------ | ----------------------- | --------------- |  | ----- | -------- |  |  | --------- |  | ------------------- | 
|                                            |  |      |    |  |              |                         | value           |  |       | Interest |  |  | interest  |  | December 31         | 
|                                            |  |      |    |  |              |                         | amount          |  |       | rate     |  |  | rate      |  | 2016                | 
|                                            |  |      |    |  |              |                         | NIS             |  |       |          |  |  |           |  | NIS                 | 
|                                            |  | item |    |  | Denomination |                         | in
    millions |  |       | %        |  |  | %         |  | in
    millions     | 
|The
    Company:                            |  |      |    |  |              |                         |                 |  |       |          |  |  |           |  |                     | 
|Debentures
    (series A)                   |  |      |    |  |              | U.S.$                   |                 |  | 44    |          |  |  | 6.50      |  |                     | 
|Debentures
    (series B)                   |  |      |    |  |              | €                       |                 |  | -     |          |  |  | 1.98      |  |                     | 
|Debentures
    (series C) *)                |  |      |    |  |              | Israeli
    CPI         |                 |  | 501   |          |  |  | 4.95      |  |                     | 
|Debentures
    (series D) *)                |  |      |    |  |              | Israeli
    CPI         |                 |  | 2,069 |          |  |  | 5.10      |  |                     | 
|Debentures
    (series E) *)                |  |      |    |  |              | NIS
    **)             |                 |  | 556   |          |  |  | 0.80      |  |                     | 
|Debentures
    (series F) *)                |  |      |    |  |              | NIS                     |                 |  | -     |          |  |  | 6.40      |  |                     | 
|Debentures
    (series I) *)                |  |      |    |  |              | Israeli
    CPI         |                 |  | 479   |          |  |  | 5.30      |  |                     | 
|Debentures
    (series J) *)                |  |      | b4 |  |              | Israeli
    CPI         |                 |  | 698   |          |  |  | 6.50      |  |                     | 
|Debentures
    (series K)*)                 |  |      | b2 |  |              | Israeli
    CPI         |                 |  | 2,654 |          |  |  | 5.35      |  |                     | 
|Debentures
    (Series L) *)                |  |      | b1 |  |              | Israeli
    CPI         |                 |  | 2,958 |          |  |  | 4.00      |  |                     | 
|Total
    of the Company ***)               |  |      |    |  |              |                         |                 |  |       |          |  |  |           |  |                     | 
|Consolidated
    companies:                 |  |      |    |  |              |                         |                 |  |       |          |  |  |           |  |                     | 
|EQY
    debentures                          |  |      |    |  |              | U.S.$                   |                 |  | -     |          |  |  | 4.75      |  |                     | 
|FCR
    debentures                          |  |      | c  |  |              | C$                      |                 |  | 7,270 |          |  |  | 4.57      |  |                     | 
|CTY
    debentures                          |  |      | d  |  |              | €                       |                 |  | 6,625 |          |  |  | 2.74      |  |                     | 
|CTY
    debentures                          |  |      | d  |  |              | Norwegian
    Krone     |                 |  | 623   |          |  |  | 3.90      |  |                     | 
|CTY
    debentures                          |  |      | d  |  |              | Norwegian
    Krone **) |                 |  | 556   |          |  |  | 2.70      |  |                     | 
|ATR
    debentures                          |  |      | e  |  |              | €                       |                 |  | 3,386 |          |  |  | 3.78      |  |                     | 
|Luzon
    Group debentures                  |  |      |    |  |              | Israeli
    CPI         |                 |  | -     |          |  |  | 5.32      |  |                     | 
|                                            |  |      |    |  |              |                         |                 |  |       |          |  |  |           |  |                     | 
|Less
    - current maturities of debentures |  |      |    |  |              |                         |                 |  |       |          |  |  |           |  |                     | 
|                                            |  |      |    |  |              |                         |                 |  |       |          |  |  |           |  |                     | 



| | a. | Composition
| | -- | -----------





| | *‎)  | As
                                         for cross-currency swap transactions entered in respect of part of the debentures, see
                                         Note 37c.
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | **)  | Variable
                                         interest.                                                                                                                          
| | ***) | Less
                                         – amount of NIS 3 million discount recognized in a wholly-owned subsidiary.                                                            



Maturity
dates



|                              |  | December
    31, 2016 |      
|----------------------------- |  | --------------------- | -----
|                              |  |                       |      
|                              |  |                       |      
|                              |  | Year
    1            |      
|Denomination                  |  | NIS
    in millions   |      
|NIS                           |  |                       | 553  
|NIS linked
    to Israeli CPI |  |                       | 172  
|U.S.$                         |  |                       | 35   
|C$                            |  |                       | 712  
|€                             |  |                       | 575  
|Norwegian
    Krone           |  |                       | -    
|                              |  |                       | 2,047





F-66






GAZIT-GLOBE
LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS







|NOTE
    20:- | DEBENTURES
    (Cont.)
|------------- | ----------------------



| | b. | Additional
                                         information on the Company's debentures
| | -- | -------------------------------------------------------------------------------------------



| | 1. | The
    Company has outstanding debentures (series L), in which the Company has agreed to comply with the following primary covenants:
    maintain minimum shareholders’ equity (excluding non-controlling interests) of U.S.$ 650 million during every four consecutive
    quarters; Ratio of net financial debt to total assets of less than 80% during every four consecutive quarters; credit rating
    (Israeli scale) in the last of the said four quarters shall be not less than BBB- by S&P Maalot and Baa3 by Midroog: Absence
    of change of control; In addition, any event in which the Company will be required to immediately redeem its listed debenture
    in an amount no less of the greater of (i) NIS 200 million, and (ii) 10.0% of its shareholders' equity (excluding non-controlling
    interests), would trigger immediate redemption. In addition, it was determined that a downgrade will cause a rise in interest
    rate by up to 1% by the steps agreed. As of the reporting date, the Company is in compliance with the above covenants.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2. | The
                                         Company has outstanding debentures (series K), in which the Company has agreed to comply
                                         with the following primary covenants: maintain minimum shareholders’ equity (net
                                         of non-controlling interests) of U.S.$ 500 million during four consecutive quarters;
                                         ratio of net interest-bearing debt to total assets not to exceed 80% during four consecutive
                                         quarters; credit rating of its debentures in the last of the four abovementioned quarters
                                         higher than S&P Maalot’s BBB- rating and Midroog’s Baa3 rating; and the
                                         absence of change in control. In addition, any event in which the Company will be required
                                         to immediately redeem its listed debentures in an amount of at least the greater of:
                                         (i) NIS 300 million and (ii) 12.5% of shareholder's equity (net of non-controlling
                                         interests) would trigger immediate redemption. In addition it was determined that a downgrade
                                         will cause a rise in interest rate by up to 1% by the steps agreed. As of the reporting
                                         date, the Company is in compliance with the above covenants.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3. | During
                                         2016, the Company repurchased debentures with a par value of NIS 77 million (Series A,B,C,F
                                         and I) through market trades for a consideration of NIS 88 million. The purchase had
                                         no material impact on the Company's financial statements. The repurchased debentures
                                         were cancelled and delisted.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 4. | On
                                         August 3, 2016 reaffirmed S&P Maalot the credit rating of all of the outstanding
                                         debentures of the Company at 'ilAA-', with a stable outlook.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

On
November 22, 2016 reaffirmed Midrug the credit rating of all of the outstanding debentures of the Company at Aa3, with stable
outlook.



| | 5. | For
                                         a charge recorded to secure repayment of debentures (series J), see Note 29(1).
| | -- | ----------------------------------------------------------------------------------------------------------------------------



| | c. | FCR
                                         debentures
| | -- | -------------------------------------------------------



In
2016 FCR issued to the public in Canada C$ 300 million par value (NIS 882 million) unsecured debentures (series T) which bear
a fixed annual interest rate of 3.56% and payable in one installment on May 6, 2026.



FCR
committed to maintain a ratio of total debt to total assets that will not exceed 65% and a ratio of unsecured assets (not included
properties under development) to unsecured debt that should not be less than-1.3. In addition, a change of control in FCR as defined
in the agreement would trigger an immediate redemption. As of the reporting date, FCR is in compliance with the above covenants.



F-67








GAZIT-GLOBE
LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





|NOTE
    20:- | DEBENTURES
    (Cont.)
|------------- | ----------------------



| | d. | CTY
                                         debentures
| | -- | -------------------------------------------------------



| | 1. | In
                                         August 2016, CTY issued to the public EUR 350 million par value (NIS 1.5 billion)
                                         of unsecured debentures, which bear annual interest at a rate of 1.25% and are due for
                                         repayment on September 8, 2026.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2. | Within
                                         the framework of the debenture offering, CTY committed to maintain a ratio of total debt
                                         to total value of assets and a ratio of secured debt to total value of assets that will
                                         not exceed 65% and 25%, respectively. In addition, change of control as defined in the
                                         debentures agreement will entitle the holders the right of early redemption of the debentures.
                                         As of the reporting date, CTY is in compliance with these covenants.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | e. | ATR
                                         debentures
| | -- | -------------------------------------------------------



| | 1. | Within
                                         the framework of the debenture offering, ATR committed to maintain a ratio of total debt
                                         to total value of assets and a ratio of secured debt to total value of assets that will
                                         not exceed 60% and 40%, respectively. In addition, Minimum consolidated debt coverage
                                         ratio (adjusted EBITDA to interest expenses) of no less than 1.5 and a ratio of consolidated
                                         unencumbered assets to consolidated unsecured debt of no less than 150%. As of the reporting
                                         date, ATR is in compliance with these covenants.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2. | For
                                         a charge recorded to secure repayment of debentures (series 2005), see Note 29(2).
| | -- | -------------------------------------------------------------------------------------------------------------------------------



F-68








GAZIT-GLOBE
LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





|NOTE
    21:- | CONVERTIBLE
    DEBENTURES
|------------- | --------------------------



| | a. | Composition
| | -- | -----------



| |                               |  |              |    |  | Outstanding     |  |     |  |          |  |  |           |  |  |                     |        |  |      | 
| | ----------------------------- |  | ------------ | -- |  | --------------- |  | --- |  | -------- |  |  | --------- |  |  | ------------------- | ------ |  | ---- | 
| |                               |  |              |    |  | par             |  |     |  | Nominal  |  |  | Effective |  |  | Carrying
    amount |       
| |                               |  |              |    |  | value           |  |     |  | Interest |  |  | interest  |  |  | December
    31     |       
| |                               |  |              |    |  | amount          |  |     |  | rate     |  |  | rate      |  |  | 2016                |        |  | 2015 | 
| |                               |  |              |    |  | NIS             |  |     |  |          |  |  |           |  |  | NIS                 |       
| |                               |  | Denomination |    |  | in
    millions |  |     |  | %        |  |  | %         |  |  | in
    millions     |       
| | FCR (series E,F,I,J)          |  |              | C$ |  |                 |  | 606 |  | *)       |  |  | 4.96      |  |  |                     | *)6.12 |  |      | 
| | Less
    – current maturities |  |              |    |  |                 |  |     |  |          |  |  |           |  |  |                     |        |  |      | 
| |                               |  |              |    |  |                 |  |     |  |          |  |  |           |  |  |                     |        |  |      | 





*‎)
Weighted average interest rate.



| | b. | Additional
                                         information
| | -- | ---------------------------------------------------------------



Below
is information about the outstanding series of FCR unsecured convertible debentures, as of December 31, 2016:



| |                               |  |  |      |  | Nominal  |      |      | Effective |       |  | Conversion    |                 |  | Outstanding   |             |  | Year
    of | 
| | ----------------------------- |  |  | ---- |  | -------- | ---- | ---- | --------- | ----- |  | ------------- | --------------- |  | ------------- | ----------- |  | ----------- | 
| |                               |  |  |      |  | Interest |      |      | interest  |       |  | price
    per |                 |  | par
    value |             |  | final       | 
| | Issue
    date                |  |  | rate |  |          | rate |      |           | share |  |               | amount          |  |               | maturity    | 
| | series                        |  |  | %    |  |          | %    |      |           | C$    |  |               | C$
    millions |  |               |             | 
| | 2011                          |  |  | E    |  |          |      | 5.40 |           |       |  | 6.90          |                 |  |               | 22.62       |  |             | 
| | 2011                          |  |  | F    |  |          |      | 5.25 |           |       |  | 6.07          |                 |  |               | 23.77       |  |             | 
| | 2012                          |  |  | I    |  |          |      | 4.75 |           |       |  | 6.19          |                 |  |               | 26.75-27.75 |  |             | 
| | 2013                          |  |  | J    |  |          |      | 4.45 |           |       |  | 5.34          |                 |  |               | 26.75-27.75 |  |             | 
| |                               |  |  |      |  |          |      |      |           |       |  |               |                 |  |               |             |  |             | 
| | Less
    - current maturities |  |  |      |  |          |      |      |           |       |  |               |                 |  | 106.3         |             |  |             | 
| |                               |  |  |      |  |          |      |      |           |       |  |               |                 |  |               |             |  |             | 





According
to the terms of the convertible debentures, FCR is entitled to repay the debentures principal and interest in shares at its sole
discretion, at 97% of a weighted average price of FCR's Ordinary shares during the 20 trade days before repayments. In addition,
FCR is entitled to repay the debentures prior to the maturity date under certain circumstances, either in cash or in Ordinary
shares.



During
2016, FCR paid all of its convertible debentures interest in total amount of C$ 13.6 million payments through issuance of 0.7
million shares of FCR (in 2015, FCR issued 1.0 million shares as an interest payment), according to its aforementioned policy.



In
2016, FCR redeemed convertible debentures (series G and H) in the amount of C$ 121 million (NIS 352 million) at their par value
plus accrued interest and were settled in cash (50%) and shares (50%).



For
details regarding FCR early redemption of convertible debentures (series E and F), after the reporting date, see Note 39d.



F-69








GAZIT-GLOBE
LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





|NOTE
    22:- | INTEREST-BEARING
    LOANS FROM BANKS AND OTHERS
|------------- | ------------------------------------------------



| | a. | Composition
| | -- | -----------







| |                                  |  | In
    NIS          |     |  | In
    NIS |  |     |           |  |  |            |  |  |          |       |  |         |  |       |           |  |  |       | 
| | -------------------------------- |  | ------------------- | --- |  | ---------- |  | --- | --------- |  |  | ---------- |  |  | -------- | ----- |  | ------- |  | ----- | --------- |  |  | ----- | 
| |                                  |  | linked              |     |  | non        |  |     |           |  |  |            |  |  |          |       |  | Swedish |  |       | Norwegian |  |  |       | 
| |                                  |  | to
    CPI          |     |  | linked     |  |     | In
    C$ |  |  | In
    US$ |  |  | In
    € |       |  | Krona   |  |       | Krone     |  |  | Total | 
| |                                  |  | NIS
    in millions |    
| | December 31,
    2016            |  |                     |     |  |            |  |     |           |  |  |            |  |  |          |       |  |         |  |       |           |  |  |       | 
| | Banks                            |  |                     | 363 |  |            |  | 299 |           |  |  | 3,162      |  |  |          | 2,427 |  |         |  | 1,019 |           |  |  | 2     | 
| | Other
    financial institutions |  |                     | 168 |  |            |  | -   |           |  |  | -          |  |  |          | 679   |  |         |  | -     |           |  |  | -     | 
| | Total                            |  |                     | 531 |  |            |  | 299 |           |  |  | 3,162      |  |  |          | 3,106 |  |         |  | 1,019 |           |  |  | 2     | 
| | Current
    maturities           |  |                     | 11  |  |            |  | 2   |           |  |  | 334        |  |  |          | 24    |  |         |  | 6     |           |  |  | 2     | 
| | Net
    of current maturities    |  |                     | 520 |  |            |  | 297 |           |  |  | 2,828      |  |  |          | 3,082 |  |         |  | 1,013 |           |  |  | -     | 
| | December
    31,
    2015        |  |                     |     |  |            |  |     |           |  |  |            |  |  |          |       |  |         |  |       |           |  |  |       | 
| | Total                            |  |                     | 526 |  |            |  | 232 |           |  |  | 3,949      |  |  |          | 4,949 |  |         |  | 1,371 |           |  |  | 390   | 
| | Net
    of current maturities    |  |                     | 515 |  |            |  | 135 |           |  |  | 3,409      |  |  |          | 4,741 |  |         |  | 1,365 |           |  |  | 388   | 



The
composition of classification of loans by fixed or variable interest rate:







| |                                                  |  | In
    NIS          |     |  | In
    NIS |  |     |           |  |  |            |  |  |          |       |  |         |  |       |           |  |  |       | 
| | ------------------------------------------------ |  | ------------------- | --- |  | ---------- |  | --- | --------- |  |  | ---------- |  |  | -------- | ----- |  | ------- |  | ----- | --------- |  |  | ----- | 
| |                                                  |  | linked              |     |  | non        |  |     |           |  |  |            |  |  |          |       |  | Swedish |  |       | Norwegian |  |  |       | 
| |                                                  |  | to
    CPI          |     |  | linked     |  |     | In
    C$ |  |  | In
    US$ |  |  | In
    € |       |  | Krona   |  |       | Krone     |  |  | Total | 
| |                                                  |  | NIS
    in millions |    
| | December 31,
    2016                            |  |                     |     |  |            |  |     |           |  |  |            |  |  |          |       |  |         |  |       |           |  |  |       | 
| | Fixed
    interest rate                          |  |                     | 531 |  |            |  | -   |           |  |  | 2,815      |  |  |          | 679   |  |         |  | -     |           |  |  | 2     | 
| | Weighted
    average effective interest rate (%) |  |                     | 2.5 |  |            |  | -   |           |  |  | 4.4        |  |  |          | 5.8   |  |         |  | -     |           |  |  | 9.3   | 
| | Variable
    interest rate                       |  |                     | -   |  |            |  | 299 |           |  |  | 347        |  |  |          | 2,427 |  |         |  | 1,019 |           |  |  | -     | 
| | Weighted
    average effective interest rate (%) |  |                     | -   |  |            |  | 3.3 |           |  |  | 2.5        |  |  |          | 2.8   |  |         |  | 3.3   |           |  |  | -     | 





F-70






GAZIT-GLOBE
                                         LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





|NOTE
    22:- | INTEREST-BEARING
    LOANS FROM BANKS AND OTHERS (Cont.)
|------------- | --------------------------------------------------------



| | b. | Maturity
                                         dates
| | -- | -------------------------------------------------------







| |                                 |  | In
    NIS          |     |  | In
    NIS |  |     |           |  |  |            |  |  |          |       |  |         |  |       |           |  |  |       | 
| | ------------------------------- |  | ------------------- | --- |  | ---------- |  | --- | --------- |  |  | ---------- |  |  | -------- | ----- |  | ------- |  | ----- | --------- |  |  | ----- | 
| |                                 |  | linked              |     |  | non        |  |     |           |  |  |            |  |  |          |       |  | Swedish |  |       | Norwegian |  |  |       | 
| |                                 |  | to
    CPI          |     |  | linked     |  |     | In
    C$ |  |  | In
    US$ |  |  | In
    € |       |  | Krona   |  |       | Krone     |  |  | Total | 
| |                                 |  | NIS
    in millions |    
| | December 31,
    2016           |  |                     |     |  |            |  |     |           |  |  |            |  |  |          |       |  |         |  |       |           |  |  |       | 
| | Year
    1 - current maturities |  |                     | 11  |  |            |  | 2   |           |  |  | 334        |  |  |          | 24    |  |         |  | 6     |           |  |  | 2     | 
| | Year 2                          |  |                     | 11  |  |            |  | 2   |           |  |  | 627        |  |  |          | 205   |  |         |  | 111   |           |  |  | -     | 
| | Year 3                          |  |                     | 351 |  |            |  | 2   |           |  |  | 398        |  |  |          | 1,533 |  |         |  | 414   |           |  |  | -     | 
| | Year 4                          |  |                     | 4   |  |            |  | 207 |           |  |  | 186        |  |  |          | 759   |  |         |  | 79    |           |  |  | -     | 
| | Year 5                          |  |                     | 1   |  |            |  | 86  |           |  |  | 320        |  |  |          | 24    |  |         |  | 409   |           |  |  | -     | 
| | Year
    6 and thereafter       |  |                     | 153 |  |            |  | -   |           |  |  | 1,297      |  |  |          | 561   |  |         |  | -     |           |  |  | -     | 
| |                                 |  |                     | 520 |  |            |  | 297 |           |  |  | 2,828      |  |  |          | 3,082 |  |         |  | 1,013 |           |  |  | -     | 
| |                                 |  |                     | 531 |  |            |  | 299 |           |  |  | 3,162      |  |  |          | 3,106 |  |         |  | 1,019 |           |  |  | 2     | 



| | c. | As
                                         for charges, refer to Note 29.
| | -- | --------------------------------------------------------------------------



| | d. | Contracted
                                         restricted and financial covenants
| | -- | --------------------------------------------------------------------------------------



Certain
loans and credit facilities which the Company and its subsidiaries obtained in the ordinary course of business, include customary
financial and other covenants that a breach in the covenant will cause immediate redemption, among which are the following:



F-71






GAZIT-GLOBE
                                         LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE
    22:- | INTEREST-BEARING
    LOANS FROM BANKS AND OTHERS (Cont.)
|------------- | --------------------------------------------------------



| | 1. | The
                                         Company
| | -- | ----------------------------------------------------



| | a) | Ratio
                                         of actual drawn credit to market value of securities (marketable securities of public
                                         subsidiaries of the Company) in the maximum range of 52.5% to 85% as was determined in
                                         the credit agreements.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) | Minimum
                                         shareholders' equity (excluding non-controlling interests) of NIS 3.75 billion for
                                         the Company.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c) | Ratio
                                         of net interest bearing liabilities to value of total assets, based on consolidated financial
                                         statements, shall not exceed 75%.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | d) | Ratio
                                         of net interest bearing liabilities to value of total assets, based on expanded solo
                                         financial statements (the Company and other owned private entities) of the Company, shall
                                         not exceed 77.5%, based on the equity method accounting.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | e) | Equity
                                         attributable to equity holders of ATR shall not be less than € 1.5 billion.
| | -- | ---------------------------------------------------------------------------------------------------------------------------



| | f) | Liabilities
                                         bearing net interest of ATR to total consolidated balance sheet of ATR shall not be higher
                                         than 45%.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | g) | Ratio
                                         of actual debt to value of securities (pledged CTY shares which fair value is the average
                                         of its market value and net asset value) shall not exceed 70%.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | h) | The
                                         Company's average quarterly EPRA Earnings, calculated according to the European Public
                                         Real Estate Association, over any two consecutive quarters, shall not be less than NIS 60
                                         million.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | i) | The
                                         ratio of total equity (including equity loans, but excluding minority interests, derivatives
                                         at fair value and the tax effect with respect thereto) to the total assets of CTY shall
                                         not be less than 30%.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | j) | The
                                         ratio of shares pledged to the bank shall not be less than 20% of the issued and paid
                                         up share capital of CTY and also that, in the event of a financial institution (which
                                         is not a financial manager of others or for others) holding CTY shares for itself at
                                         a rate in excess of 15%, the Company shall pledge additional CTY shares to the bank so
                                         that the pledged shares as a percentage of the total issued and paid up capital of CTY
                                         shall be at least 5% higher than the percentage held by the aforementioned financial
                                         institution in the issued and paid up capital of CTY, but not more than 30.1% of the
                                         issued and paid up capital of CTY.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | k) | The
                                         ratio of CTY shares held directly and indirectly by the Company shall not be less than
                                         30% of the share capital of CTY.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | l) | Ratio
                                         of CTY's EBITDA (with certain adjustments) to CTY’s net financial expenses shall
                                         not be less than 1.6.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | m) | The
                                         percentage of FCR's shares pledged due to relevant credit terms will be no less than
                                         26% of FCR's share capital (20% on diluted basis) and, if there is another holder of
                                         FCR's shares who owns over 19.9% of the shares, the Company will pledge to the bank shares
                                         such that their proportion will exceed the interests of the other holder by 10%, moreover,
                                         the Company's interests in FCR will be no less than 34% of FCR's share capital.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





F-72






GAZIT-GLOBE
                                         LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE
    22:- | INTEREST-BEARING
    LOANS FROM BANKS AND OTHERS (Cont.)
|------------- | --------------------------------------------------------



| | n) | Ratio
                                         of FCR's net financial debt according to the portion of FCR shares pledged to the bank,
                                         with the addition of the leverage that is reflected by the amount of utilized bank credit
                                         out of the total credit facility, to FCR's EBITDA shall not exceed 14.2 and shall not
                                         exceed 13.5 over any three consecutive quarters.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | o) | Ratio
                                         of quarterly dividend from FCR shares secured to a credit facility, to the actual quarterly
                                         interest payments on the credit facility over any three consecutive quarters shall not
                                         be less than 1.5 (or 1.75, if shareholders equity lower than NIS 5.5 billion or the ratio
                                         of the consolidated net financial debt exceeds 62.5%).
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | p) | Ratio
                                         of FCR's EBITDA to FCR's finance expenses shall not be less than 1.55 or 1.75 over three
                                         consecutive quarters.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | q) | Ratio
                                         of FCR's proportional of net financial debt, with the addition of the utilized credit
                                         out of the total credit facility, to the proportion of calculated FCR's real estate value
                                         (by the ratio of FCR's shares that are pledged) shall not exceed 82% and shall not exceed
                                         80% over any three consecutive quarters.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2. | FCR
| | -- | ---



| | a) | Ratio
                                         of EBITDA to interest expense shall not be less than 1.65.
| | -- | ---------------------------------------------------------------------------------------------------------



| | b) | Ratio
                                         of debt service (EBITDA to principal and interest payments) shall not be less than 1.5.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------



| | c) | Average
                                         equity in last four quarters shall not be less than C$ 1.6 billion.
| | -- | --------------------------------------------------------------------------------------------------------------------



| | d) | Ratio
                                         of secured debt to total assets shall not exceed 35%.
| | -- | ----------------------------------------------------------------------------------------------------



| | e) | Ratio
                                         of unpledged assets to unsecured debt shall not be less than 1.3.
| | -- | ----------------------------------------------------------------------------------------------------------------



| | 3. | CTY
| | -- | ---



| | a) | Ratio
                                         of shareholders' equity (plus debt components with equity characteristics) to total assets
                                         shall not be less than 32.5%.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) | Minimum
                                         debt coverage ratio (EBITDA to net interest expense) of 1.8.
| | -- | -------------------------------------------------------------------------------------------------------------



| | 4. | ATR
| | -- | ---



| | a) | Maximum
                                         ratio of debt to value of total assets will be less than 60%.
| | -- | --------------------------------------------------------------------------------------------------------------



| | b) | Minimum
                                         ratio of debt service (adjusted EBITDA to interest payment) of 1.2.
| | -- | --------------------------------------------------------------------------------------------------------------------



| | 5. | Gazit
                                         Development
| | -- | ----------------------------------------------------------



Shareholders'
equity shall not be less than NIS 425 million and the shareholders' equity including owners loans shall not be less than
25% of total assets; debt coverage ratios and debt to value of collateral; financial debt to NOI; negative pledge on some properties.





