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Edited Transcript of GZT.TA earnings conference call or presentation 27-Mar-17 2:00pm GMT

Thomson Reuters StreetEvents

Q4 2016 Gazit Globe Ltd Earnings Call

Tel Aviv Mar 27, 2017 (Thomson StreetEvents) -- Edited Transcript of Gazit Globe Ltd earnings conference call or presentation Monday, March 27, 2017 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Sarah Azoulay

Gazit Globe Ltd - IR

* Dori Segal

Gazit Globe Ltd - Chairman

* Adi Jemini

Gazit Globe Ltd - CFO

* Yaron Eshel

Gazit Globe Ltd - Israel CEO

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Conference Call Participants

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* Sam Damiani

TD Securities - Analyst

* Michael Klahr

Citigroup - Analyst

* Matt Kornack

National Bank Financial - Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by. Welcome to the Gazit-Globe fourth-quarter and full-year 2016 results conference call. (Operator Instructions) I advise you that this conference is being recorded today Monday, March 27, 2017. I would now like to hand the conference over to Ms. Sarah Azoulay. Please go ahead.

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Sarah Azoulay, Gazit Globe Ltd - IR [2]

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Greetings everyone and thank you for joining us today. The presentation that will be used in today's call can be found on Gazit-Globe's website at www.Gazit-Globe.com. Before we get started I would like to remind everyone that some of the statements today maybe forward-looking in nature. Although we believe that such statements are based upon reasonable assumptions you should assume that these statements are subject to risks and uncertainties and actual results may differ materially from those expressed or implied in these forward-looking statements.

Additional information about the risks and uncertainties that could cause actual results to differ may be found in our latest financial statements and our filings with the Israel Securities Authority, the US Securities and Exchange Commission and on SEDAR operated by the Canadian securities administrators. Statements made during the call are made as of the date of this call. Facts and circumstances may subsequently change which may limit the relevance and accuracy of certain information discussed.

Except as required by applicable law we undertake no obligation to update any forward-looking or other statements made herein, whether as a result of new information, future events or otherwise. With that I would like to turn the call over to Dori.

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Dori Segal, Gazit Globe Ltd - Chairman [3]

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Thank you, Sarah and good morning or good afternoon everyone wherever you are and welcome to our fourth quarter and year-end 2016 conference call. With me on the call today are Adi Jemini, our Executive Vice President and Chief Financial Officer; Mia Stark, Gazit's Brazil CEO and Yaron Eshel, Gazit Israel CEO.

2016 was a really good year for us as we have made real progress on all fronts of our new strategy that was announced a little over a year ago. We invested heavily in Sao Paolo, Brazil in what we think is a very opportune time. We acquired the 15% we did not already own in the Gazit Israel and continue to invest in development and redevelopment of our existing assets here. We increased our stake in Atrium and marginally in Citycon while these two entities continue to invest in their core business and recycle capital.

At the same time, as you may know, our businesses in North America continued to perform exceptionally well with both Equity One and First Capital Realty having record years. For Equity One shareholders and particularly in Gazit shareholders as well 2016 was a special year in which Equity One announced that it will merge into Regency Centers in a classic number two buying number three transaction trading the highest quality, must own, largest shopping center REIT in the US. Quite exciting for us.

(inaudible) one shopping center in South Florida with 60,000 square feet in 1991 transforming to a world-class REIT with $16 billion in assets, at $11.5 billion in equity that is now part of the S&P 500. Not to overstate this transaction -- you know me, I am going to overstate this transaction -- and on second thought you can't really overstate the magnitude, importance and compelling nature of this transaction. It will, I think, turn out to be a game changer and in important milestone in Gazit's evolution.

As I said, the year was a very important year for Gazit On the operational and financial level where we have made significant progress on which Adi will elaborate soon. I just want to reiterate that the strength of our balance sheet and the improvement of our financial position and flexibility are going to continue to be front and center as our business progresses.

