Maniv real estate was one of the best investments in recent years. Interest rates were low, rental yields were high and profits were on an upward trajectory. The ability to pay and raise billions at a very low interest rate in the capital market.
And so, companies like Azrieli, Melisron, Amot and others doubled, tripled and even more, the value. This continued at the beginning of the year even though it was already known that interest rates were on the way up. A rising interest rate could weigh on financing expenses, as well as on consumption in the economy, on activity in shopping malls, while at the same time they also feared the damage to the office market. As we progressed during the year, we discovered that the situation is more difficult, and the high-tech is also starting to reduce expenses. After the real estate stocks broke records in January, they fell continuously until June when the low was recorded – a drop of about 25% since the beginning of the year.
From the middle of June there was a change. A change that is seemingly not reflected in the economy – the interest rate is still rising, the concerns still exist, a change that probably stems from the internalization that there will not be a major crisis here, and even if there is a slowdown or even a recession, it will pass after a few quarters. In other words, the market overreacted until mid-June and for a month and a half a violent correction of 20% was recorded. “Heavy” stocks, stocks in the heaviest sector – real estate, easily jump 20% for a month and a half. They are now trading 5%-10% below their price at the beginning of the year – this is little given the great concerns about the economy in the economy.
Prices now express capital multiples of 1.35-1.6. In short, the meaning is that the investors estimate that the Hao companies will achieve significant profits from the improvement of projects that are in progress, and also – the investors provide an upside on the capital due to the relatively low financing of these companies as of now. It is important to emphasize that the leaders in the market made sure to stock up on cash through huge fundraising at low interest rates. They do this on a regular basis, and even just a few months ago Azrieli was able to raise over NIS 3 billion and guarantee the upcoming repayments and the financial flexibility to continue, even if there is a crisis.
The question of whether this will continue will remain unanswered. On the one hand, there are still concerns and uncertainties in the financial and real markets, and on the other hand, the pricing of these shares still expresses a reasonable internal return. The FFO (profit-flow from current operations) expresses a profit multiplier of 10-12 neutralizing the assets under construction. So even if there is a certain crisis, an economic slowdown and we go to shopping malls less, these companies still have a large margin of safety. This was also reflected during the Corona period – during the Corona period they weakened and lost, but stood on their feet, in retrospect even easily. These companies do not have a problem with bond repayments for the next year or two, and in order for them to switch to losses and continuous negative flows, there would have to be a real catastrophe. It could happen, but the experts explain to us that the chances of this are small.
However, that doesn’t mean stocks won’t fall. The prices now, after the jump in a month and a half and after the increases that will be today, are not low. They are not the price of a crisis. They are not the prices of a shrinking economy, they are not the prices of a decline in growth, and they are not the prices of high-tech layoffs and the reduction of commercial space. We will remind that in offices that are not new in different areas of the center, also in Tel Aviv, slight price drops have already been recorded. That is, do not expect a similar rate of increase in the stock, and it is very possible that the prices express an overly positive scenario.
What is the situation with the financial statements?
Azrieli’s revenues in the quarter were 623 million shekels, an increase of 42% compared to the corresponding quarter and in addition there was a 205% increase in net profit compared to the corresponding quarter, with 336 million shekels in the first quarter of the year. The company presented NOI in the amount of NIS 456 million, an increase of 51% compared to the corresponding quarter. The FFO from the yielding real estate activity also increased by 48% compared to the corresponding quarter to a total of 337 million shekels, of which 310 million from commercial and office areas.
Amot presented in the first quarter of this year revenues of NIS 241.4 million, an increase of about 30% from the corresponding quarter in which the company brought in NIS 186.4 million. The company’s net profit was NIS 194.9 million, which is an impressive margin of 80%, an increase in net profit of 91% compared to the corresponding quarter. The NOI in the first quarter was NIS 219 million, while the company’s forecast is for an annual NOI of between NIS 860 and 890 million, compared to NIS 780 million in 2021 – an increase of between 10% and 14%. The company’s FFO was 172 million shekels with the company forecasting an annual FFO of between 675 and 695 million shekels in 2022, compared to 583 million shekels in 2021, an increase of between 15% and 19%.
Melisron also presented strong data with revenues of NIS 393 million, a 50% increase compared to the corresponding quarter. The net profit was 238 million shekels compared to 147 million in the corresponding quarter – an impressive increase of 61%. The NOI in the first quarter of the year was 304 million shekels compared to 198 million shekels in the corresponding quarter – an increase of 53%. The company expects an increase of 43% by the end of 2023 to a total of 1,665 compared to the NOI of 2022 in an annual perspective. The company had FFO in the quarter of 212 million shekels, an increase of 75% compared to the corresponding quarter last year when it was 121 million shekels.