F-73






GAZIT-GLOBE
                                         LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE
    22:- | INTEREST-BEARING
    LOANS FROM BANKS AND OTHERS (Cont.)
|------------- | --------------------------------------------------------



| | 6. | The
                                         Company's investees have other customary financial covenants, such as debt coverage ratios
                                         for principal and/or interest, leverage ratios and ratio of NOI to debt among others.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Furthermore,
in certain loan documents of the Company and its investees, there are customary provisions for immediate loan repayment, including:
change of control in a company or in companies whose securities are pledged to secure credit, restructuring, certain material
legal proceedings (including dissolution and liquidation of assets, as well as court judgments), discontinued operations, suspension
of trading of securities pledged to secure credit or of securities of the Company cross default under certain conditions, holding
minimum interest in investees by the Company, service of certain officers etc.



As
of December 31, 2016, the Company and its subsidiaries are in compliance with all the aforementioned covenants.



|NOTE
    23:- | OTHER
    LIABILITIES
|------------- | ---------------------



| | a. | Composition
| | -- | -----------







| |                                                    |  | December
    31     |    
| | -------------------------------------------------- |  | ------------------- | ---
| |                                                    |  | 2016                |    
| |                                                    |  | NIS
    in millions |    
| | Tenants' security deposits (1)                     |  |                     | 61 
| | Leasing liabilities for investment properties      |  |                     | 185
| | Deferred purchase price of investment
    property |  |                     | 5  
| | Employee benefit liabilities, net (Note
    24)    |  |                     | -  
| | Other liabilities                                  |  |                     | 32 
| |                                                    |  |                     | 283



| | (1) | Tenants'
                                         security deposits are received to secure the fulfillment of the terms of the lease agreements.
                                         Deposits are refunded to the tenants at the end of the rental period, primarily linked
                                         to the Euro.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b. | As
                                         for the linkage basis of other financial liabilities, refer to Note 36.
| | -- | -------------------------------------------------------------------------------------------------------------------



|NOTE
    24:- | EMPLOYEE
    BENEFIT LIABILITIES AND ASSETS
|------------- | -------------------------------------------



The
Group provides post-employment benefit plans. The plans are generally financed by contributions to insurance companies, pension
funds and provident funds and are classified both as defined contribution plans and as defined benefit plans, as follows:



| | a. | Under
                                         labor laws and severance pay laws in Israel and Brazil, the Group is required to pay
                                         benefits to employees upon dismissal or retirement in certain circumstances. The calculation
                                         of the Company’s employee benefit liability is made based on valid employment contracts
                                         and based on the employees’ salary which establishes the entitlement to receive
                                         post-employment benefits.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Section
14 of the Severance Pay Law in Israel (1963) applies to the compensation payments, pursuant to which current contributions paid
by the Group in pension funds and/or in form of insurance policies release the Group from any additional liability to employees
for whom such contributions were made (defined contribution plan).



| | b. | The
                                         liabilities of the Group in other countries in which its operates are normally financed
                                         by contributions to pension funds, social security, medical insurance and others and
                                         by payments which the employee bears (such as for disability insurance) as required by
                                         domestic law and therefore essentially defined as contribution plans. Additional payments
                                         for sick leave, severance termination benefits and others are at Group companies’
                                         discretion, unless otherwise provided for in a specific employment contract.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c. | Provision
                                         for severance benefits recognized in the financial statements on the date the decision
                                         was made concerning the dismissal, in countries where the Group has a legal or constructive
                                         obligation for their payment.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | d. | The
                                         amounts accrued in pension funds, officers’ insurance policies, other insurance
                                         policies and in provident funds are on behalf of the employees and the related liabilities
                                         are not reflected in the statement of financial position as the funds are not controlled
                                         and managed by the Company or its subsidiaries.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



All
of the Group’s post-employment benefit plans do not have a material effect on the financial statements.





F-74






GAZIT-GLOBE
                                         LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE
    25:- | TAXES
    ON INCOME
|------------- | -------------------



| | a. | Tax
                                         laws applicable to the Group in Israel
| | -- | -----------------------------------------------------------------------------------



| | 1. | Capital
                                         gains/losses
| | -- | -------------------------------------------------------------



The
capital gain tax rate applicable to Israeli resident companies is the corporate tax rate, see section 4 below.



| | 2. | Taxation
                                         of dividend income
| | -- | --------------------------------------------------------------------



Pursuant
to paragraph 126(b) to the Income Tax Ordinance (the "Ordinance"), income from distribution of profits or from dividends
originating from income accrued or derived in Israel which was received, directly or indirectly, from another entity subject to
the corporate tax in Israel is not included in the computation of the Company's taxable income.



Dividends
that the Company receives from a foreign entity are taxed in Israel at the rate of 25% and credit is given for the tax withheld
on the dividends overseas (direct credit). Excess direct credit may be carried forward to future years over a period of not more
than five years.



Nonetheless,
at the Company's request and subject to certain conditions, the Company may elect to implement an alternative under which the
corporate tax rate will be imposed (25% in 2016) on the gross income from which the dividend was distributed (the dividend distributed
plus the tax withheld and the corporate tax paid on the income in the foreign countries) and a credit will be given for the foreign
tax paid on the income from which the dividend was distributed in the foreign company (indirect credit) and the tax withheld in
the foreign country. It should be noted that indirect credit is eligible down to two tiers only and is subject to certain conditions.
Excess indirect credit cannot be carried forward to future years.



| | 3. | Capital
                                         gain/loss from sale of shares in subsidiaries
| | -- | ----------------------------------------------------------------------------------------------



A
real capital gain by the Company on the sale of its direct holdings in one or more of the Group's foreign companies is taxed in
Israel and credit is given for the foreign tax paid overseas on the capital gain from that sale, subject to the provisions of
the relevant treaty for avoidance of double taxation.



| | 4. | Tax
                                         rates applicable to the Group companies in Israel
| | -- | ----------------------------------------------------------------------------------------------



The
Israeli corporate tax rate was 26.5% for 2014 and 2015.



In
January, 2016, the Income Tax Ordinance (Amendment No. 216) (Corporate Tax Rate) Law, 2016 took effect, whereby the corporate
tax rate starting from January 1, 2016 will be reduce from 26.5% to 25%.



In
December 2016, the Economic Efficiency Law (Legislation Amendments for the Implementation of the Economic Policy for Budget Years
2017 and 2018), 2016 was approved. The law provides, inter alia, for the reduction of the corporate tax rate from 25% to 24%,
with effect from January 1, 2017 and to 23% commencing on January 1, 2018.



F-75






GAZIT-GLOBE
                                         LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE
    25:- | TAXES
    ON INCOME (Cont.)
|------------- | ---------------------------



| | b. | Taxation
                                         in the U.S.
| | -- | -------------------------------------------------------------



Since
January 1, 1995, due to the change in EQY's tax status in the U.S. to that of a REIT, EQY has not recorded tax expenses on income
in its financial statements effective from that date, other than tax expenses recorded with respect to subsidiaries of EQY that
do not have REIT status for tax purposes. The implication of this status is that income distributed to shareholders is exempted
from tax. In order to maintain its status as a REIT, EQY is obligated, inter alia, to distribute at least 90% of its taxable income
and apply the tax on the recipients.



To
the best of the Company's management's knowledge, EQY operates as a REIT as of the date of these financial statements. As stated
above, since EQY is required, among other things, to distribute its income to its shareholders in order to maintain its status
as a REIT, the Company records a deferred tax liability in respect of the temporary differences attributable to the investment
in EQY based on the Group's percentage interest in EQY (as of the reporting date - 34.3%). If EQY is not considered a REIT, it
will be subject to corporate tax at the normal rates in the U.S. and similarly, in this case, it may be that the recipient will
be subject to additional tax in the U.S. upon the distribution of dividends (inter alia, by way of withholding tax) at the rate
that is conditional on the place of residence for tax purposes, classification of the taxpayer as an individual or a company,
and the taxpayer's percentage shareholding in EQY.



The
remaining U.S. resident Group companies are subject to corporate tax at the normal rates in the U.S. (Federal tax at a rate of
up to 35% and State and City taxes). Upon distribution of dividends from the U.S. to the company, 12.5% reduced withholding tax
rate applies in accordance with the tax treaty between Israel and the U.S., provided that the company holds at least 10% of the
distributing company.



| | c. | Taxation
                                         in Canada
| | -- | -----------------------------------------------------------



The
taxable income of the Group companies is subject to the effective corporate tax (Federal and Provincial) which ranges between
25% and 31%. A Canadian resident company that realizes a capital gain is taxed in Canada only on half of the capital gain. Subject
to certain conditions, a Canadian resident company that receives dividends may not be taxable in Canada or the dividends may have
no effect on the taxable income of a Canadian resident company that receives the dividend. According to FAPI (Foreign Accrual
Property Income) rules, a Canadian resident company may be liable to tax in Canada on undistributed passive income of a foreign
company and receive a relief for foreign tax imposed on this income. Generally, distribution of dividends from a Canadian resident
company to a foreign resident is subject to withholding tax of 25%. Reduced tax rates may be valid based on the relevant tax treaty
(if applicable). According to the tax treaty between Israel and Canada, payments of dividends and interest are subject to a reduced
withholding tax rate of 15%. On January 1, 2017, a new treaty came into effect that reduces the aforesaid rates of withholding
of tax at source (hereafter - “the New Treaty”). Consequently, pursuant to the New Treaty, the rate of tax to be withheld
at source on dividend distribution was reduced to 5% for recipient companies with holdings in excess of 25%, and the rate of tax
to be withheld at source on interest was reduced to 10% (or 5% for interest payable to financial institutions).



| | d. | Taxation
                                         in Finland
| | -- | ------------------------------------------------------------



The
corporate tax rate in Finland in 2016 is 20%. The dividend withholding tax rate upon distribution from Finland to Israel is 5%
pursuant to the tax treaty between Israel and Finland (only if the share of holding is higher than 10%, otherwise the withholding
tax rate is 15%). Due to the change of legislation in Finland, starting from January 1, 2014 the withholding tax will apply also
on return of capital. The Company received a pre-ruling from the Tax Authority in Finland that entitles the Company to a refund
from the aforesaid Tax Authority for tax deducted in Finland that cannot be claimed in Israel.





F-76






GAZIT-GLOBE
LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE
    25:- | TAXES
    ON INCOME (Cont.)
|------------- | ---------------------------



| | e. | Taxation
                                         in Norway
| | -- | -----------------------------------------------------------



Operations
in Norway are carried out through a Norwegian company that is owned by CTY. The corporate tax rate in Norway in 2016 is 25% starting
2017 the corporate tax will reduce to 24%. Usually, under domestic law, the tax rate on a dividend distribution from Norway is
25%. A lower tax rate might be possible under various tax treaties. In the case of a dividend distribution to member states of
the EEA, the rate is 0% (except in specific instances).



| | f. | Taxation
                                         in Sweden
| | -- | -----------------------------------------------------------



The
operations in Sweden are carried out by Swedish resident companies that are held by CTY. Generally, the corporate tax rate in
Sweden is 22%. Tax rate for dividends distribution by a Swedish resident company under the domestic law is 30%. Reduced tax rate
may be possible under various tax treaties. In the case of a dividend distribution to member states of the EEA, the rate is 0%
(except in specific instances).



| | g. | Taxation
                                         in Netherlands
| | -- | ----------------------------------------------------------------



A
Dutch company is subject to a 25% corporate tax in the Netherlands (20% corporate tax applies on income up to the amount of EUR
200 thousands). Under certain conditions, income of the Dutch company from its holdings in Germany would be tax exempt in the
Netherlands. According to the tax treaty between Israel and Netherlands, distribution of dividends to an Israeli resident company
by a Dutch resident company will be subject to withholding tax of 5% in the Netherlands (only if the share of holding is higher
than 25%, otherwise the withholding tax rate is 15%).



| | h. | Taxation
                                         in Germany
| | -- | ------------------------------------------------------------



Generally,
the corporate tax rate (including the solidarity tax) in Germany is 15.825% (assuming that the company is not subject to trade
tax). Distribution of profits from a German resident partnership to the Dutch resident company partners is not liable to tax in
Germany according to domestic law except certain circumstances. Payment of interest to a foreign resident from Germany is exempt
from withholding tax in Germany according to the domestic law. Capital gains on disposition of holdings in Germany may be liable
to tax in Germany, however, 95% of the gain may be tax exempt in Germany if the conditions of the German participation exemption
apply.



| | i. | Taxation
                                         in Jersey Island
| | -- | ------------------------------------------------------------------



The
corporate tax rate on the Island of Jersey is 0% (except in relation to specific fields of activity which are subject to tax at
a rate of 10% or 20%). The tax rate on a dividend distribution from Jersey to Israel is usually 0% and capital gains are not taxed
in Jersey.



Operations
in Jersey are carried out through Jersey companies that are owned by ATR. The corporate tax rate in ATR’s principal regions
of operation is 19% in Poland and the Czech Republic and 22% in Slovakia, while in Russia (federal and regional) the effective
corporate tax rate ranges from 15.5% to 20%.



F-77






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NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





|NOTE
    25:- | TAXES
    ON INCOME (Cont.)
|------------- | ---------------------------



| | j. | Taxation
                                         in Poland
| | -- | -----------------------------------------------------------



The
corporate tax rate in Poland is 19% and, under domestic law, the tax rate on a dividend distribution from Poland is also 19%.
A lower tax rate might be possible under various tax treaties. Operations in Poland are carried out through Polish companies owned
by ATR. During 2015, the Group finalized the implementation of a new holding structure of several of the Polish properties under
as a Polish investment fund. Under the new structure, profits from these properties will be taxed at the fund level. The Polish
investment fund is exempt from corporate tax in Poland, including on capital gains. A distribution of earnings from the fund is
not subject to tax withholdings.



| | k. | Taxation
                                         in Brazil
| | -- | -----------------------------------------------------------



The
effective tax rate on companies in Brazil (having a turnover in excess of BRL 240 thousand) is 34%. The tax rate on a dividend
distribution from a Brazil-resident company, under domestic law, is 0%, except in specific instances. Operations in Brazil are
carried out through the real estate funds are exempt from tax on their income, if certain conditions are fulfilled. A distribution
of earnings from the funds to foreigners and locals is subject to tax withholdings at the rate of 15% and 20%, respectively.



| | l. | Finalized
                                         tax assessments
| | -- | ------------------------------------------------------------------



The
Company has finalized its tax assessments through 2014 and its wholly owned subsidiaries in Israel (except Gazit Development)
have finalized their tax assessments through 2012.



| | m. | Subsidiaries
                                         disputed tax assessments
| | -- | ------------------------------------------------------------------------------



In
June 2012, two indirectly-owned Israeli subsidiaries were issued with tax orders according section 152 (b) to the Ordinance in
relation to the tax years 2007-2010 and 2008-2010, respectively, since their claim to be House Property Companies as defined in
Section 64 of the Ordinance was not accepted. Accordingly, the tax orders did not allow the gain that arose from the sale of a
real estate asset by one of the companies in question to be offset against accumulated losses in the subsidiary. Should the position
of the ITA prevail in full, a nominal tax liability will be created in the indirectly-owned subsidiaries for the subsidiary of
approximately NIS 49.1 million. The indirect subsidiaries have lodged appeals against these assessments with the District Court.
In the opinion of the subsidiaries and its professional advisors, the position of the ITA, as reflected in the aforesaid demands,
should not be accepted. On June 26, 2014, the aforementioned subsidiaries were issued with assessments under Section 145(A)(2)(b)
of the Ordinance in relation to the 2011 and 2012 tax years regarding the same argument. The nominal tax according to the assessments
amounts to a total of NIS 4.9 million. Those subsidiaries have filed an objection to these assessments, claiming that they are
House Property Companies, but the object was rejected. On June 28, 2015, tax orders were issued in relation to the 2011-2012 tax
years; no appeal has yet been lodged against these orders. On July 19, 2015, the indirectly-owned subsidiaries were issued with
a best judgment assessments in relation to the 2013 tax year. The nominal tax being demanded by the aforesaid assessments is NIS
5.6 million. The companies have filed an objection against these assessments claiming that they are House Property Companies.



During
December 2015, an indirectly-owned subsidiary was issued with a best judgment assessment in regard to various issues, including
in relation to the allow ability of finance expenses and additional issues, this being in relation to the 2011 tax year. The nominal
tax being demanded by this assessment is NIS 4.8 million. The indirectly-owned subsidiary has lodged an objection against this
assessment. On February 22, 2017 a final tax assessment for the years 2011-2014 was signed regulating all the disputes expects
the claim regarding House Property Companies.



In
the opinion of the Company's management and its advisors, the provision in the financial statements covers the exposure pertaining
to the disputed tax assessments.



As
published by ATR in its financial statements as of December 31, 2016, several subsidiaries of ATR in Russia have tax assessments
that are in dispute with respect to the disallowing of certain deductions in the subsidiaries. These assessments create uncertainty
as to the policy of the tax authorities and the interpretation of allowed deductions in Russia. Such interpretation could entail
significant implications for ATR, which at this stage cannot be quantified.





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NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE
    25:- | TAXES
    ON INCOME (Cont.)
|------------- | ---------------------------



| | n. | Disputed
                                         VAT assessments
| | -- | -----------------------------------------------------------------



On
July 19, 2015, the Company entered into a compromise settlement with the VAT Authorities, in which the rate at which the inputs
would be allowable was agreed and which resolved all the disputes for past years in connection with the aforesaid deduction of
inputs in relation to the period from June 2005 through May 2015.



| | o. | Carry-forward
                                         losses for tax purposes as of December 31, 2016
| | -- | ------------------------------------------------------------------------------------------------------



The
Company and its wholly-owned Israeli resident subsidiaries have carry-forward losses for tax purposes. With respect to the tax
benefit associated with such losses, the Group has recognized deferred tax assets amounting to NIS 175 million as of the reporting
date (2015 - NIS 121 million), which have been offset against the deferred tax liability of the Company.



The
Company's Canadian resident subsidiaries have carry-forward losses for tax purposes amounting to NIS 417 million, of which
a recognized deferred tax asset represents approximately NIS 90 million (2015 - NIS 107 million) primarily offsetting
the deferred tax liability. The carry-forward losses may be utilized over a 20-year period, which expires between 2027-2035.



The
Company's wholly-owned U.S. resident subsidiary has carry-forward non deductible interest amounting to NIS 293 million that
can be offset under certain restrictions against future tax gains, of which deferred tax assets were recognized in the amount
of NIS 113 million (2015 - NIS 110 million), offsetting the deferred tax liability. The non-deductible interest may
be utilized with no time limit.



The
Company's partially-owned Finnish resident subsidiary and its subsidiaries have carry-forward losses for tax purposes amounting
to NIS 645 million (2015 - NIS 637 million), for which deferred tax assets have been recognized at an amount of NIS
119 million.



The
Company’s partially-owned Jersey Island resident subsidiary and its subsidiaries have carry-forward losses for tax purposes
amounting to NIS 1.9 billion (2015-NIS 1.9 billion), for which deferred tax assets have been recognized at an amount of NIS 27
million.



F-79








GAZIT-GLOBE
                                         LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





|NOTE
    25:- | TAXES
    ON INCOME (Cont.)
|------------- | ---------------------------



| | p. | Deferred
                                         taxes, net:
| | -- | -------------------------------------------------------------



The
composition and movement in deferred taxes are as follows:





| |                                                             |  | Investment          |        |   |         |  |     |        |  |  |       |  
| | ----------------------------------------------------------- |  | ------------------- | ------ | - | ------- |  | --- | ------ |  |  | ----- | -
| |                                                             |  | properties          |        |   |         |  |     |        |  |  |       |  
| |                                                             |  | and                 |        |   |         |  |     |        |  |  |       |  
| |                                                             |  | depreciable         |        |   | Carry-  |  |     |        |  |  |       |  
| |                                                             |  | fixed               |        |   | forward |  |     |        |  |  |       |  
| |                                                             |  | assets              |        |   | losses  |  |     | Others |  |  | Total |  
| |                                                             |  | NIS in
    millions |       
| | Balance as of January 1, 2014                               |  |                     | (3,414 | ) |         |  | 215 |        |  |  | 29    |  
| | Amounts
    carried to foreign currency translation reserve |  |                     | (166   | ) |         |  | 14  |        |  |  | -     |  
| | Amounts carried to other comprehensive
    loss             |  |                     | -      |   |         |  | -   |        |  |  | (31   | )
| | Amounts carried to other capital reserves                   |  |                     | 39     |   |         |  | 3   |        |  |  | -     |  
| | Amounts carried
    to income statement                     |  |                     | (299   | ) |         |  | 54  |        |  |  | 16    |  
| | Balance as of December 31,
    2014                         |  |                     | (3,840 | ) |         |  | 286 |        |  |  | 14    |  
| | Initially consolidated subsidiaries                         |  |                     | (1,866 | ) |         |  | 165 |        |  |  | 117   |  
| | Amounts
    carried to foreign currency translation reserve |  |                     | 448    |   |         |  | (24 | )      |  |  | 20    |  
| | Amounts carried to other comprehensive
    income           |  |                     | -      |   |         |  | -   |        |  |  | 11    |  
| | Amounts carried to other capital reserves                   |  |                     | 128    |   |         |  | (3  | )      |  |  | -     |  
| | Amounts carried to income statement                         |  |                     | 193    |   |         |  | (35 | )      |  |  | (215  | )
| | Reclassification
    due to assets held for sale            |  |                     | 45     |   |         |  | -   |        |  |  | -     |  
| | Balance as of December 31,
    2015                         |  |                     | (4,892 | ) |         |  | 389 |        |  |  | (53   | )
| | Discontinued operation                                      |  |                     | -      |   |         |  | (39 | )      |  |  | 6     |  
| | Amounts
    carried to foreign currency translation reserve |  |                     | 55     |   |         |  | (3  | )      |  |  | (1    | )
| | Amounts carried to other comprehensive
    income           |  |                     | -      |   |         |  | -   |        |  |  | (2    | )
| | Amounts carried to other capital reserves                   |  |                     | 65     |   |         |  | (1  | )      |  |  | -     |  
| | Amounts carried to income statement
    *)                  |  |                     | (580   | ) |         |  | 178 |        |  |  | (125  | )
| | Reclassification
    due to assets held for sale            |  |                     | 1,209  |   |         |  | -   |        |  |  | -     |  
| | Balance
    as of December 31, 2016                         |  |                     | (4,143 | ) |         |  | 524 |        |  |  | (175  | )



*)
An expense in the amount of NIS 149 million was recognized in discontinued operation.