Now let's talk about 2017. I want to start by suggesting a more simplistic way to look at Gazit at least for the near future 2017 and 2018 perhaps. We are in the business of owning, operating and developing shopping centers and mixed-use retail-dominated assets in major markets through really three very high-quality buckets. First, our wholly owned shopping center business in Israel and in Brazil which is today approximately 25% of our balance sheet compared to about 19% a year ago. We think these businesses are very well run have very attractive returns and at this point in the cycle a good potential for meaningful capital or NAV appreciation. We also strongly believe that the perceived market risk is overstated, particularly greatly overstated in Brazil.

The second bucket is a significant controlling stake in Citycon and Atrium where Chaim and Rachel for their board position and [Marcel] -- the two very talented CEOs of these companies are overseeing a significant transformation of the business becoming first-class shopping center owners. We believe we are going to see great risk-adjusted returns in the near and medium-term from these investments while we will be thoughtful but quick to react in case an attractive opportunity presents itself as we have done in the case of Equity One.

The third bucket is the North American holdings in the two top shopping center companies, Regency Centers and First Capital Realty. While we all agree I am sure that these are wonderful businesses with a low level of risk, my opinion is that the return that we will earn going forward will be better than most of you expect and Gazit intends to be there to harvest it.

Let me emphasize that while these three buckets seem different from each other, for Gazit management and from a strategy perspective, they are equally important and will get careful attention in terms of maximizing the value that is embedded in them. So before I hand over the call to Adi, I want to close my prepared remarks with what I think is our real competitive advantage.

We have a highly motivated, experienced, aligned and other than me, fairly young management team helped by a seasoned real estate entrepreneur and a visionary who is the Chairman and the largest shareholder of the Company. We are really determined to take this business forward and are armed, first and foremost, with what I think is a deeply undervalued stock of a very high-quality business, which is a hell of a good start. Stay tuned. And now to talk about the quarter and the year, let me hand over the call to Adi. Adi, please.

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Adi Jemini, Gazit Globe Ltd - CFO [4]

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Thank you, Dori. Good morning; good day everyone and thank you for joining us. I will spend a few minutes putting our results into context and then address our financial results but before I begin it is important to note that we have had to meaningful events after the reporting period. One, the completion of the merger of Equity One and Regency and two the dispositions of FCR and Regency shares for a total consideration of NIS1.2 billion or about USD300 million.

From an accounting reporting standpoint, the impact is as follows: one, the classification of Equity One into discontinued operations as of December 31, 2016; two, presenting Regency as a financial instrument in Q1 2017; and three, the consolidation of FCR and accounting for it under the equity method in Q1 2017. From economic standpoint these transaction reaffirms our commitment to further strengthening our balance sheet as well as our financial metrices which I will elaborate more in the next few slides.

I will begin with slide 5. A few comments on our P&L results. As Dori mentioned, we have made significant progress in our financings which are not quite evident in our numbers for the year-over-year comparison. For example, our 12 month year-to-date FFO is down 6.5% or 3% if you cover the FX. However, it's important to note that we had taken few actions at the end of fiscal year 2015 and beginning of 2016 such as the equity issuance, the sale of Equity One and FCR and disposition of the non-core construction business.

While these actions strengthened our balance sheet resulted in dilution of FFO per share compared with the 12-month year-over-year results. However, one cannot ignore the sequential quarterly growth of FFO which I will further elaborate on slide 6, but also the growth of FFO quarter over quarter of 2.4% per share, or 13% in total FFO. In addition, our underlying assets have continued to perform very well as evident by the fair value gains of NIS885 million or NIS2.1 billion including Equity One in which ultimately resulted in an increase of net income of 27% to NIS787 million.

Just a few brief words on the year-to-date NOI. Overall we show a stable NOI or an increase of 2.8% if we factor out the FX. I do want to touch a bit on the private platforms. In Israel we saw a 3% increase in NOI while in Brazil we do see a 42% increase mainly due to the strong acquisition activity in prior year. We also completed the development of Morumbi Town, a 30,000 square meter shopping center located in one of the most affluent neighborhoods of Sao Paulo, which opened at 97% occupancy. I would also like to add that we disposed of all of the (inaudible) malls at $125 million profit and recycled that gain into one of the best urban shopping centers in Sao Paulo, Cidade Jardim.

