The yielding real estate company controlled by Liora Ofer, and managed by Ofir Sharid,
Melisron
+2.49%
Base:28,150
opening:28,150
High:29,320
low:27,530
change:15,430,348
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, reported good results in the second quarter of the year. A 12% increase to a record FFO of NIS 221 million (a rate of about NIS 800 million per year). The NOI crossed the quarterly threshold of NIS 300 million for the first time, an increase of 9% compared to the corresponding quarter (annual rate of NIS 1.2 billion). The company owns 17 malls, 5 hi-tech complexes in addition to offices in malls and 5 properties with a single tenant, for a total of NIS 21.6 billion.
In an interview with Bizportal, Ofir Sharid, CEO of Melisron Tells about the strongest quarter of the company he manages, the effect of interest on the company and the office market owned by the company, and where he sees the company in the future. How do you deal with the impact of the interest rate increase – is there a noticeable slowdown in shopping in malls?
“The increase in interest rates of course affects all real estate companies, but it should be noted that the increase in interest rates is not dramatic, especially in the large companies that are established, the rates of interest rate increases are completely reasonable. If I look at our bonds, then in very long maturities of 7 years they trade at a yield of 1.5%, so it is true that the interest rate has increased and there is no doubt that this will increase financing costs, but it is not dramatic.”
“In terms of the effect of the interest rate increase on the rate of purchases in malls, sales, etc., as you saw in our reports there is no effect, there is a significant increase in redemptions following the previous quarter. A very significant increase, even in relation to what we felt and saw before the corona, the market is still not in equilibrium and is in a kind of hype. From this hype, our mall tenants are benefiting, and so are we with the increase in redemptions.”
Is there a noticeable slowdown in the office market for hi-tech companies – given the fact that you own 5 hi-tech complexes?
“We own 330,000 square meters of offices, which yield us an NOI of NIS 250 million per year. This area is a large part of our activity. We continue to expand and initiate in this area, a significant part of our future initiation is the expansion of the offices that exist today and also new things. There is no effect on our customers. The companies that rent from us are very large customers, they don’t rent for six months or a year, but long-term renters and companies that will stay for a long time, such as Meta (Facebook), Elbit, Qualcomm and many more, these are companies that are here to stay . We are not currently feeling an impact. It’s possible there might be in the future, but I don’t see an effect beyond neglect”
The return on your capital is 10% – impressive. Is this the trend?
“The FFO yield is a very significant index in a real estate company, an index that cleans out noise. In this aspect, our FFO is very high relative to capital, and this yield in our company is one of the highest in the market, if not the highest, among the yielding real estate companies in Israel.”
“If we add to this the gains, the financing aspects and the index, we arrive at a net profit relative to the capital, with a return that is much more significant, because there were also very high valuations that resulted from an increase in the real rent, new contracts we signed, renewals of options in the range of 7% In addition – the rise of the index which increased the income since most of our contracts are linked to the index, which leads to a high volume of revaluations which increases the net profit and thus the return on capital. The expectation is that this trend will continue.”
How did the increase in inflation in Israel affect you?
“Inflation in Israel did increase, but not as significantly as in Europe. Inflation in the first quarter is expressed in total in the first quarter by 1% and in the second quarter by 2%. Since the beginning of the year we are about a 3% increase in inflation. In terms of impact on us, we see that there is growth, it is not inflation that caused a recession or a reduction in demand. Today at this level of inflation, from our point of view this is quite normal inflation and we do not recognize a slowdown in demand in the second quarter.”
What are the growth engines of the company?
“First, the continuation of the improvement of the existing portfolio. All of our malls have approved plans for expansion, or are on the way to being approved, either with it on the mall or next to the mall. Diverse expansions, whether it’s of commercial space or offices. Expansion of rental housing we own. We have plans for improvement”.
“We have many new projects, some of which we signed this quarter and some of which will also continue into the next quarters. If it is a new commercial complex in Yavne, and a deal we did with Yohananoff, if it is an Aviv deal in the residential sector that we entered into, the development of rental housing. The Landmark project in Tel Aviv that we shared There it is 50%, a project that is expected to yield us over NIS 100 million NOI.”
“If we add up the amount of square meters we are currently developing, it is about 350 thousand square meters, 40% more than the areas we have today, so the engines of growth are many and varied, also in the field of commerce, offices, residences and the data center, the expected profit from them will increase by 40% of the company’s profits.”
What is your vision for the company for the next 3 years?
“Our vision is to be the largest yielding real estate company in the State of Israel, with significant development in a more diverse field to make the company more versatile. We anticipate that most of the things we deal with today will open doors to additional fields that, although not generating profits today, will generate profits in the future. We will continue to bring a significant return to the shareholders.”
Since the beginning of the month Melisron’s share has increased by 11.3%, since the beginning of the year it is still negative with a decrease of 2.9%, and in the last 12 months it is plus 21.5%. The stock currently trades at a price of NIS 288.5, and according to a market value of NIS 13.7 billion. Azrieli is traded at a value of NIS 36 billion, so Melisron still has a long way to go before it succeeds in overtaking Azrieli. By the way, Azraeli rose by 7.6% this month and by 17% in the last 12 months. Since the beginning of the year it has yielded zero, minus 0.4%, (here is a comparison of all the majors – which one is the most profitable?).