The
deferred taxes are calculated at tax rates ranging between 13.2% and 37.4% (the tax rates applicable include federal and state
tax).



The
utilization of deferred tax assets is dependent on the existence of sufficient taxable income at the losses amount in the following
years.



Deferred
taxes are presented as follows







| |                                    |  | December
    31     |       
| | ---------------------------------- |  | ------------------- | ------
| |                                    |  | 2016                |       
| |                                    |  | NIS
    in millions |       
| | Within
    non-current assets      |  |                     | 15    
| | Within
    non-current liabilities |  |                     | (3,809
| |                                    |  |                     | (3,794





F-80






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NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE
    25:- | TAXES
    ON INCOME (Cont.)
|------------- | ---------------------------



| | q. | Taxes
                                         on income (tax benefit) included in the income statements
| | -- | --------------------------------------------------------------------------------------------------------







| |                                      |  | Year
    ended December 31 |    
| | ------------------------------------ |  | -------------------------- | ---
| |                                      |  | 2016                       |    
| |                                      |  | NIS
    in millions        |    
| | Current taxes **)                    |  |                            | 36 
| | Taxes in respect of prior years ***) |  |                            | 20 
| | Deferred taxes
    ****)             |  |                            | 378
| |                                      |  |                            | 434



| | *‎) | Reclassified,
                                         refer to Note 2ff.
| | --- | -------------------------------------------------------------------------

| | **) | Current
                                         income taxes include capital gain tax, withholding tax from interest and dividends paid
                                         by foreign subsidiaries to the Company, current tax expenses of subsidiaries of the Group
                                         companies operation, as well as current tax income recorded against current tax recognized
                                         in other comprehensive income, see Note 27e.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ***) | In
                                         2015 includes deferred taxes in respect of prior years in amount of NIS 75 million.
| | ---- | -------------------------------------------------------------------------------------------------------------------------------

| | ****) | As
                                         a result of the reduced tax rate, subsidiaries of the Company recognized tax income of
                                         NIS 47 million.
| | ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | r. | Taxes
                                         on income relates to other comprehensive income and to other equity items
| | -- | ------------------------------------------------------------------------------------------------------------------------



With
respect to income tax relates to other comprehensive income and other equity line items, see Notes 25p and 27e.



| | s. | Below
                                         is the reconciliation between the statutory tax rate and the effective tax rate:
| | -- | -------------------------------------------------------------------------------------------------------------------------------







| |                                                                                                                                            |  | Year
    ended December 31 |      
| | ------------------------------------------------------------------------------------------------------------------------------------------ |  | -------------------------- | -----
| |                                                                                                                                            |  | 2016                       |      
| |                                                                                                                                            |  | NIS
    in millions        |      
| | Income before taxes
    on income                                                                                                          |  |                            | 2,205
| | Statutory tax rate                                                                                                                         |  |                            | 25.0 
| | Tax calculated using statutory tax rate                                                                                                    |  |                            | 551  
| | Increase (decrease) in taxes resulting
    from permanent differences - the tax effect:                                                    |  |                            |      
| | Tax exempt income, income subject to
    special tax rates and nondeductible expenses *)                                                   |  |                            | (194 
| | Change in taxes resulting from carry-forward
    tax losses and other temporary differences for which no deferred taxes were provided, net |  |                            | 169  
| | Tax effect in respect of new holding
    structure in Poland (Note 25j above)                                                              |  |                            | -    
| | Taxes with respect to prior years                                                                                                          |  |                            | 20   
| | Deferred taxes due to changes in tax
    rates                                                                                             |  |                            | (47  
| | Taxes with respect to Company's share
    in earnings of equity- accounted investees, net                                                  |  |                            | (35  
| | Difference in
    tax rate applicable to income of foreign companies and other differences                                                 |  |                            | (30  
| | Taxes on income                                                                                                                            |  |                            | 434  
| | Effective tax rate                                                                                                                         |  |                            | 19.7 



| | *‎) | Primarily
                                         with respect to income which is not taxable income, and for tax rates of 0%-13.2% expected
                                         to apply upon disposal of some of the Group's properties, primarily in Canada.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





F-81








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NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE
    26:- | CONTINGENT
    LIABILITIES AND COMMITMENTS
|------------- | ------------------------------------------



| | a. | Engagements
| | -- | -----------



| | 1. | Shareholders'
                                         agreement in connection with FCR
| | -- | ---------------------------------------------------------------------------------------



In
January 2011, the Company and Alony-Hetz entered into a shareholders' agreement that replaced the shareholders' agreement from
October 2000. The agreement includes provisions, among others, as to appointment of directors on FCR's Board and the composition
of the Board of Directors and regarding restrictions on transfer of FCR’s shares.



In
April 3 2016, the Company and Alony-Het’z terminated the shareholders’ agreement.



| | 2. | ATRs'
                                         agreement
| | -- | --------------------------------------------------------



Further
to what discussed in Note 9c, in 2008 the Company and CPI (the “Investors”) with ATR that govern their rights in ATR
and which include, inter alia, the right to appoint four members of ATR’s Board of Directors on behalf of the Investors,
the right to determine the identity of the Chairman of ATR’s Board of Directors, the right to appoint the majority of the
members of the Nominations Committee of ATR’s Board of Directors, and granted the Investors rights of consent in connection
with the taking of very material decisions at ATR, including the appointment of ATR’s CEO. Subject to the purchase of all
of ATR's shares from CPI by the Company in January, 2015 (refer to Note 9c2) the agreement with ATR was amended such that the
aforementioned Investors rights remained exclusively of the Company.



| | 3. | Shareholder’s
                                         agreement in connection with CTY
| | -- | ---------------------------------------------------------------------------------------



In
2014, the Company has entered into an agreement with CPP Investment Board European Holdings s.ar.l (“CPPIBEH”), accordingly
the Company undertook to support the appointment of up to two directors for the board of directors of CTY that will be recommended
by CPPIBEH and CPPIBEH undertook to support the appointment of up to three directors for the board of directors of CTY that will
be recommended by the Company. In addition, the Company shall grant CPPIBEH a tag-along right for a sale of CTY shares to the
extent higher than 5% of CTY’s shares during 12 months period under certain conditions. The agreement will terminate at
the sooner of: (1) 10 years from the signature date, (2) if CPPIBEH will hold less than 10% of CTY’s shares, or (3) the
Company will hold less than 20% of CTY’s shares.



| | 4. | Governance
                                         agreement with REG
| | -- | ----------------------------------------------------------------------



Alongside
EQY's engagement in the merger agreement with REG, the Company (including through its wholly owned subsidiaries) entered into
a governance agreement, as described below.

Pursuant
to the governance agreement, the number of directors in REG will be increased by three, from nine to twelve: two independent directors
on behalf of EQY (the reappointment of whom at the following general meeting of REG is not certain or assured) and one director
on behalf of the Company, as described below. The first director to be appointed on behalf of the Company is Chairman of the Company's
Board of Directors and Chairman of the EQY's Board of Directors, Mr. Chaim Katzman. For the duration of his service as director
on behalf of the Company, Mr. Katzman will be appointed as Non-Executive Vice Chairman of and member of the Investments Committee
of REG (that comprises seven directors). REG has undertaken to pursue the appointment of a director on behalf of the Company as
long as the Company holds at least 7% of the share capital in REG as recorded on the date of the merger transaction, provided
that the identity of a director that the Company may request to appoint in place of Mr. Katzman is reasonably approved by the
Board of Directors of REG.



The
governance agreement also provides for a standstill period, during which the Company may not carry out the main following actions:
(1) acquisition of shares in REG resulting in the holding by the Company of more than 18% of the share capital in REG; (2) engagement
in a voting agreement relating to the shares, a merger agreement or a change of control in REG, unless such transaction has been
approved by the Board of Directors of REG; (3) convening a meeting of the equity holders in REG; (4) appointing additional representatives
on its behalf to the Board of





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|NOTE
    26:- | CONTINGENT
    LIABILITIES AND COMMITMENTS (Cont.)
|------------- | --------------------------------------------------



Directors
of REG; and (5) altering or influencing the management, Board of Directors, organizational structure and policy of REG (including
the dividend distribution policy). Additionally, for the duration of the standstill period, the Company undertakes to vote at
the general meetings of REG in favor of the appointment of all directors nominated by the Board of Directors of REG and against
any proposal to dismiss a director or to change the size of the Board of Directors. The standstill period will commence on the
date of completion of the merger transaction and end on the later of: (1) two years from the date of completion of the merger
transaction; (2) six months from the date on which the Company's holding in REG falls below 7% of the share capital as recorded
upon completion of the transaction; (3) six months from the date on which the Board of Directors of REG no longer includes a director
appointed on behalf of the Company.



The
Company was also granted certain information privileges, primarily as required for its reports and for registration rights in
relation to its holding in REG shares.



| | 5. | Until
                                         October 2016 the Group was a party to a lease agreement for an aircraft for business
                                         use by the Group's executives which ended following the acquisition of the aircraft by
                                         the Company. The lease was classified as an operating lease according to IAS 17. The
                                         annual lease payment was approximately U.S. $ 2.5 million. In addition, the Group
                                         entered into an agreement with a third party which will provide operating services and
                                         maintenance for the aircraft in consideration for fixed annual service fees of approximately
                                         one million U.S. dollar plus variable expenses based on the extent of use of the
                                         aircraft.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In
2016, following its approval by the Audit Committee, the Company’s Board of Directors approved a procedure dealing with
the mixed use of the Company aircraft, pursuant to which passengers who are not involved in the Group’s business, including
relatives of the Company’s controlling shareholder, are permitted to travel on flights made for the Company’s business
purposes. The procedure also prescribes a mechanism for paying the Company for such usage.



| | 6. | The
                                         Group's companies have entered into operating lease agreements with tenants occupying
                                         their properties. The following details the minimum lease fee receivable in respect to
                                         the lease agreements:
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





| |                       |  | December 31         |       
| | --------------------- |  | ------------------- | ------
| |                       |  | 2016                |       
| |                       |  | NIS
    in millions |       
| | Year 1                |  |                     | 2,312 
| | Year 2 to 5           |  |                     | 6,416 
| | Year 6 and thereafter |  |                     | 2,953 
| | Total                 |  |                     | 11,681



| | 7. | As
                                         for engagements with related parties, refer to Note 37.
| | -- | ---------------------------------------------------------------------------------------------------



| | b. | Guarantees
| | -- | ----------



| | 1. | As
                                         of December 31, 2016, the Company's subsidiaries are guarantors for loans from various
                                         entities in respect of investment properties under development, which they own together
                                         with partners and for bank guarantees, which were provided in the ordinary course of
                                         business, in the aggregate amount of approximately NIS 1,056 million (December 31,
                                         2015 - approximately NIS 877 million).
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





F-83






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NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





|NOTE
    26:- | CONTINGENT
    LIABILITIES AND COMMITMENTS (Cont.)
|------------- | --------------------------------------------------



| | 2. | The
                                         Company guarantees an unlimited amount to banks to secure credit received by wholly-owned
                                         subsidiaries of the Company. Total guarantees as of December 31, 2016 and 2015 (principal)
                                         amounted to NIS 1,417 million and NIS 1,664 million, respectively. Total utilized credit
                                         facilities as of December 31, 2016 and 2015 amounted to NIS 865 million and NIS 1,171
                                         million, respectively. Wholly-owned subsidiaries of the Company guarantee loans and credit
                                         facilities obtained by the Company from banks and others, in an unlimited amount. In
                                         addition the company had pledged subsidiary's shares to secure credit facilities of wholly-owned
                                         subsidiaries.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3. | As
                                         for collaterals granted to secure guarantees, refer to Note 29.
| | -- | -----------------------------------------------------------------------------------------------------------



| | c. | Contingent
                                         liabilities for the completion of the construction and redevelopment of properties and
                                         others
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 1. | The
                                         Company's subsidiaries have off-balance sheet commitments for the completion of the construction
                                         and redevelopment of investment properties which, as of December 31, 2016, totaled approximately
                                         NIS 1,388 million (December 31, 2015 - NIS 2,349 million).
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2. | As
                                         of the reporting date, CTY has a contingent liability to refund input VAT received of
                                         approximately NIS 534 million (December 31, 2015 - NIS 469 million), should
                                         the property, subject to the input VAT, be sold to a VAT-exempt entity within 10 years,
                                         or within five years for properties acquired in Finland prior to 2008.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | d. | Legal
                                         claims
| | -- | -----------------------------------------------------



| | 1. | Several
                                         legal proceedings are pending against the Company's subsidiaries in the ordinary course
                                         of their business including in respect of personal injury and property damage that occurred
                                         in their shopping centers and in other properties. The Company estimates that the claimed
                                         amounts are immaterial (on a stand-alone basis or on a cumulative basis) to the Company's
                                         results.                                          
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | 2. | ATR
                                         is involved in several proceedings and regulatory investigations in Austria, this in
                                         connection with transactions in securities and related matters during the years 2006-2007.
                                         It should be noted that, in 2012, at the conclusion of an investigation, the authorities
                                         in Jersey found no violation of the Austrian Companies Law and no findings, and consequently
                                         determined that no tort arose from the aforesaid events.



In
addition, ATR is involved in several proceedings that have been filed by a number of investors that had invested in the aforesaid
securities in the relevant years, alleging losses due to the volatility of the securities and other related contentions. As of
March 21, 2017, a total of 1,377 proceedings are pending against Atrium, in an aggregate volume of EUR 68 million.



In
January 2016, ATR announced that a declaratory ruling was issued in a claim that had been filed in the Netherlands by a Dutch
fund for causes similar to those of the circumstances in Austria, as mentioned above, including an arrangement for the establishment
of a compensation fund in connection with the proceedings in Austria and the joining of the criminal proceedings (as described
below) by individuals. This arrangement was extended from time to time and finally expired in October 2016. The total amount approved
for payment under the arrangement in relation to the proceedings that had been issued by 1,325 individuals was EUR 8.6 million
(ATR’s share - 50%). Additionally, 325 proceedings for which the total amounts payable aggregate EUR 2.8 million (ATR’s
share in said amount is 50%) are in various stages of arrangement.



For
the purpose of resolving all of the proceedings relating to the aforementioned circumstances, ATR continued to consider additional
potential alternative solutions.





F-84






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NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE
    26:- | CONTINGENT
    LIABILITIES AND COMMITMENTS (Cont.)
|------------- | --------------------------------------------------



In
March 2017, the Board of Directors  approved the entering by ATR into an agreement with two entities, pursuant to which investors
that are customers of said entities and that have filed petitions for the initiation of criminal proceedings (as described above)
relating to the aforesaid securities may reach an arrangement in connection with their claims. To the extent that all of the aforesaid
investors opt to participate in the arrangement, ATR would pay an aggregate amount of EUR 44 million under this arrangement. The
rate of participation of such investors in the arrangement and the actual amounts payable will be determined at a later date.
In the event that some investors choose to continue with the criminal proceedings, ATR will continue to defend itself against
such proceedings and will reject all claims raised against it. The total provision in the financial statements of ATR in respect
of amounts that it has undertaken to pay as above is EUR 53.5 million.



Additionally,
to date, the criminal proceedings against Julius Meinl‏ and others in connection with events that took place in 2007 and earlier
are still in progress. In connection with this, a law firm representing various investors in ATR, who had invested at the time
of these events, has alleged that ATR is liable for various instances of fraud, breach of trust and infringements of the Austrian
Stock Corporation Act and Austrian Capital Market Act arising from the same events. The public prosecutor has directed ATR to
reply to the allegations and has started criminal investigation proceedings against ATR based on the Austrian Corporate Criminal
Liability Act. It is uncertain whether this legislation, which came into effect in 2006, applies to ATR. In any event, ATR believes
that it should not be held accountable for the aforesaid events and therefore intends to actively defend itself against these
proceedings.



| | 3. | In
                                         July and August 2014, a number of lawsuits were filed with the Economic Affairs Division
                                         of the Tel Aviv District Court to certify lawsuits as class actions, against U.Dori Construction
                                         Ltd. (“Dori Construction”), U.Dori Ltd. (“Dori Group”), their
                                         directors and officers and their auditors, as well as against Gazit Development and the
                                         Company. The motions deal with damage allegedly caused to the public that have invested
                                         in Dori Construction and/or Dori Group, as the case may be, as a result of the publication
                                         of allegedly erroneous information in the reporting of Dori Construction, including in
                                         its financial statements, and as a result of failing to report, at the appointed time,
                                         material adverse information concerning the financial results and the financial position
                                         of Dori Construction, and consequently, concerning the financial results of Dori Group
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The
grounds for the claims in the aforementioned motions include grounds under the Securities Law, 1968, among which are the inclusion
of erroneous details in the financial statements and deficient and erroneous reporting, a tort of negligence under the Torts Laws,
breach of statutory duty (in relation to the Securities Law and the Regulations promulgated thereunder, as well as the Companies
Law), all being with regard to the reporting of Dori Construction. The amounts of the aforesaid claims range from NIS 13 million
to NIS 75 million (subject to quantifying the exact damage in the course of the hearings on the lawsuits), which are not material
for the Company (including cumulatively).



The
aforesaid motions have been unified into a single proceeding (apart from three motions that have been dismissed). The Company
and the other respondents have submitted their responses to the amended motion, subsequent to which the petitioners filed their
replies and also added and lodged a motion for disclosure of documents in which the disclosure was sought of documents not belonging
to the Company or Gazit Development. In December 2015, a preliminary hearing was held on the amended motion, within the framework
of which the parties agreed to transfer the proceeding to mediation. The parties further agreed that, at this stage, the hearing
on the motion for disclosure of documents would be deferred. In August 2016, the petitioners notified the Court of the failure
of the mediation proceeding. Within this framework, the petitioners requested to resume the hearing of the motion for the disclosure
of documents and to provide for further deliberation in the proceeding. On February 12, 2017, a hearing was held of the motion
for the disclosure of documents, in which the Court ordered the parties to reach understandings with respect to the requested
documents and determined that the petitioners are to provide an update as to pending matters by within seven days from the day
Dori Construction will transfer certain requested documents.



At
this preliminary stage of the proceeding, the chances of the lawsuit cannot be assessed. Moreover, two derivative actions were
filed in 2014 against Dori Construction and Dori Group and their directors and officers in connection with a dividend distribution
made by Dori Construction to its shareholders.



With
regard to the two motions to certify derivative actions, the court has decided that a ruling with regard to the procedural rules
in these motions will be granted by it at a later date, following the filing of the unified motion to certify the lawsuit as a
class action.





F-85






GAZIT-GLOBE
LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE
    26:- | CONTINGENT
    LIABILITIES AND COMMITMENTS (Cont.)
|------------- | --------------------------------------------------



| | 4. | In
                                         January 2016, the Company’s shareholders filed a motion against the Company and
                                         against Gazit Development with the Economic Affairs Department of the Tel Aviv District
                                         Court for the disclosure and inspection of documents, as a preliminary proceeding prior
                                         to filing a derivative motion against their officers in connection to their investments
                                         in Dori Group. The petitioner is claiming that the circumstances described in the motion
                                         give rise to a “suspicion”, as it were, of “negligent” and even
                                         “reckless” conduct by the officers of the Company and of Gazit Development
                                         with regard to the investment in Dori Group. In August 2016, the Court rejected the aforesaid
                                         motion. The petitioner appealed the ruling of the District Court with the Supreme Court,
                                         which has also rejected the motion.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 5. | Gazit
                                         Germany is involved in a litigation with the landlord of a property under leasehold in
                                         Germany with fair value as of the reporting date of EUR 55 million (the "Property").
                                         In August 2015, the landlord of the property demanded to exercise a contractual reversion
                                         right which would allow him to acquire the Property at 2/3 of the average of two external
                                         appraisals conducted by the parties. Gazit Germany has filed to have the reversion right
                                         dismissed by a court and the landlord has counter-filed to have a court enforce the reversion
                                         right. At this early stage it is not possible to assess the chances of the aforementioned
                                         litigation to succeed.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





F-86






GAZIT-GLOBE
LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE
    27:- | EQUITY
|------------- | ------



| | a. | Composition
| | -- | -----------





| |                                             |  | December
    31, 2016 |             |  |    | December
    31, 2015      |  |             |  | January
    1, 2015 | 
| | ------------------------------------------- |  | --------------------- | ----------- |  | -- | -------------------------- |  | ----------- |  | ------------------- | 
| |                                             |  | Authorized            |             |  |    | Issued
    and outstanding |  |             |  | Authorized          | 
| |                                             |  | Number
    of shares  |            
| | Ordinary shares
    of NIS 1 par value each |  |                       | 500,000,000 |  | (* |                            |  | 196,563,321 |  | (*                  | 



| | b. | Movement
                                         in issued and outstanding share capital
| | -- | -----------------------------------------------------------------------------------------





| |                                                    |  | 2016                 |             |  | 2015 |  |             | 2014 | 
| | -------------------------------------------------- |  | -------------------- | ----------- |  | ---- |  | ----------- | ---- | 
| |                                                    |  | Number
    of Shares |            
| | Balance as of January 1 *)                         |  |                      | 196,509,883 |  |      |  | 179,444,463 |      | 
| | Exercise of share options (employees and officers) |  |                      | -           |  |      |  | 3,441       |      | 
| | Vesting of RSUs  (employees
    and officers)      |  |                      | 53,438      |  |      |  | 43,709      |      | 
| | Issue of shares                                    |  |                      | -           |  |      |  | 17,018,270  |      | 
| | Balance as of December 31 *)                       |  |                      | 196,563,321 |  |      |  | 196,509,883 |      | 



| | *) | of
                                         which NIS 1,046,993 par value shares are held in treasury by the Company.
| | -- | ---------------------------------------------------------------------------------------------------------------------



| | c. | On
                                         December 30, 2015, the Company issued to the public through a shelf prospectus, approximately
                                         17 million ordinary shares, at a price of NIS 35.5 per share, for a total gross consideration
                                         of NIS 604 million (approximately NIS 586 million, net of issuance expenses).
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | d. | Composition
                                         of other capital reserves:
| | -- | -------------------------------------------------------------------------------





| |                                             |  | Year
    ended December 31 |    
| | ------------------------------------------- |  | -------------------------- | ---
| |                                             |  | 2016                       |    
| |                                             |  | NIS
    in millions        |    
| | Available-for-sale financial assets         |  |                            | 67 
| | Transactions with controlling shareholder   |  |                            | 147
| | Transactions with non-controlling interests |  |                            | 283
| | Share-based payment                         |  |                            | 15 
| | Revaluation reserve
    of cash flow hedges |  |                            | (16
| |                                             |  |                            | 496