Moving to slide 6, in this light we present the sequential quarter trends in FFO over the course of the year. Since the beginning of the year FFO and FFO per share have shown a strong growth of 22%. Given the activity in prior year, these graphs better illustrate the growth trends in FFO that we've experienced over the last four sequential quarters.

Moving to slide 7. On the operational level we see an increase of about 2.1% in same-store NOI excluding the Russian impact. The key drivers for the increase is due to the positive operating fundamentals in North America as well as strong results in Brazil and Israel stemming from growth from newly developed properties that began to produce income in addition to organic same-store NOI growth.

As I mentioned in the conference call during the year, it's important to emphasize that our results for the same-store NOI in northern Europe do not include: one, the acquisition of the new Regency portfolio, which constitutes about 30% of the value of our assets portfolio in Northern Europe and shows same-store NOI growth of 3.6%; second, Kista Galleria, one of our strongest and largest assets in Stockholm which presented in increase of 1.1% in same-store NOI; and three, our flagship asset in Helsinki, Iso Omena, which is excluded due to its redevelopment.

In Central and Eastern Europe we show an increase of about 1.8% same-store NOI excluding Russia. Overall the occupancy rate at the end of the quarter remained relatively flat and stood at 95.6%. With that I will go to slide 8. We see in increase of about NIS885 million in the fair value of investment properties this year or NIS2.1 billion including Equity One which was reported on the discontinued operations line. We can see a positive trend in property valuation in North America as reflected in the capital gains, both in the US and Canada, as well is in Northern Europe where our average cap rates are about 5.5%.

Slide 9. A number of key points on the balance sheet. We finished the year strong with an increase to shareholder equity of about NIS650 million to $8.2 billion shareholder equity reflecting a book value of $41.70 per share representing a $3.30 per share increase. The significant increase in shareholder equity is coupled with a 120 basis point decrease in the consolidated LTV which is now at 50.1%. It is important to note that the results do not factor the impact on Equity as a result of the Equity/Regency merger transaction as well as the FCR deconsolidation.

As reported in Q1 2017 the expected interest to Equity is about NIS1.4 billion which is expected to slightly offset against the strengthening of the shekel against most of our operating currencies. Again, the increase of Equity reflects Gazit's investments in high quality urban retail portfolio with strong internal growth that ultimately will continue to result in greater cash flows and value appreciation over time.

Slide 10. The level of liquidity in the Group increased in 2016 by approximately NIS1.7 billion amounting to $12.1 billion, of which $3.2 billion is at the Company level. The $3.2 billion liquidity does not reflect the additional increase of liquidity of NIS1.2 billion as a result of the Regency and FCR disposition subsequent to their reporting period.

At the parent level we maintain a high level of liquidity while continuing to diversify and lowering our funding sources. As you can see, our international bank debt sources accounted for 39% at year end compared with 25% a year ago. It's important to note that as part of our stated strategy we place a high importance on diversifying our source of funding with the main goal of reducing our cost of capital as we've done in the bank debt and I believe you should expect to see the same trend continued throughout fiscal-year 2017. Lastly, S&P Maalot and Madroog reaffirmed our local credit rating in Q3 2016 at AA- or AA-3 with a stable outlook. As we mentioned before, we will continue to work and focus on achieving and international investment-grade rating in the short to midterm.

Moving to slide 11. We have a well staggered maturity profile with approximately 9% of our debt coming due this year, specifically Series A and E. Our average interest rate decreased by 25 basis points to 4.67%. I think that we have been very clear that a key element of our strategy is to [extend] our balance sheet. Through this date we have been able to increase our liquidity, diversify and reduce our cost of funding and with the recent sale of FCR and Regency, we expect our solo parent LTV to reach about 56% as of Q1 2017.

