The troubles of tenants in malls, including fashion chains, department stores and even food retailers, have become a blessing Of the mall companies themselves, with the economy returning to routine. The financial statements for the summary of the first quarter of 2022 provide a kind of mirror image of their situation in the corresponding quarter last year. While last year the chains operating in the malls experienced a “hybrid” first quarter, unusual in its characteristics, which led to excellent results, this year, with a return to routine from the Corona limits, they experienced performance impairment and a sharp decline in profitability, also due to Passover timing and weather damage.
Last year, due to the corona closures, the stores were inMalls open only 51 of the 90 days of the first quarter. For much of the first three months of 2021, stores were closed, which benefited the fashion chains in the malls required toPay less rent, due to the relief they received from the malls, when a large proportion of the workers went on unpaid leave, i.e. went on to pay wages but by the state.
Therefore, when the public returned to buy, even if for a limited time, it compensated the chains for the days it was closed at home and could not go abroad. That is, the income-producing real estate companies that returned to enjoy full payment of the rent.
The result is evident in reports published by some of the major retailers, such as the Shufersal supermarket chain, the Castro fashion company and the Hamashbir Latzarchan chain. The results were generally weak and showed a decrease in the profitability data of the companies that rent a large part of their assets in the malls, compared to the corresponding period last year.
At the same time, the mall giant Azrieli Group published its quarterly results, which, like reports from Melisron and the Big Open Shopping Center Company published in recent days, taught about a clear trend of an increase in rents collected and a significant improvement in profitability.
“Rise in interest rates and fall in high-tech stocks have not yet been felt”
“In the first quarter of this year, no changes have yet been felt due to the consequences of rising interest rates and the fall of high-tech stocks,” says Nadav Berkovich, real estate analyst at IBI Investment House. “(Such as Azrieli and Melisron, H. S.) will continue to show good results. Companies have long leases with tenants, and even when shares of high-tech companies fall, closing the offices they own is not the first step.”
Berkowitz estimates that income-producing real estate is expected to show positive results in the coming quarters, also in light of the gloomy picture among tenants in malls. Inflation continues and leads to difficulties for some tenants, and the power of strong chains in malls, such as Fox, Castro and others, will eventually grow.
In those cases, Berkowitz says, “it seems that contract renewals, which until recently reflected a real rise in rental prices, will start to slow down and in some places have fallen. At the moment, the current situation is not yet affecting income-producing real estate companies. The capital market, by the way, is not waiting, so some of the income-producing real estate shares have already been cut between 10% -20% since the beginning of the year. “
Azrieli returned to routine and the profit tripled
The real estate giant that yields the Azrieli Group reports a 51% increase in net rents in the first quarter compared to its counterpart last year, to NIS 456 million. Net profit jumped 3 times to NIS 336 million, due to positive revaluations in the company’s assets. Net rents (NOI In the same assets, they jumped by 44.3% and operating profitability (FFO) jumped by 48% in the last quarter compared to its counterpart last year.
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Azrieli does not detail the picture of the redemptions of its tenants in the malls, which grew by only 0.5% compared to the corresponding quarter last year. In contrast, the Big Shopping Center company showed a sharper increase in revenues of 15% compared to last year and 10% compared to data for the first quarter of 2019, the year before the outbreak of the plague.
According to Raz Moore, the real estate analyst at Meitav Investment House, there is a return to a relatively stable worldview in the malls, in contrast to the companies that rent the stores there. We also see renewals of leases with the stores, which were made with price increases. “
Moore adds that the trend in April has continued and is positive, also in terms of the stores themselves in the malls. “We saw in April that according to the reports of the research company ‘Reese’ there was a 7% increase in redemptions in malls. It was also a record month for purchases made physically by credit cards (not in online transactions, H.S.). Redemptions in restaurants also increased. Malls are protected “Index-linked. However, when it comes to renewing leases, I estimate that it will be more difficult for malls to raise prices, especially when there is a public exit abroad and the prices there are attractive from Israel.”
Shufersal’s profits cut by 76%
The Shufersal chain showed rather weak results in the first quarter. The chain, which operates without a core of control, recently experienced a crisis in the management, in the face of the departure of veteran CEO Itzik Aberkhan, followed by chairman Yaki and Damani. The new CEO, Ofer Bloch, took office recently and signed the reports indicating an erosion in quarterly revenues, which fell by 7% to NIS 3.5 billion.
Shufersal was adversely affected by the timing of Passover, which took place in April this year compared to March last year – which hurt its revenues in the quarter – while the opening of the skies and the departure of Israelis abroad also had a negative effect on it. From his money on the purchase of food.
Shufersal Deal branch / Photo: Sivan Farage
Despite the decrease in revenues, operating and sales expenses and administrative and general expenses remained the same in both periods. As a result, Shufersal’s operating profit ratio was cut from 5.3% in the first quarter last year to only 2.9%. In total, the chain’s operating profit in the quarter was cut in half to NIS 102 million. On the bottom line, Shufersal’s net profit fell by 76% to only NIS 27 million.
Identity store sales fell sharply by 8.3% between the two periods, while the Shufersal-owned Pharm Be chain recorded a sharp 24.5% jump in revenue to NIS 269 million in the first quarter, but made a negligible contribution to profitability. Be’s segment operating profit was only NIS 1 million in the past quarter, similar to its counterpart. The increase in revenue is largely attributed to the sale of Corona rapid test kits.
The cold wave in March postponed the purchase of summer clothes
The fashion chains tell a similar story, according to which exiting closures and returning to routine hurt results, while also adding the timing of Passover this year, and the fact that the first quarter of 2022 was particularly difficult for them, as there was a cold wave in March that negatively affected fashion sales. The public waited a little longer with the purchase of summer clothes, and on the other hand the prices of the end of the winter season have already been cut after the big discounts.
Like the largest company in the industry, Fox, its rival chain, Castro, reports that its revenues rose in the first quarter by a handsome rate of almost 15%, but the sharp jump in sales and marketing expenses, resulting from a full return to operations in malls, jumped its operating expenses. Operating loss of NIS 27 million, compared with operating profit in the corresponding period last year, of NIS 26 million.
In the bottom line, the Rotter family’s fashion company recorded a loss of NIS 26 million, compared to a net profit of NIS 15.1 million last year.
On the other hand, Adika Style, which operates mainly in the sale of online fashion items, reports a sharp 38% decrease in revenue, due to the weakening of its international sales, and an operating loss of NIS 11 million. The selling and marketing expenses of Adika, which is controlled by the Golf Group, actually decreased, in contrast to chains that rent many stores in malls, and thus the loss in the bottom line was reduced from NIS 12.4 million in the corresponding quarter in 2021 to NIS 11.9 million in the last quarter.
The one who also went through the loss is the Hamashbir Latzaran department store chain, which is controlled and managed by Rami Shavit. The chain, which rents its assets from the major malls and shopping centers, recorded a handsome 35% increase in quarterly revenues, to NIS 200 million.
Adika. Disappointing reports / Photo: Kadia Levy
At the same time, its selling and marketing expenses jumped sharply, with the company noting that the increase was due to a sharp reduction in these expenses last year, due to the canons being closed. As a result, Hamashbir’s operating profit was cut to NIS 9.6 million in the quarter, which has passed, and the bottom line was a loss of NIS 2.9 million, compared with a net profit of NIS 3.4 million in the corresponding quarter last year.