F-87






GAZIT-GLOBE
                                         LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE
    27:- | EQUITY
    (Cont.)
|------------- | ------------------



| | e. | Supplementary
                                         information with regard to other comprehensive income (loss)
| | -- | -------------------------------------------------------------------------------------------------------------------







| |                                                                                                     |  | Year
    ended December 31 |     
| | --------------------------------------------------------------------------------------------------- |  | -------------------------- | ----
| |                                                                                                     |  | 2016                       |     
| |                                                                                                     |  | NIS
    in millions        |     
| | Exchange differences on translation
    of foreign operations from continuing operations            |  |                            | (582
| | Exchange differences on translation
    of foreign operations from discontinued operations          |  |                            | (39 
| | Tax effect (Current tax)                                                                            |  |                            | -   
| | Company's share in other comprehensive
    income (loss) of equity-accounted investees              |  |                            | -   
| | Realization of capital reserves on sale
    of previously consolidated subsidiary                   |  |                            | 51  
| | Exercise of translation
    reserve of company previously accounted for using the equity method     |  |                            | -   
| |                                                                                                     |  |                            | (570
| | Gain (loss) with respect to cash flow
    hedges  from continuing operations                        |  |                            | 68  
| | Gain (loss) with respect to cash flow
    hedges from discontinued operations                       |  |                            | -   
| | Transfer to income statement with respect
    to cash flow hedges                                   |  |                            | (15 
| | Tax effect                                                                                          |  |                            | (11 
| | Company's share in other comprehensive
    income (loss) of equity-accounted investees              |  |                            | 1   
| | Exercise of cash
    flow hedge reserve of company previously accounted for using the equity method |  |                            | -   
| |                                                                                                     |  |                            | 43  
| | Gain (loss) with respect to available-for-sale
    financial assets                                 |  |                            | 207 
| | Transfer to income statement with respect
    to available-for-sale financial assets                |  |                            | (130
| | Tax effect                                                                                          |  |                            | 3   
| |                                                                                                     |  |                            | 80  
| | Total other comprehensive
    income (loss)                                                         |  |                            | (447



| | *) | Reclassified,
                                         refer to Note 2ff.
| | -- | -------------------------------------------------------------------------

| | **) | Represent
                                         an amount of less than NIS 1 million.
| | --- | ----------------------------------------------------------------------------------------



| | f. | Composition
                                         of non-controlling interests
| | -- | ---------------------------------------------------------------------------------



| |                                                                                          |  | Year
    ended December 31 |       
| | ---------------------------------------------------------------------------------------- |  | -------------------------- | ------
| |                                                                                          |  | 2016                       |       
| |                                                                                          |  | NIS
    in millions        |       
| | Share in equity of subsidiaries *)                                                       |  |                            | 25,482
| | Share options, warrants and capital
    reserve from share-based payment in subsidiaries |  |                            | 116   
| | Conversion option
    proceeds in subsidiaries                                           |  |                            | 12    
| |                                                                                          |  |                            | 25,610



| | *) | Including
                                         capital reserves and acquisition-adjustments.
| | -- | ------------------------------------------------------------------------------------------------



F-88






GAZIT-GLOBE
                                         LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE
    27:- | EQUITY
    (Cont.)
|------------- | ------------------



| | g. | Dividends
| | -- | ---------



| | 1. | Pursuant
                                         to the Company's policy, the Company announces every year the anticipated annual dividend.
                                         In March 2017, the Company announced that the quarterly dividend for 2017 would be NIS 0.35
                                         per share (total amount of dividend to be declared in 2017 would be NIS 1.40 per share).
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The
above is subject to the existence of sufficient distributable income at the relevant dates and is subject to the provisions of
any law relating to dividend distributions and to decisions that the Company is permitted to take. This includes the appropriation
of its income for other purposes and revision of this policy.





| | 2. | During 2016, the Company declared and paid dividends in the total amount of approximately NIS 295 million (NIS 1.51 per share) (2015 - NIS 328 million (NIS 1.84 per share), 2014 - NIS 318 million (NIS 1.80 per share)).
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3. | On
                                         March 26, 2017, the Company declared a dividend in the amount of NIS 0.35 per share (a
                                         total of approximately NIS 68.4 million), payable on April 24, 2017 to the shareholders
                                         of the Company on April 12, 2017.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | h. | Capital
                                         management of the Company
| | -- | --------------------------------------------------------------------------



The
Company evaluates and analyzes its capital in terms of economic capital, that is, the excess of fair value of its assets over
its liabilities. The Company manages its capital in the operating currencies of its investees in which it operates and at similar
levels to the ratio of assets in a particular currency to total assets according to proportionate consolidation.



The
Company manages its capital in order to ensure broad economic flexibility for investing in its areas of operations as well as
in synergistic areas, while maintaining strong credit rating, high level of liquidity and seeking to maintain most of its assets
as unencumbered.



The
Company's Board of directors determined the optimal capital ratios that will provide adequate return for the shareholders at a
risk which it defines as low. From time to time the Company's Board authorized a deviation from the capital ratio that the Board
deems appropriate when the Company's management makes significant investments, while simultaneously setting targets for the restoration
of appropriate ratios within a reasonable time.



Over
the years, the Company and its subsidiaries have raised equity capital in the markets in which they operate. In 2016, the Group
raised a total of approximately NIS 1,348 million, in 2015 - NIS 2,870 million and in 2014 - NIS 2,483 million.



The
Company evaluates its capital ratios on a consolidated basis (including non-controlling interests), on the basis of extended "stand
alone" basis with reference to the capital of its listed subsidiaries presented at equity method, and also based on cash
flow ratios.





F-89






GAZIT-GLOBE
                                         LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE
    28:- | SHARE-BASED
    COMPENSATION
|------------- | ----------------------------



| | a. | Starting
                                         December 2011 the Company activates its Share Incentive Plan (the "Plan").
                                         Pursuant to the Plan, the Company may grant directors, employees, officers and services
                                         providers, options, ordinary shares, restricted shares and other share based awards as
                                         set out in the Plan, convertible into up to 4.5 million of the Company's shares, subject
                                         to various tax consequences and regimes.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b. | In
                                         2015, the Company granted, as part of the plan in section a above share options, Restricted
                                         Share Units ("RSUs") and Performance Share Units ("PSUs") to the
                                         Company's officers.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c. | The
                                         following table presents the change in number of the Company's share options and their
                                         original weighted average exercise price:
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





| |                                              |  | 2016                  |           |   | 2015                                | 
| | -------------------------------------------- |  | --------------------- | --------- | - | ----------------------------------- | 
| |                                              |  | Number
    of options |           |   | Weighted
    average exercise price | 
| |                                              |  |                       |           |   | NIS                                 | 
| | Share options at beginning of year           |  |                       | 1,797,010 |   |                                     | 
| | Share options granted                        |  |                       | -         |   |                                     | 
| | Share options forfeited                      |  |                       | (106,369  | ) |                                     | 
| | Share options exercised                      |  |                       | -         |   |                                     | 
| | Share options expired                        |  |                       | (436,668  | ) |                                     | 
| | Share options at
    end of year             |  |                       | 1,253,973 |   |                                     | 
| | Share options exercisable
    at end of year |  |                       | 642,347   |   |                                     | 



Each
abovementioned share option is exercisable into one ordinary share of NIS 1 par value of the Company at an exercise price that
is linked to the Israeli CPI and subject to adjustments (for share distributions, rights issues and dividend distributions). The
exercise price is determined as the average share price in the 30 days preceding the grant date. The grantees are also provided
the choice of a cashless exercise. The options vest over three years in three equal instalments, starting one year from the grant
date of the options, and the options expire four years after the grant date.



| | d. | The
                                         following table presents the movement in units of the Company RSUs and PSUs:
| | -- | -------------------------------------------------------------------------------------------------------------------------





| |                                |  | 2016 |         |   | 2015 | 
| | ------------------------------ |  | ---- | ------- | - | ---- | 
| |                                |  | RSUs |         |   | PSUs | 
| | Units at beginning of the year |  |      | 104,909 |   |      | 
| | Units granted                  |  |      | -       |   |      | 
| | Units forfeited                |  |      | (7,903  | ) |      | 
| | Units Vested                   |  |      | (53,438 | ) |      | 
| | Units Expired                  |  |      | -       |   |      | 
| | Units at end of
    year       |  |      | 43,568  |   |      | 



Each
RSU and PSU is exercisable into one ordinary share of the Company. The RSUs vest over three years in three equal instalments,
starting one year from the grant date of the RSU.



F-90






GAZIT-GLOBE
                                         LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE
    28:- | SHARE-BASED
    COMPENSATION (Cont.)
|------------- | ------------------------------------



The
PSUs (which were granted to officers only) vest over three years in one instalment from the grant date and are subject to a general
yield (including dividend distributions) of the Company average share price during the vesting period of at least 20% with respect
to the Company average share price in the 30 days preceding the grant date. In the event of a dividend distribution, the grantees
shall be entitled to remuneration that reflects the benefit relating to the dividend in respect of the RSUs and PSUs that had
not vested on the dividend distribution date.



| | e. | The
                                         expenses recognized in the income statement for share options, RSU's and PSU's in 2016,
                                         2015 and 2014 amounted to NIS 8.6 million, NIS 3.1 million and NIS 9.1 million, respectively.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | f. | For
                                         details regarding options granted to the Company CEO after the reporting period, refer
                                         to Note 37(2)a.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | g. | Cash-settled
                                         transactions
| | -- | ------------------------------------------------------------------



As
of the reporting date there are 138 thousand RSU units that are vesting over three or four years period and are settled in cash
(as of December 31, 2015 - 124 thousand RSU units).



The
carrying amount of the liability relating to the aforementioned cash settled compensation plans as of December 31, 2016 is NIS 3
million (2015 - NIS 2 million).





F-91






GAZIT-GLOBE
                                         LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE
    29:- | CHARGES
    (ASSETS PLEDGED)
|------------- | ----------------------------



| | a. | As
                                         collateral for part of the Group's liabilities, including guarantees provided by banks
                                         in favor of other parties, the Group's rights to various real estate properties which
                                         it owns have been mortgaged and other assets, including the right to receive payments
                                         from tenants and from apartment buyers under sale agreements, rights under contracts
                                         with customers, funds and securities in certain bank accounts, have been pledged. In
                                         addition, charges have been placed on part of the shares of investees and of other companies
                                         which are held by the companies in the Group.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The
balances of the secured liabilities are as follows:





| |                                                            |  | December
    31     |      
| | ---------------------------------------------------------- |  | ------------------- | -----
| |                                                            |  | 2016                |      
| |                                                            |  | NIS
    in millions |      
| | Short-term loans and credit                                |  |                     | 120  
| | Non-current liabilities (including current
    maturities) |  |                     | 7,882
| | Debentures (including
    current maturities) (1)(2)       |  |                     | 810  
| |                                                            |  |                     | 8,812



| | (1) | To
    secure the debentures (series J), issued by the Company in February 2009, a fixed pledge has been placed on 3 real estate
    properties which are owned by Gazit Development and whose total value as of the reporting date is approximately NIS 1,109
    million.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (2) | The
    debentures (series 2005) issued by ATR, a fixed pledge has been placed on properties with total value as of the reporting
    date of € 25 million (NIS 100 million).                                                                                              





|NOTE
    30:- | RENTAL
    INCOME
|------------- | -----------------



During
the years 2014-2016, the Group had no single tenant which contributed more than 10% to total rental income. As for information
about rental income by operating segments and geographical regions, see Note 38.



|NOTE
    31:- | PROPERTY
    OPERATING EXPENSES
|------------- | -------------------------------





| |                               |  | Year
    ended December 31 |      
| | ----------------------------- |  | -------------------------- | -----
| |                               |  | 2016                       |      
| |                               |  | NIS
    in millions        |      
| | Salaries and related expenses |  |                            | 163  
| | Property tax and other fees   |  |                            | 492  
| | Maintenance and repairs       |  |                            | 344  
| | Utilities                     |  |                            | 298  
| | Insurance and security        |  |                            | 107  
| | Others                        |  |                            | 203  
| |                               |  |                            | 1,607



| | *) | Reclassified,
                                         refer to Note 2ff.
| | -- | -------------------------------------------------------------------------



F-92






GAZIT-GLOBE
                                         LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE
    32:- | GENERAL
    AND ADMINISTRATIVE EXPENSES
|------------- | ---------------------------------------







| |                                              |  | Year
    ended December 31 |    
| | -------------------------------------------- |  | -------------------------- | ---
| |                                              |  | 2016                       |    
| |                                              |  | NIS
    in millions        |    
| | Salaries and management fees (1)             |  |                            | 301
| | Professional fees                            |  |                            | 118
| | Depreciation                                 |  |                            | 26 
| | Sales and marketing (including salary)       |  |                            | 6  
| | Other (including
    office maintenance) (2) |  |                            | 91 
| |                                              |  |                            | 542



| | *) | Reclassified,
                                         refer to Note 2ff.
| | -- | -------------------------------------------------------------------------

| | (1) | As
                                         for salaries and management fees to related parties, refer to Note 37b.
| | --- | -------------------------------------------------------------------------------------------------------------------

| | (2) | Net
                                         of income management fees from related party, refer to Note 37a.
| | --- | -------------------------------------------------------------------------------------------------------------



|NOTE
    33:- | OTHER
    INCOME AND EXPENSES
|------------- | -----------------------------



| | a. | Other
                                         income
| | -- | -----------------------------------------------------





| |                                 |  | Year
    ended December 31 |   
| | ------------------------------- |  | -------------------------- | --
| |                                 |  | 2016                       |   
| |                                 |  | NIS
    in millions        |   
| | Capital gain on assets disposal |  |                            | 14
| | Gain from bargain purchase      |  |                            | - 
| | Others                          |  |                            | 23
| |                                 |  |                            | 37



| | *) | Reclassified,
                                         refer to Note 2ff.
| | -- | -------------------------------------------------------------------------



| | b. | Other
                                         expenses
| | -- | -------------------------------------------------------





| |                                                                                           |  | Year
    ended December 31 |    
| | ----------------------------------------------------------------------------------------- |  | -------------------------- | ---
| |                                                                                           |  | 2016                       |    
| |                                                                                           |  | NIS
    in millions        |    
| | Loss from decrease in holding interest,
    revaluation and realization of associate, net |  |                            | -  
| | Capital loss on assets disposal (including
    transaction expenses)                      |  |                            | 8  
| | Impairment of goodwill                                                                    |  |                            | 23 
| | Impairment of other assets                                                                |  |                            | 6  
| | Other ***)                                                                                |  |                            | 199
| |                                                                                           |  |                            | 236



| | *) | Reclassified,
                                         refer to Note 2ff.
| | -- | -------------------------------------------------------------------------



| | **) | For
                                         the year ended December 31, 2015, includes a net loss in total amount of NIS 466 million
                                         due to further purchase of ATR's shares and its initial consolidation.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ***) | In
                                         2016 includes amount of NIS 163 million due (2015-NIS 109 million) to provision for legal
                                         proceedings recognized by ATR, for further details refer to Note 26d2.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





F-93








GAZIT-GLOBE
LTD.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



|NOTE
    34:- | FINANCE
    EXPENSES AND INCOME
|------------- | -------------------------------



| | a. | Finance
                                         expenses
| | -- | ---------------------------------------------------------







| |                                                                      |  | Year
    ended December 31 |      
| | -------------------------------------------------------------------- |  | -------------------------- | -----
| |                                                                      |  | 2016                       |      
| |                                                                      |  | NIS
    in millions        |      
| | Finance expenses on debentures                                       |  |                            | 1,182
| | Finance expenses on convertible debentures                           |  |                            | 42   
| | Finance expenses on loans from financial
    institutions and others |  |                            | 364  
| | Revaluation of derivatives                                           |  |                            | 25   
| | Loss from early redemption of borrowings
    and derivatives         |  |                            | 19   
| | Impairment of financial assets                                       |  |                            | 15   
| | Exchange rate differences and others                                 |  |                            | 71   
| | Finance expenses
    capitalized to real estate under development    |  |                            | (118 
| |                                                                      |  |                            | 1,600



| | *) | Reclassified,
                                         refer to Note 2ff.
| | -- | -------------------------------------------------------------------------



| | b. | Finance
                                         income:
| | -- | --------------------------------------------------------







| |                                          |  | Year
    ended December 31 |    
| | ---------------------------------------- |  | -------------------------- | ---
| |                                          |  | 2016                       |    
| |                                          |  | NIS
    in millions        |    
| | Gain from investments in securities      |  |                            | 139
| | Dividend income                          |  |                            | 18 
| | Interest income from investees           |  |                            | 29 
| | Interest income                          |  |                            | 89 
| | Revaluation of derivatives **)           |  |                            | 45 
| | Exchange rate
    differences and others |  |                            | 5  
| |                                          |  |                            | 325



| | *)   | Reclassified,
                                         refer to Note 2ff.      
| | ---- | -------------------------------------------------------------------------------
| | **‎) | Mainly
                                         from hedging swap transactions.



|NOTE
    35:- | NET
    EARNINGS PER SHARE
|------------- | --------------------------



Details
about the number of shares and net income used in calculation of net earnings per share:





| |                                                           |  | Year
    ended December 31,   |        
| | --------------------------------------------------------- |  | ----------------------------- | -------
| |                                                           |  | 2016                          |        
| |                                                           |  | Weighted
    number of shares |        
| |                                                           |  | In
    thousands              |        
| | For the calculation
    of basic net earnings per share   |  |                               | 195,493
| | Effect of dilutive
    potential ordinary shares          |  |                               | 74     
| | For the calculation
    of diluted net earnings per share |  |                               | 195,567



For
details in respect of the outstanding warrants and stock options of the Company's investees, refer to Notes 9e(3) and 9f(3) and
for convertible debentures issued by subsidiary, refer to Note 21.



F-94






|NOTES
    TO CONSOLIDATED FINANCIAL STATEMENTS | GAZIT-GLOBE
                                         LTD.
|---------------------------------------------- | ---------------------------------------------------------







|NOTE
    36:- | FINANCIAL
    INSTRUMENTS
|------------- | -------------------------



| | a. | Financial
                                         risk factors
| | -- | ---------------------------------------------------------------



Group’s
global operations expose it to various financial risk factors such as market risk (including foreign exchange risk, CPI risk,
interest risk and price risk), credit risk and liquidity risk. The Group’s comprehensive risk management strategy focuses
on activities that reduce to a minimum any possible adverse effects on the Group’s financial performance.



The
following is additional information about market risks and their management:



| | 1. | Foreign
                                         currency risk
| | -- | --------------------------------------------------------------



The
Group operates in a large number of countries, therefore it is exposed to currency risks resulting from the exposure to the fluctuations
of exchange rates in different currencies, mainly to the U.S. dollar, the Canadian dollar, Euro and Brazilian Real. Some of the
Group companies’ transactions are performed in currency other than their functional currency. The Group’s policy is
to maintain a high correlation between the currency in which its assets are purchased and its activity is executed and the currency
in which the liabilities relating to the purchase of these assets are assumed in order to minimize currency risk. As part of this
policy, the Group enters into cross-currency swap transactions with respect to the liabilities, for details refer to c. below.



| | 2. | CPI
                                         risk
| | -- | -------------------------------------------------



The
Group has loans from banks and issued debentures linked to changes in the Consumer Price Index (“CPI”) in Israel.
For the sum of financial instruments linked to the CPI and for cross currency swap transactions, with respect to which the Group
is exposed to changes in the CPI, refer to sections c and e below.



| | 3. | Interest
                                         rate risk
| | -- | -----------------------------------------------------------



Liabilities
that bear floating interest rate expose the Group to cash flow risk and liabilities that bear fix interest rate expose the Group
to interest rate risk in respect of fair value. As part of the risk management strategy, the Group maintains certain composition
of exposure to fix interest to exposure to floating interest. From time to time and according to market conditions, the Group
enters into interest rate swaps in which they exchange variable interest with fixed interest and, vice-versa, to hedge their liabilities
against changes in market interest rate (refer to section c below). As of the reporting date, 85.9% of the Group’s liabilities
(83.7% excluding interest rate swaps) bear fixed interest (as of December 31, 2015 - 86.4%, 80.4% excluding interest rate swaps).
For additional details regarding interest rates and the maturity dates, refer also to Notes 20 to 22.



| | 4. | Price
                                         risk
| | -- | ---------------------------------------------------



The
Group has investments in marketable financial instruments traded on stock exchanges, including shares, participation certificates
in mutual funds and debentures, which are classified either as available-for-sale financial assets or financial assets measured
at fair value through profit or loss, with respect to which the Group is exposed to risk resulting from fluctuations in security
prices which are determined by market prices on stock exchanges. The carrying amount of such investments as of December 31, 2016
is NIS 212 million (December 31, 2015 - NIS  354 million). This exposure is not hedged.



F-95








|NOTES
    TO CONSOLIDATED FINANCIAL STATEMENTS | GAZIT-GLOBE
                                         LTD.
|---------------------------------------------- | ---------------------------------------------------------









|NOTE
    36:- | FINANCIAL
    INSTRUMENTS  (Cont.)
|------------- | ----------------------------------



| | 5. | Credit
                                         risk
| | -- | ----------------------------------------------------



The
financial strength of the Group’s customers has an effect on its results. The Group is not exposed to significant concentration
of credit risks. The Group regularly evaluates the quality of the customers and the scope of credit extended to its customers.
Accordingly, the Group provides for an allowance of doubtful debts based on the credit risk in respect of certain customers.



Cash
and deposits are deposited with major financial institutions. Company management estimates that the risk that such parties will
fail to meet their obligations is remote as they are financially sound.



| | 6. | Liquidity
                                         risk
| | -- | -------------------------------------------------------



The
Group’s policy is to maintain a certain balance between long-term financing, among others mortgages, bank loans and debentures
to more flexible financing through the use of revolving lines of credit for periods 3 to 5 years, in which the Group can utilize
credit for different periods.



As
of December 31, 2016, the Group has a positive working capital of NIS 10.4 billion and, after excluding assets and liabilities
of discontinued operations, a negative working capital of NIS 3.0 billion. The Group has unused approved credit facilities in
the amount of NIS 10.2 billion that can be used over the coming year. The Company’s management believes that these
sources, as well as the positive cash flow generated from operating activities, will allow each of the Group’s companies
to repay their current liabilities when due.



In
connection with cross-currency swap transactions of liabilities (see section c below), with respect to part of the swaps, the
Company entered into credit support annexes agreements (“CSA”) of current settlement mechanisms with respect to the
fair value of the transactions. Accordingly, the Company may be required to transfer the bank significant amounts from time to
time depends on the fair value of these transactions.



For
additional details regarding the maturity dates of the Group’s financial liabilities, see d. below.



| | b. | Fair
                                         value
| | -- | ---------------------------------------------------



The
following table presents the carrying amount and fair value of groups of financial instruments that are measured in the financial
statements not at fair value:





| |                                                  |  |                                |  | December
    31, 2016 |                                                 |   | December
    31, 2015 | 
| | ------------------------------------------------ |  | ------------------------------ |  | --------------------- | ----------------------------------------------- | - | --------------------- | 
| |                                                  |  | Fair
    value hierarchy level |  | Carrying
    amount   |                                                 |   | Fair value            | 
| |                                                  |  |                                |  | NIS
    in millions   |                                                
| | Financial
    assets                             |  |                                |  |                       |                                                 |   |                       | 
| | Non-current
    deposits and loans               |  | 2/3                            |  |                       | 1,223                                           |   |                       | 
| | Financial
    liabilities                        |  |                                |  |                       |                                                 |   |                       | 
| | Debentures                                       |  | 1/2                            |  |                       | 29,366                                          |   |                       | 
| | Convertible
    debentures                       |  | 1                              |  |                       | *)
                                         592 |   |                       | 
| | Interest-bearing
    loans from banks and others |  | 2                              |  |                       | 9,337                                           |   |                       | 
| |                                                  |  |                                |  |                       | 39,295                                          |   |                       | 
| | Total
    financial liabilities, net             |  |                                |  |                       | (38,072                                         | ) |                       | 



| | *) | Excluding
                                         the equity component which is presented in non-controlling interests, for a total of
                                         NIS 12 million (2015 - NIS 19 million).
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





F-96








|NOTES
    TO CONSOLIDATED FINANCIAL STATEMENTS | GAZIT-GLOBE
                                         LTD.
|---------------------------------------------- | ---------------------------------------------------------







|NOTE
    36:- | FINANCIAL
    INSTRUMENTS (Cont.)
|------------- | ---------------------------------



Fair
value determination of financial instruments:



The
carrying amount of the financial instruments that are classified as current assets and current liabilities approximate their fair
value.