We feel very comfortable with the strength and flexibility of our balance sheet, which will better enable us to create value via our stated strategy. With that I will move on to questions and answers. Operator.

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Questions and Answers

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Operator [1]

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Thank you. (Operator Instructions) Sam Damiani, TD Securities

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Sam Damiani, TD Securities - Analyst [2]

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Dori, just on your comments on the European businesses with the significant transformation you see coming in over the next one, two, maybe three years, could you be a little bit more specific as to what the two businesses there are going to be doing to transform themselves?

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Dori Segal, Gazit Globe Ltd - Chairman [3]

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Well, I think it's not going to be fundamentally different than what you've seen in the businesses that we have in North America. Let's talk timetable a little bit more specifically. We entered North America in the early 1990s to the US and in 1996,1997 to Canada. We have entered Northern Europe in 2004 and Central and Eastern Europe in 2008, 2009 purchasing very small businesses in terms of the size of the portfolio and under (inaudible), so let's just take Citycon for an example.

In 2004, Citycon was $150 million equity market -- maybe I am going too far back. Let's go to 2011 when Citycon had $700 million of equity market cap, about a little less than $2 billion portfolio; over about 75% of its assets were in Finland. It had about 65% leverage and the average asset size was I think call it about EUR40 million. About five years later you are talking about the Company with $2.5 billion of equity, $4.5 billion of assets; very well diversified in the Nordics including some positions in the Baltics and a small position in Copenhagen; 42% leverage; high investment-grade rating; average asset size about EUR90 million.

So I would say that at the risk of oversimplifying the answer is really following the footsteps of the Gazit strategy which is owning better assets with significant redevelopment and density opportunities on the asset level, improving the credit rating, the size -- creating -- I want to be careful with my words -- competitive advantage in every trade area that we are in by accumulating assets to matter. So all of the above is exactly what these companies are doing and probably the only thing I would say would be slightly different than North America, the assets are not exactly the same.

If you have visited -- and I knew you do Sam -- and if you don't visit the assets you visit them through space, through Google. The assets are slightly different than North America so there are some changes to the specific strategies. One notable change, in most assets in the Nordics you have two supermarkets in the same shopping center which emphasizes how important it is to have a dominant asset in every trade area. Because you've got the two larger supermarkets and sometimes even a third -- and in the case of Iso Omena we would have actually four supermarkets in one asset. It is very important which assets you own. I hope that's what you are asking?

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Sam Damiani, TD Securities - Analyst [4]

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Yes. And so it sounds like Citycon is closer to where it wants to be where as Atrium has got further to go?

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Dori Segal, Gazit Globe Ltd - Chairman [5]

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Yes. And the only thing I would comment on that is that I think that if you look at the timetable we were a lot more confident and aggressive in transforming these businesses in Europe than we had been in North America I think from two main reasons. I think we are much more experienced right now. I think we have a stronger conviction in terms of what it takes to get a company into the point where its assets are the kind of assets that you want to have, with the mix of tenants you want to have. We are a much more conviction in terms of the credit posture of the businesses in order to adjust the cost of capital as quickly as you can to your growth needs.

Probably one evidence is Citycon which is about -- I think about two months ago issued its 10-year bond at a 1.25% rate which tells me that the debt market has already recognized the meaningful improvement in quality of the assets, the business and obviously the balance sheet. So I suspect that you will see Citycon continuing to move forward. So will Atrium. And I don't expect these businesses to turn around in a 20-year span which is what it took us in North America but probably a lot shorter period of time than that.

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Sam Damiani, TD Securities - Analyst [6]

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Okay. That's helpful. Thank you. A question maybe for Yaron on Gazit Israel. How is G Fashion doing in terms of pre-leasing and when do you expect that property to be cash flowing on a stabilized basis?