The
fair value of financial instruments that are quoted in an active market (such as marketable securities, debentures, convertible
debentures) were calculated based on quoted market closing prices on the reporting date (level 1 on the fair values hierarchy).
As of December 31, 2016, the Fair value of debentures in total amount of NIS 10.7 billion, that are not quoted in an active market
or that are traded in an illiquid market, was evaluated in valuation method (level 2 on the fair value hierarchy) as described
below (as of December 31, 2015: approximately NIS 18.7 billion).



The
fair value of loans bearing variable interest approximates their nominal value.



The
fair value of debt instruments that are not quoted in an active market or that are traded in an illiquid market is determined
using standard pricing valuation models primarily DCF which considers the present value of future cash flows discounted at the
interest rate, which according to Company’s management and external valuators estimates reflects market conditions including
the parties’ credit risk on the reporting date.



As
of December 31, 2016 the interest rate range for unquoted debt instruments (mortgages receivable) that were classified at level
3 in the fair value hierarchy is 4%-15%.



The
fair value of forward contracts with respect to foreign currency is calculated taking into account the future rates quoted for
contracts having the same settlement dates and in addition the amounts are discounted with relevant interest and the value is
adjusted to the credit risk of the counter party (level 2 on the Fair Value hierarchy).



The
fair value of interest rate swap contracts and cross-currency swap contracts that include a principle and interest are determined
by discounting the anticipated cash flows from the transaction by the applicable yield curve, with adjustments for inter-currency
liquidity gaps (CBS), inflation expectations and the credit risk of the parties (level 2 on the Fair Value hierarchy).



| | *) | Following
                                         is the reconciliation between the opening to the closing balance of Financial assets
                                         measured at level 3 on the fair value hierarchy:
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





| |                                                     |  | December
    31     |     
| | --------------------------------------------------- |  | ------------------- | ----
| |                                                     |  | 2016                |     
| |                                                     |  | NIS
    in millions |     
| | Balance
    at beginning of the year                |  |                     | 455 
| | Additions                                           |  |                     | -   
| | Capital return                                      |  |                     | (100
| | Impairment through
    profit or loss               |  |                     | (15 
| | Revaluation through
    capital reserve             |  |                     | 37  
| | Translation
    adjustments from foreign operations |  |                     | 7   
| | Balance
    at end of the year                      |  |                     | 384 



The
balance represent the participation certificates in private equity funds, for additional information refer to note 11.



During
2016, there were no transfers with respect to fair value measurement of any financial instrument between Level 1 and Level 2,
and there were no transfers to or from Level 3 with respect to fair value measurement of any financial instrument.





F-97








|NOTES
    TO CONSOLIDATED FINANCIAL STATEMENTS | GAZIT-GLOBE
                                         LTD.
|---------------------------------------------- | ---------------------------------------------------------







|NOTE
    36:- | FINANCIAL
    INSTRUMENTS (Cont.)
|------------- | ---------------------------------



| | c. | Financial
                                         derivatives
| | -- | --------------------------------------------------------------



The
following table present information about cross-currency swaps, interest rate swaps, forward contracts and purchase options:



|Transaction
    type                   |  | Denomination                  |  | Outstanding
    notional amount NIS inmillion as of |  | Linkage
    basis/Interest receivable *) |  | Linkage
    basis /Interest payable *) |  | Remaining
    average effective duration |  | Fair
    value - NIS in millions as of | 
|-------------------------------------- |  | ----------------------------- |  | --------------------------------------------------- |  | ---------------------------------------- |  | -------------------------------------- |  | ---------------------------------------- |  | -------------------------------------- | 
|                                       |  |                               |  | 31.12.16                                            |  | 31.12.15                                 |  |                                        |  |                                          |  |                                        | 
|Cross
    currency swaps               |  |                               |  |                                                     |  |                                          |  |                                        |  |                                          |  |                                        | 
|                                       |  | Euro-NIS                      |  | 3,984                                               |  | 4,133                                    |  | CPI
    linked, 1.10%-5.35%            |  | Fixed,
    2.15%-6.36%                   |  | 7.5                                    | 
|                                       |  |                               |  | 40                                                  |  | 50                                       |  | CPI
    linked, 4.95%                  |  | Variable
    L+1.35%                     |  | 1.2                                    | 
|                                       |  |                               |  | 86                                                  |  | 196                                      |  | nominal,
    1.30%                     |  | Fixed,0.71%                              |  | 3.3                                    | 
|                                       |  |                               |  | 531                                                 |  | 531                                      |  | nominal,
    2.63%-2.64%               |  | L                                        |  | 3.3                                    | 
|                                       |  | U.S.$-NIS                     |  | 238                                                 |  | 238                                      |  | CPI
    linked, 3.56%- 4.57%           |  | Fixed
    5.38%                          |  | 5.8                                    | 
|                                       |  |                               |  | -                                                   |  | 80                                       |  | -                                      |  |                                          |  | -                                      | 
|                                       |  |                               |  | 150                                                 |  | 150                                      |  | Telbor
    + 0.7%                      |  | Fixed
    3.53%                          |  | 0.7                                    | 
|                                       |  |                               |  | 243                                                 |  | 243                                      |  | nominal,
    2.67%                     |  | L                                        |  | 3.3                                    | 
|                                       |  | C$-NIS                        |  | 387                                                 |  | 398                                      |  | CPI
    linked, 3.45%-4.95%            |  | Fixed,
    5.43%-6.07%                   |  | 5.3                                    | 
|                                       |  |                               |  | -                                                   |  | 40                                       |  | -                                      |  | -                                        |  | -                                      | 
|                                       |  |                               |  | 1,139                                               |  | 288                                      |  | nominal,
    1.80%-4.00%               |  | Fixed,
    2.85%-3.15%                   |  | 8.3                                    | 
|                                       |  |                               |  | 100                                                 |  | 100                                      |  | Telbor
    + 0.7%                      |  | Fixed
    3.37%                          |  | 0.7                                    | 
|                                       |  | BRL-NIS                       |  | 92                                                  |  | 273                                      |  | CPI
    Linked 2.60%                   |  | Brazil
    CPI linked 3.45%              |  | 1.0                                    | 
|                                       |  | BRL-USD                       |  | -                                                   |  | 814                                      |  | -                                      |  | -                                        |  | -                                      | 
|                                       |  | USD-C$                        |  | 428                                                 |  | -                                        |  | L                                      |  | Variable
    0.68%-CADBA                 |  | -                                      | 
|                                       |  | Norwegian
    Krone-Euro      |  | 436                                                 |  | 458                                      |  | Fixed,
    2.38%                       |  | Fixed,
    4.00%                         |  | 5.7                                    | 
|                                       |  | Swedish
    Krona-Euro        |  | 1,415                                               |  | 637                                      |  | Fixed,
    1.25%                       |  | Fixed,
    1.84%-1.93%                   |  | 4.7                                    | 
|Interest
    rate swaps fixed/variable |  |                               |  |                                                     |  |                                          |  |                                        |  |                                          |  |                                        | 
|                                       |  | U.S.$                         |  | -                                                   |  | 1,171                                    |  | -                                      |  |                                          |  | -                                      | 
|                                       |  | C$                            |  | 1,038                                               |  | 352                                      |  | Variable                               |  | Fixed                                    |  | 7.37                                   | 
|                                       |  | €                             |  | 464                                                 |  | 488                                      |  | Variable                               |  | Fixed                                    |  | 1.7                                    | 
|                                       |  | Norwegian
    Krone           |  | 1,001                                               |  | 993                                      |  | Variable                               |  | Fixed                                    |  | 4.3                                    | 
|                                       |  | Swedish
    Krona             |  | -                                                   |  | 254                                      |  | Variable                               |  | Fixed                                    |  | -                                      | 
|Forward
    contracts                  |  |                               |  |                                                     |  |                                          |  |                                        |  |                                          |  |                                        | 
|                                       |  | Different
    currencies      |  | 3,595                                               |  | 3,035                                    |  |                                        |  |                                          |  | short
    term                         | 
|Call
    options                       |  |                               |  |                                                     |  |                                          |  |                                        |  |                                          |  |                                        | 
|                                       |  | Canadian
    government bonds |  | 328                                                 |  | 396                                      |  |                                        |  |                                          |  | 0.1                                    | 
|                                       |  |                               |  |                                                     |  |                                          |  |                                        |  |                                          |  |                                        | 
|CSA
    cash collateral, net           |  |                               |  |                                                     |  |                                          |  |                                        |  |                                          |  |                                        | 
|                                       |  |                               |  |                                                     |  |                                          |  |                                        |  |                                          |  |                                        | 



| | *) | Interbank
                                         base-rate in relation to the currency transaction.
| | -- | -----------------------------------------------------------------------------------------------------



| | **) | Represent
                                         an amount of less than NIS 1 million.
| | --- | ----------------------------------------------------------------------------------------





F-98








|NOTES
    TO CONSOLIDATED FINANCIAL STATEMENTS | GAZIT-GLOBE
                                         LTD.
|---------------------------------------------- | ---------------------------------------------------------





|NOTE
    36:- | FINANCIAL
    INSTRUMENTS (Cont.)
|------------- | ---------------------------------



Fair
value of financial derivatives is presented in the statement of financial position within the following categories:



| |                         |  | December
    31     |    
| | ----------------------- |  | ------------------- | ---
| |                         |  | 2016                |    
| |                         |  | NIS
    in millions |    
| | Current assets          |  |                     | 98 
| | Non-current assets      |  |                     | 516
| | Current liabilities     |  |                     | (47
| | Non-current liabilities |  |                     | (50
| |                         |  |                     | 517



Below
is the fair value of derivatives designated for hedge accounting included in the above table:





| |             |  | December
    31     |    
| | ----------- |  | ------------------- | ---
| |             |  | 2016                |    
| |             |  | NIS
    in millions |    
| | Assets      |  |                     | 36 
| | Liabilities |  |                     | (41
| |             |  |                     | (5 



| | d. | Liquidity
                                         risk
| | -- | -------------------------------------------------------



The
table below presents the maturity schedule of the Group’s financial liabilities based on contractual undiscounted payments
(including interest payments):



December
31, 2016





| |                                                                   |  | Less
    than one year |       |   | 2
    to 3 years |  |        | 4
    to 5 years |  |  | Over
    5 years |   |  | Total |       
| | ----------------------------------------------------------------- |  | ---------------------- | ----- | - | ---------------- |  | ------ | ---------------- |  |  | ---------------- | - |  | ----- | ------
| |                                                                   |  | NIS
    in millions    |      
| | Credit
    from banks and others (excluding current maturities)   |  |                        | 779   |   |                  |  | -      |                  |  |  | -                |   |  |       | -     
| | Trade
    payables                                                |  |                        | 377   |   |                  |  | -      |                  |  |  | -                |   |  |       | -     
| | Other
    accounts payable                                        |  |                        | 1,454 |   |                  |  | -      |                  |  |  | -                |   |  |       | -     
| | Debentures                                                        |  |                        | 3,640 |   |                  |  | 5,717  |                  |  |  | 8,584            |   |  |       | 17,936
| | Convertible
    debentures                                        |  |                        | 320   |   |                  |  | 171    |                  |  |  | 158              |   |  |       | -     
| | Interest-bearing
    loans from financial institutions and others |  |                        | 684   |   |                  |  | 4,169  |                  |  |  | 2,414            |   |  |       | 2,648 
| | Hedging
    financial derivatives, net                            |  |                        | (22   | ) |                  |  | (67    | )                |  |  | (65              | ) |  |       | (320  
| | Other
    financial liabilities                                   |  |                        | 160   |   |                  |  | 117    |                  |  |  | 27               |   |  |       | 783   
| |                                                                   |  |                        | 7,392 |   |                  |  | 10,107 |                  |  |  | 11,118           |   |  |       | 21,047



F-99








|NOTES
    TO CONSOLIDATED FINANCIAL STATEMENTS | GAZIT-GLOBE
                                         LTD.
|---------------------------------------------- | ---------------------------------------------------------







|NOTE
    36:- | FINANCIAL
    INSTRUMENTS (Cont.)
|------------- | ---------------------------------



December
31, 2015





| |                                                                   |  | Less
    than one year |       |  | 2
    to 3 years |  |        | 4
    to 5 years |  |  | Over
    5 years |   |  | Total |       
| | ----------------------------------------------------------------- |  | ---------------------- | ----- |  | ---------------- |  | ------ | ---------------- |  |  | ---------------- | - |  | ----- | ------
| |                                                                   |  | NIS
    in millions    |      
| | Credit
    from banks and others (excluding current maturities)   |  |                        | 1,069 |  |                  |  | -      |                  |  |  | -                |   |  |       | -     
| | Trade
    payables                                                |  |                        | 833   |  |                  |  | -      |                  |  |  | -                |   |  |       | -     
| | Other
    accounts payable                                        |  |                        | 1,127 |  |                  |  | -      |                  |  |  | -                |   |  |       | -     
| | Debentures                                                        |  |                        | 2,718 |  |                  |  | 6,737  |                  |  |  | 9,150            |   |  |       | 19,568
| | Convertible
    debentures                                        |  |                        | 47    |  |                  |  | 411    |                  |  |  | 623              |   |  |       | -     
| | Interest-bearing
    loans from financial institutions and others |  |                        | 1,261 |  |                  |  | 4,240  |                  |  |  | 5,324            |   |  |       | 3,457 
| | Hedging
    financial derivatives, net                            |  |                        | 19    |  |                  |  | (254   | )                |  |  | (40              | ) |  |       | (202  
| | Other
    financial liabilities                                   |  |                        | 145   |  |                  |  | 62     |                  |  |  | 57               |   |  |       | 307   
| |                                                                   |  |                        | 7,219 |  |                  |  | 11,196 |                  |  |  | 15,114           |   |  |       | 23,130



F-100








|NOTES
    TO CONSOLIDATED FINANCIAL STATEMENTS | GAZIT-GLOBE
                                         LTD.
|---------------------------------------------- | ---------------------------------------------------------









|NOTE
    36:- | FINANCIAL
    INSTRUMENTS (Cont.)
|------------- | ---------------------------------



| | e. | Linkage
                                         terms of monetary balances
| | -- | ---------------------------------------------------------------------------





|                                                                      |  | December
    31, 2016               |        
|--------------------------------------------------------------------- |  | ----------------------------------- | -------
|                                                                      |  | NIS
    - Linked to the Israeli CPI |        
|                                                                      |  | NIS
    in millions                 |        
|Assets                                                                |  |                                     |        
|Cash and cash equivalents                                             |  |                                     | -      
|Short-term investments and loans                                      |  |                                     | 5      
|Trade and other accounts receivable                                   |  |                                     | 4      
|Long-term investments
    and loans                                   |  |                                     | 80     
|Total monetary assets                                                 |  |                                     | 89     
|Other financial assets (1)                                            |  |                                     | -      
|Other assets
    (2)                                                  |  |                                     | -      
|Total assets                                                          |  |                                     | 89     
|Liabilities:                                                          |  |                                     |        
|Short-term credit from banks and others                               |  |                                     | -      
|Trade payables and other accounts payable                             |  |                                     | 237    
|Liabilities attributable to assets held
    for sale                  |  |                                     | -      
|Debentures (3)                                                        |  |                                     | 10,296 
|Convertible debentures                                                |  |                                     | -      
|Interest-bearing
    loans from financial institutions and others (3) |  |                                     | 531    
|Other financial
    liabilities                                       |  |                                     | 2      
|Total financial liabilities                                           |  |                                     | 11,066 
|Other liabilities
    (4)                                             |  |                                     | -      
|Total liabilities                                                     |  |                                     | 11,066 
|Assets, net of
    liabilities                                        |  |                                     | (10,977



| | (1) | Mainly
                                         financial instruments at fair value.
| | --- | ------------------------------------------------------------------------------------



| | (2) | Mainly
                                         investment property, investment property under development, goodwill, fixed assets and
                                         deferred taxes.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | As
                                         for cross currency swap transactions for the exchange of the linkage basis on part of
                                         the debentures, see d. above. As of the reporting date, the Company has NIS 4,758 million
                                         of cross-currency swaps from NIS linked to Israeli CPI to foreign currency and NIS 2,249
                                         million from non-linked NIS to foreign currency.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | Mainly
                                         deferred faxes, derivatives and advances from customers.
| | --- | --------------------------------------------------------------------------------------------------------





F-101








|NOTES
    TO CONSOLIDATED FINANCIAL STATEMENTS | GAZIT-GLOBE
                                         LTD.
|---------------------------------------------- | ---------------------------------------------------------





|NOTE
    36:- | FINANCIAL
    INSTRUMENTS (Cont.)
|------------- | ---------------------------------





|                                                                  |  | December
    31, 2015               |        
|----------------------------------------------------------------- |  | ----------------------------------- | -------
|                                                                  |  | NIS
    - Linked to the Israeli CPI |        
|                                                                  |  | NIS
    in millions                 |        
|Assets                                                            |  |                                     |        
|Cash
    and cash equivalents                                     |  |                                     | -      
|Short-term
    investments and loans                              |  |                                     | -      
|Trade
    and other accounts receivable                           |  |                                     | 261    
|Long-term
    investments and loans                               |  |                                     | 135    
|Total
    monetary assets                                         |  |                                     | 396    
|Other
    financial assets (1)                                    |  |                                     | -      
|Other
    assets (2)                                              |  |                                     | 66     
|Total
    assets                                                  |  |                                     | 462    
|Liabilities:                                                      |  |                                     |        
|Short-term
    credit from banks and others                       |  |                                     | -      
|Trade
    payables and other accounts payable                     |  |                                     | 373    
|Liabilities
    attributable to assets held for sale              |  |                                     | -      
|Debentures (3)                                                    |  |                                     | 11,276 
|Convertible
    debentures                                        |  |                                     | -      
|Interest-bearing
    loans from financial institutions and others |  |                                     | 526    
|Other
    liabilities                                             |  |                                     | 1      
|Total
    financial liabilities                                   |  |                                     | 12,176 
|Other
    liabilities (4)                                         |  |                                     | -      
|Total
    liabilities                                             |  |                                     | 12,176 
|Assets,
    net of liabilities                                    |  |                                     | (11,714



| | (1) | Mainly
                                         financial instruments at fair value.
| | --- | ------------------------------------------------------------------------------------



| | (2) | Mainly
                                         investment property, investment property under development, goodwill, fixed assets and
                                         deferred taxes.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | As
                                         for cross currency swap transactions for the exchange of the linkage basis on part of
                                         the debentures, see d. above. As of December 31, 2015, the Company has NIS 5,131 million
                                         of cross- currency swaps from NIS linked to Israeli CPI to foreign currency and has NIS
                                         1,628 million from non-linked NIS to foreign currency and NIS 814 million from U.S. to
                                         Brazilian Rial.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | Mainly
                                         deferred taxes, derivatives and advances from customers.
| | --- | --------------------------------------------------------------------------------------------------------



F-102








|NOTES
    TO CONSOLIDATED FINANCIAL STATEMENTS | GAZIT-GLOBE
                                         LTD.
|---------------------------------------------- | ---------------------------------------------------------





|NOTE
    36:- | FINANCIAL
    INSTRUMENTS (Cont.)
|------------- | ---------------------------------



| | f. | Sensitivity
                                         analysis of market risks
| | -- | -----------------------------------------------------------------------------



| |                                                     |  | Sensitivity
    analysis of financial balances to absolute changes in interest rates |    
| | --------------------------------------------------- |  | ------------------------------------------------------------------------------------ | ---
| | Impact
    on pre-tax income (loss) for the year of |  | U.S.$ interest                                                                       |    
| | a
    1% increase in interest rates                 |  | NIS
    in millions                                                                  |    
| | 31.12.2016                                          |  |                                                                                      | (22
| | 31.12.2015                                          |  |                                                                                      | (56



| |                              |  | Sensitivity
    analysis of financial balances of absolute changes in Consumer Price Index |     
| | ---------------------------- |  | ------------------------------------------------------------------------------------------ | ----
| |                              |  | +2%                                                                                        |     
| | Effect
    on pre-tax equity |  | NIS
    in millions                                                                        |     
| | 31.12.2016                   |  |                                                                                            | (220
| | 31.12.2015                   |  |                                                                                            | (231



| |                                     |  | Sensitivity
                                         analysis for financial derivative absolute
                                         changes in Consumer Price Index |    
| | ----------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ---
| |                                     |  | +2%                                                                                                                                                                      |    
| | Effect
    on pre-tax income (loss) |  | NIS
    in millions                                                                                                                                                      |    
| | 31.12.2016                          |  |                                                                                                                                                                          | 114
| | 31.12.2015                          |  |                                                                                                                                                                          | 122





| |                                               |  | Sensitivity
                                         analysis for financial derivatives- relative
                                         changes in exchange rates |     
| | --------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----
| | Effect
    on pre-tax income (loss)           |  | +10%                                                                                                                                                                 |     
| |                                               |  | NIS
    in millions                                                                                                                                                  |     
| | 31.12.2016                                    |  |                                                                                                                                                                      |     
| | Change
    in exchange rate of €              |  |                                                                                                                                                                      | (494
| | Change
    in exchange rate of U.S.$          |  |                                                                                                                                                                      | (70 
| | Change
    in exchange rate of C$             |  |                                                                                                                                                                      | (172
| | Change
    in exchange rate of Brazilian Real |  |                                                                                                                                                                      | (8  
| | 31.12.2015                                    |  |                                                                                                                                                                      |     
| | Change
    in exchange rate of €              |  |                                                                                                                                                                      | (544
| | Change
    in exchange rate of U.S.$          |  |                                                                                                                                                                      | (1  
| | Change
    in exchange rate of C$             |  |                                                                                                                                                                      | (74 
| | Change
    in exchange rate of Brazilian Real |  |                                                                                                                                                                      | (83 



| |                                                |  | Sensitivity
                                         analysis for financial derivatives- relative
                                         changes in exchange rates |    
| | ---------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---
| |                                                |  | +10%                                                                                                                                                                 |    
| |                                                |  | NIS
    in millions                                                                                                                                                  |    
| | 31.12.2016                                     |  |                                                                                                                                                                      |    
| | Change
    in exchange rate of €               |  |                                                                                                                                                                      | (57
| | Change
    in exchange rate of U.S.$           |  |                                                                                                                                                                      | 17 
| | Change
    in exchange rate of C$              |  |                                                                                                                                                                      | (85
| | Change
    in exchange rate of Norwegian Krone |  |                                                                                                                                                                      | 1  



F-103






|NOTES
    TO CONSOLIDATED FINANCIAL STATEMENTS | GAZIT-GLOBE
                                         LTD.
|---------------------------------------------- | ---------------------------------------------------------





|NOTE
    36:- | FINANCIAL
    INSTRUMENTS (Cont.)
|------------- | ---------------------------------





| |                                      |  | Sensitivity
                                         analysis for financial derivatives- absolute
                                         changes in interest rates |     
| | ------------------------------------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----
| | Effect on pre-tax income (loss)      |  | +2%                                                                                                                                                                  |     
| |                                      |  | NIS
    in millions                                                                                                                                                  |     
| | 31.12.2016                           |  |                                                                                                                                                                      |     
| | Change in interest on €              |  |                                                                                                                                                                      | 422 
| | Change in interest on U.S.$          |  |                                                                                                                                                                      | 30  
| | Change in interest on C$             |  |                                                                                                                                                                      | 199 
| | Change in interest on Brazilian Real |  |                                                                                                                                                                      | 1   
| | Change in nominal interest on NIS    |  |                                                                                                                                                                      | (238
| | Change in real interest on NIS       |  |                                                                                                                                                                      | (683
| | Change in interest on Swedish Krona  |  |                                                                                                                                                                      | 129 
| | 31.12.2015                           |  |                                                                                                                                                                      |     
| | Change in interest on €              |  |                                                                                                                                                                      | 564 
| | Change in interest on U.S.$          |  |                                                                                                                                                                      | 19  
| | Change in interest on C$             |  |                                                                                                                                                                      | 67  
| | Change in interest on Brazilian Real |  |                                                                                                                                                                      | 24  
| | Change in nominal interest on NIS    |  |                                                                                                                                                                      | (107
| | Change in real interest on NIS       |  |                                                                                                                                                                      | (783





| |                                             |  | Sensitivity
                                         analysis for financial derivatives- absolute
                                         changes in interest rates |    
| | ------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---
| | Effect on pre-tax equity (accounting hedge) |  | +2%                                                                                                                                                                  |    
| |                                             |  | NIS
    in millions                                                                                                                                                  |    
| | 31.12.2016                                  |  |                                                                                                                                                                      |    
| | Change in interest on €                     |  |                                                                                                                                                                      | (51
| | Change in interest on C$                    |  |                                                                                                                                                                      | 195
| | Change in  interest on Norwegian
    Krone  |  |                                                                                                                                                                      | 123
| | 31.12.2015                                  |  |                                                                                                                                                                      |    
| | Change in interest on €                     |  |                                                                                                                                                                      | (37
| | Change in interest on U.S.$                 |  |                                                                                                                                                                      | 83 
| | Change in interest on C$                    |  |                                                                                                                                                                      | 78 
| | Change in interest on Swedish Krona         |  |                                                                                                                                                                      | 9  
| | Change in  interest on Norwegian
    Krone  |  |                                                                                                                                                                      | 91 



Sensitivity
analysis and main assumptions



The
Company has performed sensitivity tests of principal market risk factors that are liable to affect its reported operating results
or financial position. The sensitivity analysis presents the gain or loss or change in equity (before tax) in respect of each
financial instrument for the relevant risk variable chosen for that instrument as of each reporting date. The examination of risk
factors and the financial assets and liabilities were determined based on the materiality of the exposure in relation to each
risk assuming that all the other variables remain constant. The sensitivity analysis refers to a potential increase in the relevant
variables at rates that the Company deemed appropriate, as the case may be. The same is true for a decrease in same percentage
which would impact profit or loss by the same amounts in the opposite direction, unless otherwise indicated.