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Dori Segal, Gazit Globe Ltd - Chairman [7]

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Okay, let me jump in. Yaron this going to join in a second. He is probably was on mute if I understood it correctly but I will give you the [C] answer. The property is doing exceptionally well and the tenants are great. Now, Yaron, do you want to add a little bit more detail?

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Yaron Eshel, Gazit Globe Ltd - Israel CEO [8]

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Yes, I expect that G Fashion we operated about 20 months from now; we begin to build it four, five months ago so this is our expectation. And what was the other question?

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Sam Damiani, TD Securities - Analyst [9]

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What is the pre-leasing level of the -- is it fully leased or what portion of the property is leased at this point?

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Yaron Eshel, Gazit Globe Ltd - Israel CEO [10]

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Well, we just leased 60% of the assets and we are still on the way with other leases.

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Dori Segal, Gazit Globe Ltd - Chairman [11]

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Yes. Sam, we have the supermarket done and we have a couple of significant tenants in this market. One of them is actually an international tenant that is opening its first store in Israel, so we are a bit limited in terms of talking about it but the asset is 13,500 meters, which for those of you who needs translation is about 147,000 square, fee. , And that is an asset that sits basically as part of an assembly of four assets that once it's all completed is going to be around 1 million feet.

So the area that is still not least, and we are again 20 months away from opening, would be 40% of 13,000, so call it 50,000, 60,000 square feet in a 1 million square feet asset that with the exception of one wing that is going to go into major renovation which is the west wing of the property which is the oldest building on the assembly, which is going to go into a major renovation starting next year and has probably the 5% vacancy, the rest of the asset is fully leased.

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Sam Damiani, TD Securities - Analyst [12]

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That's great color. Thank you. I will turn it back.

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Operator [13]

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Michael Klahr, Citibank

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Michael Klahr, Citigroup - Analyst [14]

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A question for Adi in terms of how consolidation will work from 1Q following the asset sales, how differently it will look than 4Q?

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Adi Jemini, Gazit Globe Ltd - CFO [15]

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Okay. So like I mentioned earlier, I think in terms of the subsequent events that happened after the reporting date, Equity One will be presented -- Regency will be presented as a financial instrument. In terms of FCR it will be represented under the accounting equity method. I think we disclosed 2016 so I think we are still working some details and we will update you as we come into more closure on that. But in terms of accounting both Regency and FCR will not be part of our consolidated financial statements.

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Michael Klahr, Citigroup - Analyst [16]

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Okay. Thank you. And then for Yaron, again, and also for Dori, do you see other opportunities in Israel? Is it somewhere you would look to put new money to work beyond the current developments?

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Dori Segal, Gazit Globe Ltd - Chairman [17]

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So, Michael, let me start and Yaron you are welcome to jump in if you want to add anything. We usually try not to comment about specific plans that we have in terms of acquisition and develop and I will tell you way; it's a very simple reason. It's a very small market. So the only thing I could to you really, if we wanted to buy more assets I will to you the market is expensive that I am selling and in order to sell my assets I will tell you the market is great and I willing to buy more. So it's not going to be very useful information.

So I think you guys, if you look at Gazit today outside the markets that you know, if you look at our position in Israel which is fairly almost mostly for the most part is concentrating in the (inaudible) area, which is the Greater Tel Aviv area for those of you who don't know Israel very well and if you look at Brazil it's really not Brazil, it's Sao Paulo. It's also a very specific markets and really any comment you make in terms of your intentions could be easily interpreted by Main Street and actually interfering doing business.

So all I can tell you is we think the terms both in Brazil and Israel are grade. We think the risk the way we see it is overstated, as I said. The one thing you know for a fact we are doing is we are looking at every asset we own and perhaps maybe across the street and if there are opportunities to redevelop to add density and perhaps even other than retail -- we have an asset in Tel Aviv that we are looking at putting more residential on -- all those activities both here and in Brazil are being carefully looked at. In Brazil the same. We are looking at more opportunities but we are not going to comment unless we actually do a deal.