In
addition:



| | 1. | The
                                         sensitivity analysis for changes in interest rates of monetary balances was performed
                                         on long-term liabilities with variable interest as of the reporting date.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-104








|NOTES
    TO CONSOLIDATED FINANCIAL STATEMENTS | GAZIT-GLOBE
                                         LTD.
|---------------------------------------------- | ---------------------------------------------------------





|NOTE
    36:- | FINANCIAL
    INSTRUMENTS (Cont.)
|------------- | ---------------------------------



| | 2. | According
                                         to the Company’s policy, as discussed in a. above, the Company generally hedges
                                         its main exposures to foreign currency, among others, through maintaining a high correlation
                                         between the currency in which its assets are purchased and the currency in which the
                                         liabilities are assumed. Accordingly, economic exposure of assets net of financial balances
                                         to changes in foreign currency exchange rates is fairly limited in scope. Nonetheless,
                                         there is accounting exposure to changes in foreign currency and interest rates with respect
                                         to cross currency swap transactions which were not designated for hedge accounting, as
                                         presented in the above table.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3. | The
                                         main accounting exposure in respect of derivative financial instruments is in respect
                                         of changes in fair value due to changes in interest, CPI and currency which may have
                                         an effect on the profit or loss or directly on equity due to transactions that do not
                                         qualify for accounting hedge and transactions that do qualify for accounting hedge, respectively.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 4. | Cash
                                         and cash equivalents, including financial assets that are deposited or maintained for
                                         less than one year, were not included in the analysis of exposure to changes in interest.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|NOTE
    37:- | TRANSACTIONS
    AND BALANCES WITH RELATED PARTIES
|------------- | --------------------------------------------------



| | a. | Income
| | -- | ------



| |                                                         |  | Year
    ended December 31 |    
| | ------------------------------------------------------- |  | -------------------------- | ---
| |                                                         |  | 2016                       |    
| |                                                         |  | NIS
    in millions        |    
| | Management fees
    from the parent company (section d) |  |                            | 1.4
| | Interest income
    from investees                      |  |                            | 29 



| | b. | Other
                                         expenses and payments
| | -- | --------------------------------------------------------------------





| |                                                  |  | Year
    ended December 31                                |  
| | ------------------------------------------------ |  | --------------------------------------------------------- | -
| |                                                  |  | 2016                                                      |  
| |                                                  |  | Number of
                                         people |  
| | Directors’
    fees                              |  |                                                           | 8
| | Salaries and related
    expenses, see (1) below |  |                                                           | 4



| | *) | Includes
                                         compensation of NIS 14.6 million for 2014 from equity-accounted jointly controlled company.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------



| | (1) | As
                                         for the employment terms (including share based compensation) of the Chairman of the
                                         Board, the Executive Vice Chairman of the Board and CEO, the Deputy Chairman of the Board
                                         and the former CEO, see details in section c below.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-105








|NOTES
    TO CONSOLIDATED FINANCIAL STATEMENTS | GAZIT-GLOBE
                                         LTD.
|---------------------------------------------- | ---------------------------------------------------------





|NOTE
    37:- | TRANSACTIONS
    AND BALANCES WITH RELATED PARTIES (Cont.)
|------------- | ----------------------------------------------------------



| | c. | Employment
                                         agreements
| | -- | --------------------------------------------------------------



| | 1. | Chairman
                                         of the Board of Directors and a Controlling Shareholder, Mr. Chaim Katzman
| | -- | ----------------------------------------------------------------------------------------------------------------------------



| | a) | Mr.
                                         Katzman serves as the chairman of the Board of Directors of the Company but his employment
                                         agreement with a wholly owned subsidiary of the Company terminated in November 2011.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



It
is hereby clarified that, despite the expiration of the agreement, Mr. Katzman is continuing to fulfill his duties as Chairman
of the Company’s Board of Directors without compensation from the Company, although in the course of fulfilling his duties
Mr. Katzman is entitled to continue using the Company’s resources in order to fulfill his duties.



| | b) | In
                                         June 2014, EQY and Mr. Katzman entered into an agreement for the period commencing on
                                         January 1, 2015, according to which Mr. Katzman will continue serving as EQY’s
                                         Chairman of the Board of Directors. The agreement ended following the completion of the
                                         merger transaction between EQY and REG on March 1, 2017. According to the agreement,
                                         Mr. Katzman was entitled to an annual grant which was determined at the discretion of
                                         EQY’s compensation committee as well as annual amount of U.S.$ 15 thousand as well
                                         as to a reimbursement of expenses with respect to his position. The agreement also sets
                                         forth provisions relating to its termination by either EQY or Mr. Katzman and the compensation
                                         to which Mr. Katzman will be entitled to upon termination as well as acceleration of
                                         vesting periods of 255,000 restricted shares that were granted to Mr. Katzman, in January
                                         2015 which are vested every month over 36 months commencing starting January, 2015 and
                                         ending on December 31, 2017. EQY has the right to redeem the restricted shares which
                                         were vested as a result of termination of the aforesaid agreement for consideration of
                                         U.S. $ 2.5 million..
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c) | Due
                                         to his service as a director in FCR Mr. Katzman was entitled to the same directors’
                                         fees that are payable to the other members of the Board of Directors of FCR, which as
                                         of said date is an annual amount of C$ 30 thousand as well as a quarterly allotment of
                                         600 deferred share units and C$ 1,500 for participation remuneration per meeting (this
                                         in lieu of the compensation to which he would have been entitled under the agreement
                                         between Mr. Katzman and FCR from January 2015, as described above). Furthermore it has
                                         been agreed that 1995, deferred restricted share units granted to Mr. Katzman in January,
                                         2015 that are convertibles into 1995 FCR’s shares. will continue to vest pursuant
                                         to their terms upon the termination of his office as a director in FCR)
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | d) | According
                                         to the advisory agreement since 2009 with ATR (which was amended in August 2010), Mr.
                                         Katzman, ATR’s Chairman of the Board is entitled to a yearly remuneration of € 550
                                         thousand due to advisory services and recovery of expenses from ATR, starting January
                                         2017, the yearly remuneration was updated to € 750 thousand.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | e) | For
                                         2016, Mr. Katzman is entitled for director’s remuneration in the amount of € 165
                                         thousand for his services as CTY’s chairman of the Board (with respect to 2015
                                         amount of € 165 thousand).
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-106






|NOTES
    TO CONSOLIDATED FINANCIAL STATEMENTS | GAZIT-GLOBE
                                         LTD.
|---------------------------------------------- | ---------------------------------------------------------





|NOTE
    37:- | TRANSACTIONS
    AND BALANCES WITH RELATED PARTIES (Cont.)
|------------- | ----------------------------------------------------------



| | 2. | Vice
                                         Chairman of the Company’s Board of Directors, CEO of the Company and a Controlling
                                         Shareholder, Mr. Dor J. Segal
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) | In
                                         the reporting period served Mr. Segal as the Active vice Chairman of the Company’s
                                         Board of Directors, but his employment agreement with a wholly owned subsidiary of the
                                         Company terminated in November 2011. Since January 2017, Mr. Segal has been serving as
                                         Vice Chairman of the Board of Directors and CEO of the Company.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In
March 2017, the General meeting (subsequent to the Compensation Committee and Board of Directors of the Company) approved the
engagement in an employment agreement with Mr. Segal, the principals of which are as follows:



The
employment agreement is for a period of three years, commencing on January 19, 2017, subject to the right of either of the parties
to terminate it with an advance notice of 180 days. Additionally, the Company may terminate the agreement, without advance notice,
under circumstances that warrant the termination of employment of Mr. Segal without severance pay.



Pursuant
to the agreement, Mr. Segal monthly salary represents a monthly cost of NIS 166,667 (comprising a base salary and social and related
benefits, as customary in the Company, and linked to the CPI (“the Fixed Salary”)). This reflects an annual cost of
NIS 2 million (that comprises any compensation payable to Mr. Segal by public subsidiaries of the Company (excluding FCR), as
described below).



In
view of the entitlement of Mr. Segal to compensation for his office in subsidiaries of the Company (excluding FCR), the Company
will only pay Mr. Segal the difference between the annual cost of his salary and the overall actual amounts that Mr. Segal receives
from each subsidiary of the Company (excluding FCR).



Mr.
Segal will not be entitled to an annual bonus.



Additionally,
Mr. Segal will be entitled to 2,965,505 performance-based option warrants (non-negotiable) for the purchase of ordinary shares
of the Company of NIS 1 par value each (representing 1.49% of the issued and paid share capital), in a quantity that, as of the
date of approval by the Board of Directors, reflects a total cost to the Company of NIS 12,929 thousand for the duration of the
agreement. (The number of option warrants was determined on the basis of the average price of the Company’s share on the
Stock Exchange in the 30 trading day that preceded the date of approval by the Board of Directors – February 9, 2017).



The
exercise price of each option warrant will be NIS 42. In addition to the above exercise price, the exercise of the option warrants
is conditional upon an average target price for the Company’s share that is higher than the exercise price and a prerequisite
for their exercise is an average quoted share price of at least NIS 45 over 90 consecutive days during the 12-month period that
precedes the date of exercise. The option warrants will vest over a period of three years from their grant date: one third of
the option warrants that are granted to Mr. Segal will vest in each of the three years, to the effect that at the end of the employment
period all option warrants will have vested. The final expiration date of all option warrants is the end of five years from grant
date, this also being the case in the event of the termination of employment (other than the termination of employment under circumstances
that warrant the dismissal of Mr. Segal without severance pay, as described in the employment agreement, in which case the vested
options shall be exercisable for the duration of 90 days from the date of termination of employment).



In
the event that the period of the agreement elapses without a new employment agreement being signed with Mr. Segal for his office
as CEO of the Company, Mr. Segal shall be entitled to an additional payment in a total amount that is equal to the Fixed Salary
for an additional six months (during such period, Mr. Segal shall not be entitled to any payment for advance notice period).





F-107








|NOTES
    TO CONSOLIDATED FINANCIAL STATEMENTS | GAZIT-GLOBE
                                         LTD.
|---------------------------------------------- | ---------------------------------------------------------







|NOTE
    37:- | TRANSACTIONS
    AND BALANCES WITH RELATED PARTIES (Cont.)
|------------- | ----------------------------------------------------------



Should
the Company seek to terminate the agreement before the end of three years (other than under circumstances that give the Company
cause to terminate the agreement without entitlement to severance pay), as well as in the event of resignation that is deemed
by law as dismissal, or in the event of death or loss of working capacity, Mr. Segal (or his estate) shall be entitled to the
following: (a) advance-notice period of 180 days, during which Mr. Segal shall be entitled to receive the Fixed Salary; (b) Fixed
Salary for an additional six months; (c) acceleration of the vesting period of all equity compensation components allotted to
him that have not yet vested.



In
the event of the termination of Mr. Segal’s employment (other than under circumstances that entitle the Company to terminate
the agreement without severance pay) during a 12-month period following an event of change of control in the Company (as defined
in the agreement), whether initiated by the Company or by Mr. Segal, immediately upon such termination of employment (in lieu
of the terms of termination mentioned above), Mr. Segal shall be entitled to the following terms: (a) acceleration of the vesting
period of all components of equity compensation granted to him that have not yet vested; (b) a grant in a total amount that is
equal to 200% of the Reduced Fixed Salary in the amount of NIS 125,000, CPI linked (“Reduced fixed Salary”) in the
year of completion of the change of control, provided that such grant does not exceed an amount that reflects his Reduced Fixed
Salary for the period remaining to the end of the employment agreement, with the addition of 6 months.



Mr.
Segal will also be entitled to indemnification and insurance under terms that are identical to those of the other officers in
the Company.



| | b) | Pursuant
                                         to an agreement signed between FCR and Mr. Segal in December 2014 (effective from January
                                         2015 to January 2017), for his office as Chairman of the Board of Directors of FCR, Mr.
                                         Segal is entitled to annual compensation of C$ 700 thousand and to an annual allotment
                                         of restricted units with a value of C$ 300 thousand.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In
February 2017, the agreement was extended for an additional three years and the compensation of Mr. Segal was updated to the effect
that, commencing in February 2017, Mr. Segal shall be entitled to annual compensation in the amount of C$ 500 thousand and to
an annual allotment of restricted share units with a value of C$ 500 thousand. The agreement provides for the terms of termination
of the employment by FCR and of the advance notice.



| | c) | The
                                         restricted units bears interest (in a way of receiving additional restricted units),
                                         but they do not have voting rights.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | d) | For
                                         his service in the Board of Directors of EQY, Mr. Segal is allotted restricted shares
                                         annually. Mr. Segal was allotted 3,500 shares with respect to each of the years 2015
                                         and 2016. The restricted shares are allotted at the beginning of every calendar year
                                         and vest in two equal batches, half on December 31 of the year in which they are allotted
                                         and the second half on December 31 of the subsequent year. Additionally, Mr. Segal received
                                         directors’ remuneration in the amount of U.S.$ 71.5 thousand for 2016 (U.S.$ 73
                                         thousand for 2015). Upon completion of the merger with EQY, Mr. Segal ended his office
                                         as director in EQY.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | e) | For
                                         his office as Vice Chairman of the Board of Directors of CTY, Mr. Segal is entitled to
                                         annual remuneration in the amount of EUR 75 thousand and to a per-meeting remuneration
                                         of EUR 600. For his said service in 2016, Mr. Segal is entitled to total remuneration
                                         of EUR 83.6 thousand. In March, 2017 Mr. Segal ended his service in CTY.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





F-108








|NOTES
    TO CONSOLIDATED FINANCIAL STATEMENTS | GAZIT-GLOBE
                                         LTD.
|---------------------------------------------- | ---------------------------------------------------------







|NOTE
    37:- | TRANSACTIONS
    AND BALANCES WITH RELATED PARTIES (Cont.)
|------------- | ----------------------------------------------------------



| | f) | Commencing
                                         in January 2016, Mr. Segal is entitled to directors’ remuneration in respect of
                                         his office in the Company in an amount that is the lower of: (a) the maximum annual compensation
                                         and the maximum participation remuneration to an expert director, as set out in the Companies
                                         Regulations (Rules for Remuneration and Expenses to an External Director), 2000 (“the
                                         Remuneration Regulations”), or (b) the lowest amount that is payable to another
                                         director in the Company. As of the reporting date the fees of the other directors in
                                         the Company exceeds the maximum remuneration that is provided for in the Remuneration
                                         Regulations, the remuneration to which Mr. Segal is entitled the remuneration that is
                                         set out in the Remuneration Regulations. Upon his taking office as CEO of the Company,
                                         Mr. Segal will no longer be entitled to directors’ fees as above.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3. | Former
                                         active deputy Chairman of the Board, Mr. Arie Mientkavich
| | -- | ---------------------------------------------------------------------------------------------------------



In
accordance with his employment agreement from June 2005, which ended in September, 2016, Mr. Mientkavich was employed as Active
Deputy Chairman of the Company’s Board of Directors in a 50% capacity, at a gross monthly salary of NIS 80 thousand linked
to the CPI, plus associated benefits. Mr. Mientkavich was also entitled to an annual cash bonus that will not exceed NIS 500 thousand,
which was calculated in accordance with the attainment of measurable goals set for the Company and at the discretion of the Compensation
Committee and the Board of Directors of the Company, in a ratio of up to 20% of the annual bonus. With respect to his partial
service in 2016, Mr. Mientkavich received a grant in the amount of NIS 235 thousands.



According
to the employment agreement, Mr. Mientkavich was entitled to 60 days’ advance notice during the course of which he was entitled
to receive the full terms provided under the employment agreement as well as an adaptation grant in an amount equivalent to six
months’ salary.



| | 4. | Company’s
                                         former CEO, Ms. Rachel Lavine
| | -- | --------------------------------------------------------------------------------



Starting
in September 2015 to January 2017, Ms. Rachel Lavine served as the Company’s CEO. Ms. Lavine also served by the aforementioned
date as a board member of the Company, as the Chairman of the Board of Gazit Development and serves as the Vice Chairman of the
board of ATR and as a board member of CTY.



According
to the employment agreement with Ms. Lavine the monthly salary of Ms. Lavine was amount to NIS 225,000 (gross) per month,
which reflects an annual cost (comprising the base salary, a vehicle and the Company’s customary social benefit conditions)
of NIS 3.5 million, net of any compensation paid to Ms. Lavine by the Company’s public subsidiaries. In addition
to the fixed salary, Ms. Lavine was entitled to ancillary benefits, as customary at the Company and as set forth in the Company’s
compensation policy. Ms. Lavine was also entitled to indemnification, exemption and insurance under terms identical to those
that apply to the other office holders of the Company. In 2016, the cost of employment of Ms. Lavine in the Company (less the
compensation paid to her by the aforesaid subsidiaries) amounted to NIS 1,277 thousand (excluding grants).



In
addition, Ms. Lavine was entitled to an annual cash bonus, in a total amount that will not exceed 100% of the base annual
salary to which Ms. Lavine is entitled for any year, in accordance to the Company’s compensation policy, in which with
respect to 2016, in the amount of NIS 2,700 thousands.



F-109








|NOTES
    TO CONSOLIDATED FINANCIAL STATEMENTS | GAZIT-GLOBE
                                         LTD.
|---------------------------------------------- | ---------------------------------------------------------





|NOTE
    37:- | TRANSACTIONS
    AND BALANCES WITH RELATED PARTIES (Cont.)
|------------- | ----------------------------------------------------------



In
the approval of the terms of employment of Ms. Lavine, in September 2015, the Company granted Ms. Lavine approximately 718 thousand
non-listed share options, 51 thousand restricted share units (RSUs) and 196 thousand performance shares units (PSUs) at a total
value of NIS 8.25 million (spread over three years), according to capital gain alternative with a trustee, pursuant to section
102 of the Israeli Income Tax Ordinance (as described in Note 28). Upon the termination of her employment in the Company, these
securities will vest, as described below. The agreement includes various provisions relating to the compensation to which Ms.
Lavine will be entitled in the event of the termination of her employment with the Company. On January 19, 2017, Ms. Lavine ended
her office as CEO of the Company. The date of termination of her employment was set for March 31, 2017 (“End-Date of Employer-Employee
Relationship”). On the End-Date of Employer-Employee Relationship, Ms. Lavine shall be entitled to the following compensation
from the Company: (a) NIS 1,445,000 - representing the difference between the total payments of the Company to Ms. Lavine from
the End-Date of Employer-Employee Relationship and future amounts payable to Ms. Lavine by ATR and CTY, if any, in the period
of 17 months from the End-Date of Employer-Employee Relationship to August 30, 2018 (the original end-date of the employment agreement
between Ms. Lavine and the Company) (subject to adjustments to the extent that the services that Ms. Lavine provides to CTY and
ATR are discontinued prior to August 30, 2018); (b) an annual grant for 2016 (as described above); and (c) acceleration of all
components of equity compensation granted to Ms. Lavine under her employment agreement.



Starting
November 2014, Ms. Lavine has been serving as Vice Chairperson of the Board of Directors of ATR, and as from August 1, 2015, she
provides consultancy services to ATR, for which she is entitled to annual consultancy fees in the amount of EUR 475 thousand.
Since the commencement of her employment in the Company, these fees have been deducted from the compensation to which Ms. Lavine
was entitled from the Company as described above.

For
her office as director in CTY, Ms. Lavine is entitled to annual directors’ remuneration in the amount of EUR 50 thousand
and to per-meeting remuneration of EUR 600, which were deducted from the compensation to which Ms. Lavine was entitled from the
Company as described above. For her said service in 2016, Ms. Lavine is entitled to total remuneration of EUR 62.5 thousand (which
has been deducted from the remuneration that is payable to her by the Company).





F-110








|NOTES
    TO CONSOLIDATED FINANCIAL STATEMENTS | GAZIT-GLOBE
                                         LTD.
|---------------------------------------------- | ---------------------------------------------------------







|NOTE
    37:- | TRANSACTIONS
    AND BALANCES WITH RELATED PARTIES (Cont.)
|------------- | ----------------------------------------------------------



| | 5. | In
                                         September 2015, the Company’s general shareholders’ meeting approved the
                                         appointment of Mr. Zvi Gordon as Vice President of Mergers & Acquisitions at Gazit
                                         USA, a wholly-owned subsidiary of the Company. Mr. Zvi Gordon is the son-in-law of the
                                         Chairman of the Company’s Board of Directors, Mr. Chaim Katzman, who is one of
                                         the controlling shareholders of the Company. The compensation to which Mr. Gordon is
                                         entitled for his employment at Gazit USA will be an annual salary in the amount of U.S.$
                                         130,000, a discretionary annual bonus that will not exceed 40% of the annual salary and
                                         social benefits as are customary at Gazit USA. Additionally, in November 2016, the aforesaid
                                         organs approved Mr. Gordon the granting of officers’ insurance, as customary in
                                         the Company.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | d. | Entering
                                         into an agreement with Norstar
| | -- | --------------------------------------------------------------------------------



On
January 26 2012, the Company’s shareholders meeting approved entering into an agreement with Norstar (the “Gazit-Norstar
Agreement”), as amended in September 2014, with respect to the following matters:



| | 1. | Norstar
                                         will pay the Company monthly management fees of NIS 122 thousands (as updated in September
                                         2014) linked to the Israeli CPI including VAT for various management services. The Agreement
                                         is for a three-year period and renews automatically for further periods, each for three
                                         years, with each party being entitled to give notice of non-renewal subject to the applications
                                         of the Companies Law. Management services will include secretarial services, book keeping
                                         services, treasury services, computer services, communications, legal services, and dealing
                                         with bank financing, the capital markets and investments.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2. | Amending
                                         the existing non-competition provisions between the Company and Norstar Group in the
                                         following manner: Norstar has undertaken that, so long as Norstar Group continues to
                                         be the Company’s controlling shareholder and so long as the Company is engaged,
                                         as its principal business, in the field of shopping centers and medical office buildings,
                                         Norstar Group will not engage in such fields and will not own shares in companies that
                                         are engaged in such fields as its principal activity and proposals it receives to engage
                                         in and/or to hold the aforementioned will be passed on by it to the Company, except for
                                         holding up to 5% of the share capital of such companies listed on a stock exchange in
                                         Israel or abroad. With regard to business in the real estate field other than shopping
                                         centers and medical office buildings, Norstar has undertaken to grant the Company the
                                         right of first offer.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3. | In
                                         light of the Company’s shares offering on the NYSE, registration rights have been
                                         granted to Norstar in connection with the securities of the Company that are held by
                                         Norstar Group, subject to the terms set forth in the Gazit-Norstar Agreement.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | e. | Balances
                                         with related parties
| | -- | ----------------------------------------------------------------------



| |                                                                                     |  | December
    31     |    
| | ----------------------------------------------------------------------------------- |  | ------------------- | ---
| |                                                                                     |  | 2016                |    
| |                                                                                     |  | NIS in
    millions |    
| | Interest receivable
    from joint ventures and equity-accounted investees (Note 6) |  |                     | 11 
| | Loans to equity-accounted
    investees (Note 9a)                                   |  |                     | 401



| | f. | Consolidated
                                         Companies:
| | -- | ----------------------------------------------------------------



For
details regarding transactions and balances with consolidated companies, see note 9.





F-111








|NOTES
    TO CONSOLIDATED FINANCIAL STATEMENTS | GAZIT-GLOBE
                                         LTD.
|---------------------------------------------- | ---------------------------------------------------------





|NOTE
    38:- | SEGMENT
    INFORMATION
|------------- | -----------------------



| | a. | General
| | -- | -------



According
to the “management approach”, as defined in IFRS 8, the Group operates in several operating segments, three of which
meet the definition of “reportable segment” (as presented in the table below). The segments are identified on the
basis of geographical location of the income producing properties Company’s management evaluates the segment results separately
in order to allocate the resources and asses the segment performance which, in certain cases, differ from the measurements used
in the consolidated financial statements, as described below. Financial expenses, financial income and taxes on income are managed
on a group basis and, therefore, were not allocated to the different segment activities.



Other
segments include, among others, activities that meet the qualitative criteria of an “operating segment” in accordance
with IFRS 8 as they constitute the entity’s business component from which it generates revenues and incurs expenses and
for which financial information is available and separately reviewed by the Company’s management. Such segments however,
do not meet the quantitative threshold that requires their presentation as a reportable segment and comprise mainly the following
activities: shopping centers and lands in Israel, Germany, Brazil and Bulgaria.



In
light of the reclassification of EQY’s and Luzon Group’s results of operation under the item “Loss from discontinued
operations”, EQY and Luzon Group ceased to be presented as reportable segments. The comparative data have been adjusted
retrospectively.



| | b. | Financial
                                         information by operating segments
| | -- | ------------------------------------------------------------------------------------



As
of and for the year ended December 31, 2016





|                                          |  | Shopping
    centers in Canada |        |  | Shopping
    centers in North
    Europe (1) |  |        | Shopping
    centers in Central-Eastern Europe (1) |  |  | Other
    segments |  |  | Adjustments
    for consolidated (2)-(7) |       |   | Consolidated | 
|----------------------------------------- |  | ------------------------------ | ------ |  | -------------------------------------------- |  | ------ | -------------------------------------------------- |  |  | ------------------ |  |  | ---------------------------------------- | ----- | - | ------------ | 
|                                          |  | NIS
    in millions            |       
|Segment revenues                          |  |                                |        |  |                                              |  |        |                                                    |  |  |                    |  |  |                                          |       |   |              | 
|External
    revenues (2)                 |  |                                | 1,960  |  |                                              |  | 1,555  |                                                    |  |  | 1,092              |  |  |                                          | 340   |   |              | 
|Segment
    results:                      |  |                                |        |  |                                              |  |        |                                                    |  |  |                    |  |  |                                          |       |   |              | 
|Gross profit (loss) (3)                   |  |                                | 1,223  |  |                                              |  | 1,084  |                                                    |  |  | 764                |  |  |                                          | 252   |   |              | 
|Depreciation and amortization (3)         |  |                                | 4      |  |                                              |  | 26     |                                                    |  |  | 12                 |  |  |                                          | 2     |   |              | 
|Share in earnings (losses) of investees   |  |                                | 36     |  |                                              |  | 24     |                                                    |  |  | 53                 |  |  |                                          | (19   | ) |              | 
|Operating income (4)                      |  |                                | 1,152  |  |                                              |  | 996    |                                                    |  |  | 464                |  |  |                                          | 187   |   |              | 
|Revaluation gain (loss) (4)               |  |                                | 639    |  |                                              |  | 161    |                                                    |  |  | 62                 |  |  |                                          | 70    |   |              | 
|Segment
    assets:                       |  |                                |        |  |                                              |  |        |                                                    |  |  |                    |  |  |                                          |       |   |              | 
|Operating assets (5)                      |  |                                | 24,798 |  |                                              |  | 21,388 |                                                    |  |  | 11,432             |  |  |                                          | 5,514 |   |              | 
|Investments in
    investees              |  |                                | 417    |  |                                              |  | 275    |                                                    |  |  | 700                |  |  |                                          | 34    |   |              | 
|Total assets                              |  |                                | 25,215 |  |                                              |  | 21,663 |                                                    |  |  | 12,132             |  |  |                                          | 5,548 |   |              | 
|Investments in
    non-current assets (6) |  |                                | 1,565  |  |                                              |  | 1,186  |                                                    |  |  | 246                |  |  |                                          | 892   |   |              | 
|Segment liabilities
    (7)               |  |                                | 431    |  |                                              |  | 2,311  |                                                    |  |  | 650                |  |  |                                          | 405   |   |              | 



F-112








|NOTES
    TO CONSOLIDATED FINANCIAL STATEMENTS | GAZIT-GLOBE
                                         LTD.
|---------------------------------------------- | ---------------------------------------------------------





|NOTE
    38:- | SEGMENT
    INFORMATION (Cont.)
|------------- | -------------------------------



| | b. | Financial
                                         information by operating segments(Cont.)
| | -- | -------------------------------------------------------------------------------------------



As
of and for the Year ended December 31, 2015 *)





|                                          |  | Shopping
    centers in Canada |        |  | Shopping
    centers in North
    Europe (1) |  |        | Shopping
    centers in Central-Eastern Europe (1) |  |  | Other
    segments |   |  | Adjustments
    for consolidated (2)-(7) |       |   | Consolidated | 
|----------------------------------------- |  | ------------------------------ | ------ |  | -------------------------------------------- |  | ------ | -------------------------------------------------- |  |  | ------------------ | - |  | ---------------------------------------- | ----- | - | ------------ | 
|                                          |  | NIS
    in millions            |       
|Segment revenues                          |  |                                |        |  |                                              |  |        |                                                    |  |  |                    |   |  |                                          |       |   |              | 
|External
    revenues (2)                 |  |                                | 2,001  |  |                                              |  | 1,421  |                                                    |  |  | 1,192              |   |  |                                          | 344   |   |              | 
|Segment
    results:                      |  |                                |        |  |                                              |  |        |                                                    |  |  |                    |   |  |                                          |       |   |              | 
|Gross profit (loss) (3)                   |  |                                | 1,254  |  |                                              |  | 989    |                                                    |  |  | 834                |   |  |                                          | 250   |   |              | 
|Depreciation and amortization (3)         |  |                                | 7      |  |                                              |  | 50     |                                                    |  |  | 13                 |   |  |                                          | 2     |   |              | 
|Share in earnings (losses) of investees   |  |                                | 38     |  |                                              |  | 14     |                                                    |  |  | 43                 |   |  |                                          | (1    | ) |              | 
|Operating income (loss) (4)               |  |                                | 1,134  |  |                                              |  | 754    |                                                    |  |  | 632                |   |  |                                          | 163   |   |              | 
|Revaluation gain (loss) (4)               |  |                                | 125    |  |                                              |  | 199    |                                                    |  |  | (448               | ) |  |                                          | (81   | ) |              | 
|Segment
    assets:                       |  |                                |        |  |                                              |  |        |                                                    |  |  |                    |   |  |                                          |       |   |              | 
|Operating assets (5)                      |  |                                | 22,728 |  |                                              |  | 21,271 |                                                    |  |  | 12,173             |   |  |                                          | 4,407 |   |              | 
|Investments in
    investees              |  |                                | 451    |  |                                              |  | 408    |                                                    |  |  | 719                |   |  |                                          | 47    |   |              | 
|Total assets                              |  |                                | 23,179 |  |                                              |  | 21,679 |                                                    |  |  | 12,892             |   |  |                                          | 4,454 |   |              | 
|Investments in
    non-current assets (6) |  |                                | 1,154  |  |                                              |  | 7,676  |                                                    |  |  | 242                |   |  |                                          | 697   |   |              | 
|Segment liabilities
    (7)               |  |                                | 399    |  |                                              |  | 436    |                                                    |  |  | 570                |   |  |                                          | 74    |   |              | 



*)
Reclassified, refer to Note 2ff.



As
of and for the Year ended December 31, 2014 *)



|                                  |  | Shopping
    centers in Canada |       |  | Shopping
    centers in North
    Europe (1) |  |       | Shopping
    centers in Central-Eastern Europe (1) |  |  | Other
    segments |   |  | Adjustments
    for consolidated (2)-(4) |     |   | Consolidated | 
|--------------------------------- |  | ------------------------------ | ----- |  | -------------------------------------------- |  | ----- | -------------------------------------------------- |  |  | ------------------ | - |  | ---------------------------------------- | --- | - | ------------ | 
|                                  |  | NIS
    in millions            |      
|Segment revenues                  |  |                                |       |  |                                              |  |       |                                                    |  |  |                    |   |  |                                          |     |   |              | 
|External
    revenues (2)         |  |                                | 2,100 |  |                                              |  | 1,366 |                                                    |  |  | 1,372              |   |  |                                          | 459 |   |              | 
|Segment
    results:              |  |                                |       |  |                                              |  |       |                                                    |  |  |                    |   |  |                                          |     |   |              | 
|Gross profit (loss) (3)           |  |                                | 1,318 |  |                                              |  | 948   |                                                    |  |  | 969                |   |  |                                          | 332 |   |              | 
|Depreciation and amortization (3) |  |                                | 9     |  |                                              |  | 4     |                                                    |  |  | 13                 |   |  |                                          | 3   |   |              | 
|Share in earnings of investees    |  |                                | 30    |  |                                              |  | -     |                                                    |  |  | -                  |   |  |                                          | (2  | ) |              | 
|Operating income (loss) (4)       |  |                                | 1,193 |  |                                              |  | 853   |                                                    |  |  | 756                |   |  |                                          | 260 |   |              | 
|Revaluation gain (loss) (4)       |  |                                | 137   |  |                                              |  | 251   |                                                    |  |  | (803               | ) |  |                                          | 187 |   |              | 



*)
Reclassified, refer to Note 2ff.





F-113








|NOTES
    TO CONSOLIDATED FINANCIAL STATEMENTS | GAZIT-GLOBE
                                         LTD.
|---------------------------------------------- | ---------------------------------------------------------





|NOTE
    38:- | SEGMENT
    INFORMATION (Cont.)
|------------- | -------------------------------



| | c. | Geographical
                                         information
| | -- | -----------------------------------------------------------------



External
revenues





| |                             |  | Year
    ended December 31 |      
| | --------------------------- |  | -------------------------- | -----
| |                             |  | 2016                       |      
| |                             |  | NIS
    in millions        |      
| | Canada                      |  |                            | 1,960
| | Northern and Western Europe |  |                            | 1,592
| | Central-Eastern Europe      |  |                            | 1,094
| | Other                       |  |                            | 303  
| | Reconciliations (2)         |  |                            | (148 
| | Total                       |  |                            | 4,801



*)
Reclassified, refer to Note 2ff.



Location
of non-current operating assets (6)





| |                             |  | December
    31     |       
| | --------------------------- |  | ------------------- | ------
| |                             |  | 2016                |       
| |                             |  | NIS
    in millions |       
| | Canada                      |  |                     | 24,461
| | Northern and Western Europe |  |                     | 21,225
| | Central-Eastern Europe      |  |                     | 11,394
| | Other                       |  |                     | 4,953 
| | Reconciliations (5)         |  |                     | 1,264 
| | Total non- current assets   |  |                     | 63,297



*)
Reclassified, refer to Note 2ff.



| | d. | Notes
                                         to segment information
| | -- | ---------------------------------------------------------------------



| | 1. | Jointly
                                         controlled entities are accounted for according to the equity method. Information of
                                         the segment “shopping centers in central-eastern Europe” that represent reportable
                                         segment was included in 2014 in segments information at its full value and offset against
                                         the consolidation adjustments column, and in 2015 was consolidated in the financial statement.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Therefore,
the initial consolidation of ATR in the financial statement had no effect on manner of presentation of the segments.



Similarly,
the information of the segment “shopping centers in North Europe” reflects 100% of the value of the joint venture
Kista Galleria, and is offset against the consolidation adjustments column.



| | 2. | The
                                         Group has no intersegment revenues. Adjustments with respect to segment revenues primarily
                                         include elimination of ATR’s (in 2014), and Kista Galleria results as referred
                                         to above.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-114








|NOTES
    TO CONSOLIDATED FINANCIAL STATEMENTS | GAZIT-GLOBE
                                         LTD.
|---------------------------------------------- | ---------------------------------------------------------





|NOTE
    38:- | SEGMENT
    INFORMATION (Cont.)
|------------- | -------------------------------



| | 3. | The
                                         reconciliations to the consolidated information in the gross profit item include the
                                         effect of the reconciliations to revenues, as mentioned above.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 4. | Segments’
                                         operating income excludes revaluation gains which are included in consolidation adjustments.
                                         Adjustments for Operating Income include the stated in section 3 above, as well as goodwill
                                         impairment, adjustment due to ATR results (in 2014) as mentioned above, revaluation gains
                                         which are presented separately below operating profit. Likewise, these reconciliations
                                         include unallocated general and administrative expenses of approximately NIS  112
                                         million, NIS  340 million and NIS  350 million and unallocated net other income
                                         (expense) of approximately NIS (9) million, NIS ( 518) million and NIS  2 million,
                                         for 2016, 2015 and 2014, respectively.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 5. | Segment
                                         assets include current operating assets, investment property, property under development,
                                         goodwill, fixed assets and non-current inventory. The reconciliations for consolidation
                                         include mainly available-for-sale securities, deferred taxes, derivatives, goodwill (at
                                         group level) and cancellation of ATR’s assets in 2014 and Kista Galleria assets
                                         as mentioned above. Furthermore, consolidation adjustments as of December 31, 2016 and
                                         December 31, 2015 include assets of the discontinued operations.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 6. | Investments
                                         in non-current assets include mainly fixed assets, investment property, investment property
                                         under development and goodwill, as well as business combination.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 7. | Segment
                                         liabilities include operating liabilities such as trade payables, land lease liabilities,
                                         other payables and tenants’ security deposits. The reconciliations for consolidation
                                         include mainly deferred taxes, financial derivatives and interest-bearing liabilities.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-115








|NOTES
    TO CONSOLIDATED FINANCIAL STATEMENTS | GAZIT-GLOBE
                                         LTD.
|---------------------------------------------- | ---------------------------------------------------------





|NOTE
    39:- | EVENTS
    AFTER THE REPORTING DATE
|------------- | -----------------------------------



| | a. | On
                                         March 2, 2017, a wholly owned subsidiary of the Company entered into an agreement with
                                         a syndication of underwriters for the sale of 9 million shares of FCR, representing 3.7%
                                         of the share capital of FCR, in a transaction on the Toronto Stock Exchange (in the format
                                         of a “bought deal”), at a price per share of C$ 20.6 and for a (gross) total
                                         consideration of C$ 185 million (approximately NIS 500 million).
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The
aforesaid subsidiary also granted the underwriters an option to purchase up to an additional 1.35 million shares of FCR from the
Company, with effect for 30 days from the date of completion of the sale. If fully exercised, the option will increase the sale
consideration to C$ 213 (approximately NIS 575 million).



The
sale was completed on March 22, 2017 and the Company (including through wholly owned subsidiaries) holds 79.6 million shares of
FCR, representing 32.7% of the share capital and voting rights in FCR. As of the date of the sale,
the Company cease to consolidate FCR in its financial consolidated statements and it is expected to recognize an increase in capital
of NIS 800 million and a loss in the statement of income in the amount of NIS 400 million, including a loss that was reclassified
to profit or loss in respect of the realization of reserves. (mainly due to exchange differences of foreign operations).



As
of the date of loss of control, the Company will account its investment in FCR according to the equity method in accordance with
the provisions of International Standard No. 28, “Investment in Associates and Joint Ventures”.



| | b. | Following
                                         the completion of the merger between EQY and REG (for details, refer to Note 9d), on
                                         March 2, 2017, wholly owned subsidiaries of the Company sold 2.8 million ordinary shares
                                         of REG, representing 1.6% of the share capital in REG, for a total consideration of US$
                                         192 million (approximately NIS 708 million).
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Consequently,
the Company holds 19.5 million shares of REG, representing 11.5% of the share capital and voting rights therein.



| | c. | On
                                         January 12, 2017 Gazit Development and Luzon Group and its controlling shareholders signed
                                         an agreement for liquefaction of Gazit Development investment in Luzon Group. For details
                                         regarding the agreement, refer to note 10(5).
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | d. | In
                                         January 2017, FCR redeemed C$ 106.3 million (NIS 306 million) convertible debentures
                                         (series E and F) in consideration to their par value plus accrued interest.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | e. | For
                                         details regarding options granted to the Company CEO, after the reporting period, refer
                                         to Note 37(2)a.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-116








|NOTES
    TO CONSOLIDATED FINANCIAL STATEMENTS | GAZIT-GLOBE
                                         LTD.
|---------------------------------------------- | ---------------------------------------------------------





|NOTE
    40:- | CONDENSED FINANCIAL
    INFORMATION OF THE PARENT COMPANY
|------------- | ---------------------------------------------------------



Condensed
statements of financial position



| |                                                                                |  | December
    31     |       
| | ------------------------------------------------------------------------------ |  | ------------------- | ------
| |                                                                                |  | 2016                |       
| |                                                                                |  | NIS in
    millions |       
| |                                                                                |  |                     |       
| | ASSETS                                                                         |  |                     |       
| |                                                                                |  |                     |       
| | CURRENT ASSETS                                                                 |  |                     |       
| | Cash and cash equivalents                                                      |  |                     | 510   
| | Short-term loans
    and current maturities of long-term loans to subsidiaries |  |                     | 29    
| | Financial derivatives                                                          |  |                     | 67    
| | Other accounts receivable                                                      |  |                     | 2     
| | Preferred shares
    of subsidiary                                             |  |                     | -     
| |                                                                                |  |                     |       
| | Total current
    assets                                                       |  |                     | 608   
| |                                                                                |  |                     |       
| | NON-CURRENT ASSETS                                                             |  |                     |       
| | Financial derivatives                                                          |  |                     | 490   
| | Loans to subsidiaries                                                          |  |                     | 5,723 
| | Investments in subsidiaries                                                    |  |                     | 9,042 
| | Fixed
    assets, net                                                          |  |                     | 3     
| |                                                                                |  |                     |       
| | Total non-current
    assets                                                   |  |                     | 15,258
| |                                                                                |  |                     |       
| | Total assets                                                                   |  |                     | 15,866



F-117








|NOTES
    TO CONSOLIDATED FINANCIAL STATEMENTS | GAZIT-GLOBE
                                         LTD.
|---------------------------------------------- | ---------------------------------------------------------





|NOTE
    40:- | CONDENSED FINANCIAL
    INFORMATION OF THE PARENT COMPANY (Cont.)
|------------- | -----------------------------------------------------------------



Condensed
statements of financial position (Cont.)



| |                                                          |  | December
    31     |       
| | -------------------------------------------------------- |  | ------------------- | ------
| |                                                          |  | 2016                |       
| |                                                          |  | NIS in
    millions |       
| | LIABILITIES AND
    EQUITY                               |  |                     |       
| |                                                          |  |                     |       
| | CURRENT LIABILITIES                                      |  |                     |       
| | Current maturities
    of non-current liabilities        |  |                     | 1,104 
| | Financial derivatives                                    |  |                     | 36    
| | Trade payables                                           |  |                     | 5     
| | Other accounts payable                                   |  |                     | 275   
| | Current
    tax payable                                  |  |                     | 43    
| |                                                          |  |                     |       
| | Total current
    liabilities                            |  |                     | 1,463 
| |                                                          |  |                     |       
| | NON-CURRENT LIABILITIES                                  |  |                     |       
| | Loans from banks
    and others                          |  |                     | 2,634 
| | Debentures                                               |  |                     | 10,128
| | Deferred
    taxes                                       |  |                     | 1     
| |                                                          |  |                     |       
| | Total non-current
    liabilities                        |  |                     | 12,763
| |                                                          |  |                     |       
| | EQUITY ATTRIBUTABLE
    TO EQUITY HOLDERS OF THE COMPANY |  |                     |       
| | Share capital                                            |  |                     | 249   
| | Share premium                                            |  |                     | 4,992 
| | Reserves                                                 |  |                     | (3    
| | Accumulated
    losses                                   |  |                     | (3,598
| |                                                          |  |                     |       
| | Total equity                                             |  |                     | 1,640 
| |                                                          |  |                     |       
| | Total liabilities
    and equity                         |  |                     | 15,866



F-118








|NOTES
    TO CONSOLIDATED FINANCIAL STATEMENTS | GAZIT-GLOBE
                                         LTD.
|---------------------------------------------- | ---------------------------------------------------------





|NOTE
    40:- | CONDENSED FINANCIAL
    INFORMATION OF THE PARENT COMPANY (Cont.)
|------------- | -----------------------------------------------------------------



Condensed
profit or loss statements



| |                                                 |  | Year
    ended December 31 |      
| | ----------------------------------------------- |  | -------------------------- | -----
| |                                                 |  | 2016                       |      
| |                                                 |  | NIS in
    millions        |      
| |                                                 |  |                            |      
| | Dividend income                                 |  |                            | 244  
| | Management fees from related companies          |  |                            | 3    
| | Finance income from subsidiaries                |  |                            | 210  
| | Other finance
    income                        |  |                            | 4    
| |                                                 |  |                            |      
| | Total income                                    |  |                            | 461  
| |                                                 |  |                            |      
| | General and administrative expenses             |  |                            | 68   
| | Finance expenses                                |  |                            | 815  
| | Exchange differences on loans to investees      |  |                            | 159  
| | Other expenses                                  |  |                            | 7    
| |                                                 |  |                            |      
| | Total expenses                                  |  |                            | 1,049
| |                                                 |  |                            |      
| | Income (loss) before taxes on income            |  |                            | (588 
| | Taxes on income                                 |  |                            | 12   
| |                                                 |  |                            |      
| | Net income (loss)
    attributed to the Company |  |                            | (600 



F-119








|NOTES
    TO CONSOLIDATED FINANCIAL STATEMENTS | GAZIT-GLOBE
                                         LTD.
|---------------------------------------------- | ---------------------------------------------------------





|NOTE 40:- | CONDENSED FINANCIAL INFORMATION OF THE PARENT
    COMPANY (Cont.)
|--------- | -----------------------------------------------------------------



Condensed
statements of cash flows



| |                                                                                                         |  | Year
    ended December 31 |     
| | ------------------------------------------------------------------------------------------------------- |  | -------------------------- | ----
| |                                                                                                         |  | 2016                       |     
| |                                                                                                         |  | NIS in
    millions        |     
| | Cash flows from operating activities of the Company:                                                    |  |                            |     
| |                                                                                                         |  |                            |     
| | Net income (loss)
    attributed to the Company                                                         |  |                            | (600
| |                                                                                                         |  |                            |     
| | Adjustments
    required to present net cash provided by (used in) operating activities of the Company: |  |                            |     
| |                                                                                                         |  |                            |     
| | Adjustments to profit and loss items
    of the Company:                                                |  |                            |     
| |                                                                                                         |  |                            |     
| | Depreciation                                                                                            |  |                            | 6   
| | Dividend income                                                                                         |  |                            | (244
| | Finance expenses (income), net                                                                          |  |                            | 760 
| | Cost of share-based payment                                                                             |  |                            | 9   
| | Taxes on income
    (tax benefit)                                                                       |  |                            | 12  
| |                                                                                                         |  |                            |     
| |                                                                                                         |  |                            | 543 
| | Changes in assets and liabilities of
    the Company:                                                   |  |                            |     
| |                                                                                                         |  |                            |     
| | Increase in other accounts receivable                                                                   |  |                            | 1   
| | Decrease in trade
    payables and other accounts payable                                               |  |                            | (11 
| |                                                                                                         |  |                            |     
| |                                                                                                         |  |                            | (10 
| | Cash paid and received during the year
    by the Company for:                                          |  |                            |     
| |                                                                                                         |  |                            |     
| | Interest paid                                                                                           |  |                            | (522
| | Interest received (Note 37.d)                                                                           |  |                            | -   
| | Interest received from subsidiaries                                                                     |  |                            | 152 
| | Taxes paid                                                                                              |  |                            | (16 
| | Dividends received                                                                                      |  |                            | -   
| | Dividends received
    from subsidiaries                                                                |  |                            | 244 
| |                                                                                                         |  |                            |     
| |                                                                                                         |  |                            | (142
| |                                                                                                         |  |                            |     
| | Net cash used
    in operating activities of the Company                                                |  |                            | (209