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Michael Klahr, Citigroup - Analyst [18]

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Okay. My last question. Obviously 2016, early 2017 has been quite transformational. If I look let's say 12 months ahead can we expect further big moves or significant events? Obviously not to match 2016 but should we expect things to happen this year or is it perhaps too early and more of an evolution than a consolidation of what you have currently?

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Dori Segal, Gazit Globe Ltd - Chairman [19]

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I think you should expect us to be extremely active across our business to try to look for opportunities that will move us ahead in terms of our strategy and if you want me to be slightly more specific I'm going to try it without giving in. So in Europe I think we are a very supportive shareholder and I spoke about what the plans of the companies are. However, if you asked us, Michael, six months ago or maybe I am wrong, maybe seven months ago, where would be the next larger transaction in the portfolio, I don't think Equity One would've been the answer. As you know, we have not put Equity One out for sale; maybe we should have but we didn't. And sometimes opportunities present themselves.

So same logic goes for Europe and I can't tell you for buyers or sellers because obviously that's not something that we are going to state and it's also subject to market conditions, to price, to opportunity, to potential partners, too many other factors that I can't really discuss if I was in the middle of talking to somebody, which we are not. But definitely it's not something I can expect to happen well in advance. Again our private businesses are very (inaudible). We are going to continue to grow them as opportunities in the trade areas present themselves. And North America I think if I had to guess you are probably going to see us quiet for a while.

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Michael Klahr, Citigroup - Analyst [20]

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Okay. That's great. Thank you.

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Operator [21]

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Matt Kornack, National Bank Financial

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Matt Kornack, National Bank Financial - Analyst [22]

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Just wanted to quickly follow up on that line of questioning. With regards to the equity sales that you did post quarter, for the use of proceeds do you tend to use that to buy assets or will that be purely for deleveraging purposes?

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Dori Segal, Gazit Globe Ltd - Chairman [23]

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So I want to make two comments on this. I have to admit, I expected a question about North America a lot earlier in the call, probably before I even made by prepared remarks but they didn't come so far. So by and large every disposition that we've done in the last two years initially went to pay down existing revolving credit facilities. So that is easy. It's an easy use of profits. All pay down short-term debt.

I would say that at this point we are very comfortable with the leverage that we are in. So we are basically doing business as we do. I want to make a comment that we definitely understand as we have acted at the end of last year that the way to sell a business or a large holding in a business is not drip dropping shares in the markets. It's a very expensive way to do it, particularly in Canada and I think it's very important that you guys understand that it.

You sometimes sacrifice in the short term for the long-term. The Gazit objective out of the gate to implement our strategy which is obviously the most important thing to us, is to be in a comfortable financial position which we are in today. We believe that, A, there is a great improvement in our cost of debt which I think is going to continue. I think we are going to continue to behave very responsible and we don't suggest that selling shares in the market is the way you maximize value at of any business that you own. But sometimes maybe that's a way that allows you to keep a large holding in the business until a point where you can maximize the value or just enjoy the appreciation.

So I really need you guys to think about it in a way that -- we had a few short-term objectives which I would say are -- has almost been achieved and one way to reduce leverage over the next 12 months is to make more money. I know it's not the common way but it is definitely a desirable way to do that. So I think that's where we are going over the next 6 to 12 months.

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Matt Kornack, National Bank Financial - Analyst [24]

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And in terms of de-consolidating First Capital, that's just a function of falling below a certain threshold, or at this point do you view the investment any differently than you did prior when it was a control mechanism that you had over it?

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Adi Jemini, Gazit Globe Ltd - CFO [25]

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Matt, I think there were a certain accumulation of events and the last one was the trigger. We follow the accounting guidance very [precisely] and it's mostly a result of us really adhering to the accounting rules and guidelines. In the accounting there is no specific magic numbers in terms of holdings. There's other consideration, the number of voters, the number of investors and so on. So we have done this analysis very robustly and that's the conclusion we have reached and I think that's what ultimately will be reflected in the financials. It wasn't anything specific from either (multiple speakers).