F-120








|NOTES
    TO CONSOLIDATED FINANCIAL STATEMENTS | GAZIT-GLOBE
                                         LTD.
|---------------------------------------------- | ---------------------------------------------------------





|NOTE
    40:- | CONDENSED FINANCIAL
    INFORMATION OF THE PARENT COMPANY (Cont.)
|------------- | -----------------------------------------------------------------



Condensed
statements of cash flows (Cont.)



| |                                                                        |  | Year
    ended December 31 |      
| | ---------------------------------------------------------------------- |  | -------------------------- | -----
| |                                                                        |  | 2016                       |      
| |                                                                        |  | NIS in
    millions        |      
| | Cash flows from investing activities of the Company:                   |  |                            |      
| |                                                                        |  |                            |      
| | Acquisition of fixed assets                                            |  |                            | (1   
| | Proceeds from sale of fixed assets                                     |  |                            | -    
| | Investments in subsidiaries                                            |  |                            | (268 
| | Redemption of preferred shares of subsidiary                           |  |                            | 404  
| | Loans repaid by subsidiaries, net                                      |  |                            | (438 
| | Investment in marketable securities                                    |  |                            | (18  
| | Proceeds from
    sale of marketable securities                        |  |                            | 20   
| |                                                                        |  |                            |      
| | Net cash used
    in investing activities of the Company               |  |                            | (301 
| |                                                                        |  |                            |      
| | Cash flows
    from financing activities of the Company:               |  |                            |      
| |                                                                        |  |                            |      
| | Issue of shares (less issue expenses)                                  |  |                            | -    
| | Exercise of stock options into shares                                  |  |                            | -    
| | Repayment of loans for purchase of company
    shares                  |  |                            | -    
| | Dividends paid to equity holders of
    the Company                    |  |                            | (295 
| | Issue of debentures (less issue expenses)                              |  |                            | -    
| | Repayment and early redemption of debentures                           |  |                            | (691 
| | Receipt (repayment) of long-term credit
    facilities from banks, net |  |                            | 1,371
| | Unwinding of
    hedging transactions                                  |  |                            | 3    
| |                                                                        |  |                            |      
| | Net cash provided
    by financing activities of the Company           |  |                            | 388  
| |                                                                        |  |                            |      
| | Exchange differences
    on balance of cash and cash equivalents       |  |                            | (29  
| |                                                                        |  |                            |      
| | Increase (decrease) in cash and cash
    equivalents                   |  |                            | (151 
| | Cash and cash
    equivalents at the beginning of year                 |  |                            | 661  
| |                                                                        |  |                            |      
| | Cash and cash equivalents
    at the end of year                       |  |                            | 510  
| |                                                                        |  |                            |      
| | Significant
    non-cash activities of the Company:                    |  |                            |      
| |                                                                        |  |                            |      
| | Exchange of loan
    granted to subsidiaries for capital issuance      |  |                            | 375  



*‎)
Represents an amount lower than NIS 1 million.



F-121








|NOTES
    TO CONSOLIDATED FINANCIAL STATEMENTS | GAZIT-GLOBE
                                         LTD.
|---------------------------------------------- | ---------------------------------------------------------





|NOTE
    40:- | CONDENSED FINANCIAL
    INFORMATION OF THE PARENT COMPANY (Cont.)
|------------- | -----------------------------------------------------------------



Note
A – Basis of presentation -



The
condensed financial information of the parent company (the “Solo report”) is prepared in accordance with International
Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
In the Solo report the investment in subsidiaries is stated at its deemed cost according to IAS 27. Accordingly, the Company does
not record equity income from its subsidiaries in the Solo report. Dividends from subsidiaries are recorded as income in the condensed
profit or loss statements.



Note
B – Non-current liabilities -



Non-current
debt attributed to the Company



Composition



| |                                     |  | December
    31     |       
| | ----------------------------------- |  | ------------------- | ------
| |                                     |  | 2016                |       
| |                                     |  | NIS in
    millions |       
| |                                     |  |                     |       
| | Loans from banks and others (1) (3) |  |                     | 2,634 
| | Debentures (2) (3)                  |  |                     | 10,128
| |                                     |  |                     |       
| |                                     |  |                     | 12,762



| | (1) | Composition of banks credit
| | --- | ---------------------------



| |                                   |  | Effective |      |   | December
    31     | 
| | --------------------------------- |  | --------- | ---- | - | ------------------- | 
| |                                   |  | interest  |      |   | 2016                | 
| | Denomination                      |  | %         |      |   | NIS in
    millions | 
| |                                   |  |           |      |   |                     | 
| | In NIS – unlinked*)               |  |           | 3.48 | % |                     | 
| | In U.S.$*)                        |  |           | 3.09 | % |                     | 
| | In U.S.$                          |  |           | 5.52 | % |                     | 
| | In C$*)                           |  |           | 3.18 | % |                     | 
| | In €*)                            |  |           | 2.52 | % |                     | 
| |                                   |  |           |      |   |                     | 
| |                                   |  |           |      |   |                     | 
| | Less - deferred
    finance costs |  |           |      |   |                     | 
| |                                   |  |           |      |   |                     | 
| |                                   |  |           |      |   |                     | 
| |                                   |  |           |      |   |                     | 
| | Less - current
    maturities     |  |           |      |   |                     | 
| |                                   |  |           |      |   |                     | 
| |                                   |  |           |      |   |                     | 



*)
Variable interest



To
secure credit obtained from banks, the Company and its wholly-owned subsidiaries have pledged shares of investees. Furthermore,
the Company’s wholly-owned subsidiaries guarantee the credit obtained by the Company from banks.



As
for financial covenants, refer to Note 22.d.



F-122








|NOTES
    TO CONSOLIDATED FINANCIAL STATEMENTS | GAZIT-GLOBE
                                         LTD.
|---------------------------------------------- | ---------------------------------------------------------





|NOTE
    40:- | CONDENSED FINANCIAL
    INFORMATION OF THE PARENT COMPANY (Cont.)
|------------- | -----------------------------------------------------------------



| | (2) | As
                                         for the composition of the debentures, refer to Note 20.a.
| | --- | ------------------------------------------------------------------------------------------------------



Debentures
(Series J) are secured by a lien recorded on properties owned by a subsidiary of the Company, with aggregate fair value as of
the reporting date amounted of NIS 1,109 million.



| | (3) | Maturities
| | --- | ----------



| |                                 |  | Loans from
                                         banks and others |       |  | Debentures | 
| | ------------------------------- |  | -------------------------------------------------------------------- | ----- |  | ---------- | 
| |                                 |  | NIS in
    millions                                                  |      
| |                                 |  |                                                                      |       |  |            | 
| | Year 1 - current
    maturities |  |                                                                      | 24    |  |            | 
| |                                 |  |                                                                      |       |  |            | 
| | Year 2                          |  |                                                                      | 185   |  |            | 
| | Year 3                          |  |                                                                      | 1,653 |  |            | 
| | Year 4                          |  |                                                                      | 596   |  |            | 
| | Year 5                          |  |                                                                      | 23    |  |            | 
| | Year 6 and thereafter           |  |                                                                      | 177   |  |            | 
| |                                 |  |                                                                      | 2,634 |  |            | 
| |                                 |  |                                                                      |       |  |            | 
| |                                 |  |                                                                      | 2,658 |  |            | 



| | *) | On
                                         December 31, 2016 there was the date of final redemption of debentures (series B and
                                         F) of the Company. The debentures were fully redeemed on January 2017 since the redemption
                                         date falls on a non-business day, therefore the actual payment accrued on the first business
                                         date afterward.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Note
C - Contingent liabilities -



As
for guarantees, refer to Note 26b3 above.



As
for legal claims, refer to Note 26.d above.



Note
D - Dividends from subsidiaries -



Dividends
declared and received from subsidiaries:



| |             |  | Year
    ended December 31 |    
| | ----------- |  | -------------------------- | ---
| |             |  | 2016                       |    
| |             |  | NIS in
    millions        |    
| |             |  |                            |    
| | Citycon OYJ |  |                            | 244
| | Other       |  |                            | -  
| |             |  |                            | 244



F-123










|APPENDIX
    A TO CONSOLIDATED FINANCIAL STATEMENTS | GAZIT-GLOBE
                                         LTD.
|--------------------------------------------------- | ---------------------------------------------------------







LIST
OF MAJOR GROUP INVESTEES AS OF DECEMBER 31, 2016 (1)



|                                                             |  | Holding
    interest as of
    December 31, |      |  |      |  |       |      | Additional
    information
|------------------------------------------------------------ |  | ------------------------------------------- | ---- |  | ---- |  | ----- | ---- | --------------------------
|                                                             |  | 2016                                        |      |  | 2015 |  |       | Note |                           
|                                                             |  | %                                           |      |  |      |  |       |      |                           
|                                                             |  |                                             |      |  |      |  |       |      |                           
|Equity
    One Inc.                                          |  |                                             | 34.3 |  |      |  | 38.4  |      |                           
|First
    Capital Realty Inc.                                |  |                                             | 36.4 |  |      |  | 42.2  |      |                           
|M.G.N
    USA Inc.                                           |  |                                             | 100  |  |      |  | 100   |      |                           
|Gazit
    (1995) Inc.                                        |  |                                             | 100  |  |      |  | 100   |      |                           
|Gazit
    Group USA Inc.                                     |  |                                             | 100  |  |      |  | 100   |      |                           
|M.G.N
    America LLC.                                       |  |                                             | 100  |  |      |  | 100   |      |                           
|Gazit
    First Generation LLC.                              |  |                                             | 100  |  |      |  | 100   |      |                           
|Gazit
    S.A. Inc.                                          |  |                                             | 100  |  |      |  | 100   |      |                           
|Gazit
    Canada Inc.                                        |  |                                             | 100  |  |      |  | 100   |      |                           
|Gazit
    America Inc.                                       |  |                                             | 100  |  |      |  | 100   |      |                           
|Ficus
    Inc.                                               |  |                                             | 100  |  |      |  | 100   |      |                           
|Silver
    Maple (2001) Inc.                                 |  |                                             | 100  |  |      |  | 100   |      |                           
|Golden
    Oak Inc.                                          |  |                                             | 100  |  |      |  | 100   |      |                           
|Hollywood
    Properties Ltd.                                |  |                                             | 100  |  |      |  | 100   |      |                           
|Citycon
    Oyj                                              |  |                                             | 43.9 |  |      |  | 43.4  |      |                           
|Gazit
    Europe (Netherlands) BV                            |  |                                             | 100  |  |      |  | 100   |      |                           
|Gazit
    Europe (Asia) BV                                   |  |                                             | 100  |  |      |  | 100   |      |                           
|Gazit
    Germany Beteilingungs GmbH & Co. KG                |  |                                             | 100  |  |      |  | 100   |      |                           
|Gazit
    South America L.P.                                 |  |                                             | 94   |  |      |  | 94    |      |                           
|Gazit
    Brazil Ltda.                                       |  |                                             | 100  |  |      |  | 100   |      |                           
|Gazit
    Gaia Limited                                       |  |                                             | 100  |  |      |  | 100   |      |                           
|Gazit
    Midas Limited                                      |  |                                             | 100  |  |      |  | 100   |      |                           
|Atrium
    European Real Estate Limited                      |  |                                             | 59.5 |  |      |  | 54.9  |      |                           
|Gazit
    Globe Israel (Development) Ltd.                    |  |                                             | 100  |  |      |  | 84.65 |      |                           
|Hashalom
    Boulevard House Ltd (in voluntary liquidation). |  |                                             | 100  |  |      |  | 100   |      |                           
|Gazit
    Globe Holdings (1992) Ltd.                         |  |                                             | 100  |  |      |  | 100   |      |                           
|G.Globe
    Development Ltd.                                 |  |                                             | 100  |  |      |  | 100   |      |                           



| | (1) | The
                                         list does not include inactive companies and companies held by EQY, FCR, CTY, ATR, Gazit
                                         Development, Gazit Germany, Gazit Brazil and Gazit South America L.P.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                     
| | (2) | Held
                                         directly by the Company.                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                     
| | (3) | Held
                                         through subsidiaries.                                                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                     
| | (4) | Held
                                         directly and through subsidiaries.                                                                                                                                                                    



F-124










|APPENDIX
B TO CONSOLIDATED FINANCIAL STATEMENTS | GAZIT-GLOBE
                                         LTD.
|----------------------------------------------- | ---------------------------------------------------------







SCHEDULE
III

OF
RULE 5-04 OF REGULATION S-X

AS
OF DECEMBER 31, 2016



Investment
property



|Company/Region
    of operation                    |  | Number
    of properties |     |  | Fair
    value (NIS in millions) |  |        | Encumbrances (e.g.
                                         Mortgages) - NIS in millions |  |  | Weighted
                                         average (1) year
                                         of construction |  |  | Weighted
                                         average (2) year
                                         of acquisition |     
|-------------------------------------------------- |  | ------------------------ | --- |  | -------------------------------- |  | ------ | ---------------------------------------------------------------------------------------- |  |  | --------------------------------------------------------------------------------------------------------------------------- |  |  | -------------------------------------------------------------------------------------------------------------------------- | ----
|                                                   |  |                          |     |  |                                  |  |        |                                                                                          |  |  |                                                                                                                             |  |  |                                                                                                                            |     
|Equity One (3)                                     |  |                          |     |  |                                  |  |        |                                                                                          |  |  |                                                                                                                             |  |  |                                                                                                                            |     
|South Florida                                      |  |                          | 43  |  |                                  |  | 5,222  |                                                                                          |  |  | 405                                                                                                                         |  |  |                                                                                                                            | 1979
|North Florida                                      |  |                          | 18  |  |                                  |  | 1,674  |                                                                                          |  |  | -                                                                                                                           |  |  |                                                                                                                            | 1987
|Southeast U.S. (excluding Florida)                 |  |                          | 14  |  |                                  |  | 1,215  |                                                                                          |  |  | 23                                                                                                                          |  |  |                                                                                                                            | 1987
|Northeast U.S.                                     |  |                          | 28  |  |                                  |  | 6,543  |                                                                                          |  |  | 475                                                                                                                         |  |  |                                                                                                                            | 1982
|West Coast                                         |  |                          | 14  |  |                                  |  | 5,129  |                                                                                          |  |  | 74                                                                                                                          |  |  |                                                                                                                            | 1976
|Subtotal Equity
    One                            |  |                          | 117 |  |                                  |  | 19,783 |                                                                                          |  |  | 977                                                                                                                         |  |  |                                                                                                                            |     
|                                                   |  |                          |     |  |                                  |  |        |                                                                                          |  |  |                                                                                                                             |  |  |                                                                                                                            |     
|First Capital                                      |  |                          |     |  |                                  |  |        |                                                                                          |  |  |                                                                                                                             |  |  |                                                                                                                            |     
|Central (Ontario)                                  |  |                          | 60  |  |                                  |  | 10,180 |                                                                                          |  |  | 1,423                                                                                                                       |  |  |                                                                                                                            | 2008
|East (mainly Quebec)                               |  |                          | 50  |  |                                  |  | 5,185  |                                                                                          |  |  | 301                                                                                                                         |  |  |                                                                                                                            | 2009
|West (mainly
    British Columbia and Alberta)     |  |                          | 48  |  |                                  |  | 8,414  |                                                                                          |  |  | 1,035                                                                                                                       |  |  |                                                                                                                            | 2007
|Subtotal First
    Capital                         |  |                          | 158 |  |                                  |  | 23,779 |                                                                                          |  |  | 2,759                                                                                                                       |  |  |                                                                                                                            |     
|                                                   |  |                          |     |  |                                  |  |        |                                                                                          |  |  |                                                                                                                             |  |  |                                                                                                                            |     
|Citycon                                            |  |                          |     |  |                                  |  |        |                                                                                          |  |  |                                                                                                                             |  |  |                                                                                                                            |     
|Finland                                            |  |                          | 23  |  |                                  |  | 7,210  |                                                                                          |  |  | -                                                                                                                           |  |  |                                                                                                                            | 1991
|Sweden                                             |  |                          | 9   |  |                                  |  | 3,135  |                                                                                          |  |  | -                                                                                                                           |  |  |                                                                                                                            | 1969
|Norway                                             |  |                          | 22  |  |                                  |  | 5,944  |                                                                                          |  |  | 579                                                                                                                         |  |  |                                                                                                                            | 1986
|Other (Baltic
    countries/Denmark)               |  |                          | 3   |  |                                  |  | 1,375  |                                                                                          |  |  | -                                                                                                                           |  |  |                                                                                                                            | 1995
|Subtotal Citycon                                   |  |                          | 57  |  |                                  |  | 17,664 |                                                                                          |  |  | 579                                                                                                                         |  |  |                                                                                                                            |     
|                                                   |  |                          |     |  |                                  |  |        |                                                                                          |  |  |                                                                                                                             |  |  |                                                                                                                            |     
|Atrium                                             |  |                          |     |  |                                  |  |        |                                                                                          |  |  |                                                                                                                             |  |  |                                                                                                                            |     
|Poland                                             |  |                          | 21  |  |                                  |  | 6,384  |                                                                                          |  |  | 16                                                                                                                          |  |  |                                                                                                                            | 2003
|Czech Republic                                     |  |                          | 5   |  |                                  |  | 1,377  |                                                                                          |  |  | 442                                                                                                                         |  |  |                                                                                                                            | 2004
|Russia                                             |  |                          | 7   |  |                                  |  | 1,150  |                                                                                          |  |  | -                                                                                                                           |  |  |                                                                                                                            | 2006
|Others (Hungary,
    Romania, Slovakia and Latvia) |  |                          | 26  |  |                                  |  | 1,231  |                                                                                          |  |  | -                                                                                                                           |  |  |                                                                                                                            | 2002
|Subtotal Atrium                                    |  |                          | 59  |  |                                  |  | 10,142 |                                                                                          |  |  | 458                                                                                                                         |  |  |                                                                                                                            |     
|                                                   |  |                          |     |  |                                  |  |        |                                                                                          |  |  |                                                                                                                             |  |  |                                                                                                                            |     
|Gazit Israel                                       |  |                          | 11  |  |                                  |  | 2,511  |                                                                                          |  |  | 1,384                                                                                                                       |  |  |                                                                                                                            | 2004
|Gazit Germany                                      |  |                          | 3   |  |                                  |  | 385    |                                                                                          |  |  | -                                                                                                                           |  |  |                                                                                                                            | 1983
|Gazit Brazil                                       |  |                          | 8   |  |                                  |  | 2,115  |                                                                                          |  |  | -                                                                                                                           |  |  |                                                                                                                            | 2010
|                                                   |  |                          |     |  |                                  |  |        |                                                                                          |  |  |                                                                                                                             |  |  |                                                                                                                            |     
|Subtotal - operating
    investment property (4)   |  |                          | 413 |  |                                  |  | 76,379 |                                                                                          |  |  | 6,298                                                                                                                       |  |  |                                                                                                                            |     
|                                                   |  |                          |     |  |                                  |  |        |                                                                                          |  |  |                                                                                                                             |  |  |                                                                                                                            |     
|Investment property
    under development          |  |                          | 3   |  |                                  |  | 529    |                                                                                          |  |  | 8                                                                                                                           |  |  |                                                                                                                            | n/a 
|                                                   |  |                          |     |  |                                  |  |        |                                                                                          |  |  |                                                                                                                             |  |  |                                                                                                                            |     
|Land
    for future development (5)                |  |                          | n/a |  |                                  |  | 1,637  |                                                                                          |  |  | 35                                                                                                                          |  |  |                                                                                                                            | n/a 
|                                                   |  |                          |     |  |                                  |  |        |                                                                                          |  |  |                                                                                                                             |  |  |                                                                                                                            |     
|Grand
    total                                    |  |                          | 416 |  |                                  |  | 78,545 |                                                                                          |  |  | 6,341                                                                                                                       |  |  |                                                                                                                            |     



F-125










|APPENDIX
    B TO CONSOLIDATED FINANCIAL STATEMENTS | GAZIT-GLOBE
                                         LTD.
|--------------------------------------------------- | ---------------------------------------------------------







Presentation
in the consolidated financial statements-



|                                                                              |  | NIS
    in millions |       
|----------------------------------------------------------------------------- |  | ------------------- | ------
|                                                                              |  |                     |       
|Properties classified as
    held for sale (including NIS 99 million of land) |  |                     | 667   
|Properties classified as discontinued
    operation - EQY                     |  |                     | 19,783
|Investment property                                                           |  |                     | 55,982
|Investment property
    under development and Land                            |  |                     | 2,113 
|                                                                              |  |                     |       
|                                                                              |  |                     | 78,545



| | 1 | The
                                         weighted average year of construction is calculated based on the average year of construction
                                         for the properties within the applicable region of operation, weighted to reflect each
                                         property’s relative portion of the aggregate fair value of all properties in the
                                         region of operation. With respect to First Capital’s properties that were redeveloped,
                                         renovated or expanded, the construction date used is the year in which the applicable
                                         construction, renovation or expansion was completed.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2 | The
                                         weighted average year of acquisition is calculated based on the average year of acquisition
                                         for the properties within the applicable region of operation, weighted to reflect each
                                         property’s relative portion of the aggregate fair value of all properties in the
                                         region of operation. With respect to First Capital’s properties that were purchased
                                         in assemblies, the acquisition date used is the most recent year of acquisition.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3 | Excludes
                                         properties owned by equity-accounted joint ventures.
| | - | ------------------------------------------------------------------------------------------------------



| | 4 | Operating
                                         properties include properties under redevelopment and expansion.
| | - | -------------------------------------------------------------------------------------------------------------------



| | 5 | Includes
                                         NIS 99 million of land presented under assets held for sale.
| | - | --------------------------------------------------------------------------------------------------------------







F-126






Report
of Independent Registered Public Accounting Firm

The
Board of Directors and Stockholders

Atrium
European Real Estate Limited:



We
have audited the consolidated statements of financial position of Atrium European Real Estate Limited and subsidiaries as of December
31, 2016 and 2015, and the related consolidated statements of profit or loss, statements of other comprehensive income, cash flow
statements, and statements of changes in equity for the years then ended. These consolidated financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based
on our audits.



We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for
our opinion.



In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position
of Atrium European Real Estate Limited and subsidiaries as of December 31, 2016 and 2015, and the results of their operations
and their cash flows for each of the years in the two-year period ended December 31, 2016, in conformity with International Financial
Reporting Standards as issued by the International Accounting Standards Board.



KPMG
Channel Islands Limited

Jersey,
Channel Islands



March
21, 2017





F-127






Independent
Registered Public Accounting Firm

The
Board of Directors and Stockholders

Atrium
European Real Estate Limited:



We
have audited the consolidated statements of financial position of Atrium European Real Estate Limited and subsidiaries as of December
31, 2015 and 2014, and the related consolidated income statements, statements of comprehensive income/(loss), cash flow statements,
and statements of changes in equity for each of the years in the two-year period ended December 31, 2015. These consolidated financial
statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.



We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for
our opinion.



In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position
of Atrium European Real Estate Limited and subsidiaries as of December 31, 2015 and 2014, and the results of their operations
and their cash flows for each of the years in the two-year period ended December 31, 2015, in conformity with International Financial
Reporting Standards as issued by the International Accounting Standards Board.



KPMG
Channel Islands Limited

Jersey,
Channel Islands



March
9, 2016





F-128