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Dori Segal, Gazit Globe Ltd - Chairman [26]

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And one more comment. Matt, you know [Adam]; even if you own 60% of the Company you don't have control. So the number of 33% is definitely where you don't have control, but on a serious note for a second, the 34% number in Canada is a meaningful number given the negative control rules when it comes to corporate law. So there is definitely some kind of threshold that I think the auditor looks at. But other than that I think it's a technical issue. We are happy to do it because it saves us money but I don't think that it's something that you elect. It's not an election. It's an outcome.

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Matt Kornack, National Bank Financial - Analyst [27]

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Okay. No, that makes sense. And just finally on the debt side of the equation, sounds like you are comfortable where you are from a liquidity standpoint. You've moved some of the exposure to the local markets. Any sense timing-wise or how you get there for an international investment-grade credit rating? Is this a 2017 thing or likely 2018 and beyond?

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Adi Jemini, Gazit Globe Ltd - CFO [28]

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So I think if you judge what we've done in the last year and a half we have obviously not only increased our liquidity but I think we also diversified it as we said specifically on the bank debt, so that's something that I think earns you a lot of points with the credit rating. I think we obviously at the beginning of -- late in 2015, beginning of 2016 we did do some disposition of Equity One and FCR. The recent sales of Regency and FCR I think overall got us to a point where on the parent level we reduced about 10% of our LTV. So I think we feel very comfortable.

I think we also have to take into account that about 92% of our NOI comes from investment grade rating. It's something that we are very focused on. We are very keen at. While at the same time we feel very comfortable from an economic standpoint but there is no question that it is one of our main targets is to get that international investment-grade rating. It all comes back to be part of our strategy is really diversifying our source of financing, both on the equity and on the debt side by the way. And I think we've made the right steps in the last 18 months and I believe you are going to expect to see more steps, not necessarily the same but we will definitely move towards and be very diligent on attaining that goal.

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Dori Segal, Gazit Globe Ltd - Chairman [29]

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Yes. And if I could add my $0.05, there are certain events that could expedite us getting an international rating, like a corporate transaction or something of a larger magnitude which obviously you can not anticipate happening. It's an opportunity that might present itself; it's a price thing, it's the market conditions. And of course if you continue to just progress slowly with your existing strategy, so obviously that could be taking the rating issue to a bit of a [longer].

So we are very mindful of the rating issue but at the end of the day we've got to remember that the rating issue really is a pricing issue at the cost of our debt. And in that context we are very motivated to get it but we are not motivated to make a transaction that is highly dilutive to earnings or dilute one of our important assets to get rating. So that is the context that you should look at our desire to have an international rating.

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Matt Kornack, National Bank Financial - Analyst [30]

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Okay. Great. Thanks. Looking forward to exciting things in the future.

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Operator [31]

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Sam Damiani, TD Securities

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Sam Damiani, TD Securities - Analyst [32]

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Thank you. My question has been answered.

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Operator [33]

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(Operator Instructions) There are no further questions at this time. Mr. Segal, would you like to make your concluding statement?

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Dori Segal, Gazit Globe Ltd - Chairman [34]

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Sure. I would like to conclude by a couple of points. First, I would really like to take the opportunity and thank Rachel. I think our Company is definitely a better company today than it was in 2015 and we hope to get some more cooperation and work together in Europe. And really I would like to conclude by saying we are highly motivated to take this business to the next level.

I think from where I sit today, I am slightly more optimistic and slightly more positive than from where I was six months ago looking at this business. I think we had some things that happened that are definitely putting us in a better position from all aspects of our strategy and really the next 6, 12 and 18 months we are going to be extremely careful and focused and trying to seize opportunities to move us forward in implementing it.

So thank you very much for joining the call and we hope to talk to you obviously in the next quarter. Thank you very much.

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Operator [35]

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Thank you. This concludes the Gazit-Globe fourth-quarter 2016 results conference call. Thank you for your participation; you may go ahead and disconnect.