Many months after the decline of the big wave of IPOs on the local stock exchange, one of the oldest families in the city of Tel Aviv is trying to promote an initial public offering of some of its real estate businesses, which include apartment buildings for rent that it has accumulated over decades.
The 74-year-old couple Moshe and Nili Weinberg, who were both born in the year the state was established, began to promote, at a sub-optimal time, the issue of M.V. Investments, in which they hold equal shares, and which is promoting the construction of over 200 rental apartments in properties it owns in Gush Dan (mainly in Tel Aviv) and Jerusalem.
The draft prospectus states that since its founding, the company has been part of the activities of the controlling families, which began at the beginning of the 20th century and includes the purchase and improvement of profitable residential real estate, mainly in areas of demand. of the company’s yielding real estate, as well as holding long-term assets to enjoy the fruits of their improvement.”
The scope of the planned offering is estimated to be at least NIS 110 million, based on a company value of several hundred million NIS. The family intends to use most of the proceeds of the issue (about 70%) to repay the owner’s loan. This is after it has written off to the controlling owners all of its obligations to the financing entities against the provision of a loan in the amount of approximately NIS 71 million, so that the controlling owners will bear all of its obligations and its assets will be free of any encumbrances and obligations to the financing entities.
Idelson 17 Hebron 2 Tel Aviv / Photo: company presentation
The owner’s loan, which carries an interest rate of 5%, will be repaid no earlier than six months after the issuance, provided the cash balance is not less than 110% of the amount of the owner’s loan balance at the time of repayment.
Before the planned move, she carries M.V. Investments in expensive non-bank loans, some with a double-digit annual return, which she took to promote the projects she owns. Most of the balance of the proceeds of the offering is intended for the purchase of properties of the controlling owners on Idelson Street in Tel Aviv (for an amount of approximately NIS 25 million) as well as for the promotion of its current business.
However, the issuance procedure may take some time, and the completion of the move is uncertain, in view of the sharp declines in the markets and the drought that has returned to the issuance market, while in the background interest rate increases in Israel and abroad weigh on financing costs, and damage the value of the assets of real estate companies.
The theoretical time window for the completion of the offering is until the publication of the annual report, i.e. February 2023, and it will also be possible to extend it by updating the financial statements. The issue is led by an issue leader.
The family transferred assets to the company for NIS 160 million
M.V. Investments was established about forty years ago (1982), but the real estate history of the Weinberg family is much longer, spanning about one hundred years and four generations. The company is currently controlled by the Neely couple and Dr. Moshe Weinberg (in equal parts). As part of the IPO process, the family transferred to the company assets intended for improvement worth about NIS 160 million, and took out other assets worth NIS 33 million. These are properties that the family has accumulated over many years, some of them as early as the 1930s.
The properties transferred to the company are mostly located in Tel Aviv’s old Nachmani, Idelson and Maza streets. In summary, MV Investments currently has several dozen housing units in a number of projects that it seeks to improve, as well as land – one of which is near Tel Hashomer Hospital , where Israel Canada is building a project of over 1,000 housing units. The company’s part will be relatively small in the future project, and will include the construction of 17 apartments and another area of 2,500 thousand square meters in commerce and offices. The completion of the project should be completed within the next five years.
In addition to this, land with an area of 45 dunams in Givat Ze’ev, Jerusalem, was brought into the company, on which 630 apartments and 15 thousand square meters of commercial and employment space are planned to be built in the distant future. MV Investments’ share will be for the construction of 97 apartments in addition to 2,500 m “R” in commercial and employment areas. The land is in the process of rezoning from its current status as agricultural land, and the company estimates that it will take another six years until the construction plan is approved.
All in all, M.V. is planning Investments to build 202 housing units in six projects it owns in the coming years. From the company’s draft prospectus it appears that the controlling owners are expected to benefit from huge sums for management services that will be provided for these projects through the private company M.E.G.N., in which the Weinberg couple own (80%) together with their son Guy (20%), who serves R. the issuing company.
M.E.G.N, which will manage the construction of the apartments in the various projects, will be entitled to an amount of 7.5% of the total execution cost of each project. M.V. Investments estimates that for the six projects it plans to promote, the controlling owners will be paid cumulative management fees of NIS 17 million until they are completed.
Services from the family law firm
The draft prospectus shows that the salary conditions of the company’s CEO, Neely Weinberg, who served in the position for 35 years without compensation, are expected to be NIS 40,000 a month, in addition to additional conditions that will bring her annual salary to about NIS 600,000. Her husband and partner, “Dr. Dr. Moshe Weinberg, is the owner of a law firm that bears his name, in which the son of the two, attorney Guy Weinberg, is also a partner, and it provides legal services for the issuing company.
In every project developed by the company, Weinberg’s law firm charges a fee (plus VAT) based on the firm’s working hours, and at a 50% discount. Beyond that, after the completion of the project, a payment of 4% of its value is paid to the office, also here with a discount. On top of that, in the sale of residential apartments, the office charges a commission of 1.5% of the proceeds of the sale. From the proforma reports published by the company, it appears that NIS 485,000 was paid to the office for legal services in 2021.
In terms of financial results, M.V. Investments is a small company on the order of magnitude of the Tel Aviv Stock Exchange. According to the pro forma reports, which examine its results after the assets were transferred to it from the controlling owners (worth NIS 160 million) and after deducting the assets taken out of it, the value of its investment real estate is NIS 281 million At the end of the first half of the year. Its equity amounts to NIS 162 million.
Nachmani 64 Derech Begin 27 Tel Aviv / Photo: company presentation
which are expected to boost the profit in 2021
At the end of the first half of this year, the company’s income from rents, according to the proforma reports, amounted to NIS 973 thousand, an increase of 3.8% compared to the corresponding half of last year. In the bottom line, a loss of NIS 5.3 million was recorded.
The company concluded the year 2021 with rental income of NIS 1.7 million, a 4% increase compared to the previous year. In the bottom line, the company recorded a net profit of NIS 21.9 million, compared to a profit of NIS 6.1 million the year before. This is thanks to a significant increase in the amount of investment real estate.
Prior to the issue, M.O. finances Invests its activity from its own capital, from the rents it collects, as well as from guarantees provided to it by the banks and non-banking entities. The bulk of the proceeds from the offering was intended, as mentioned, to free the company from expensive loans it had taken to finance some of the assets.
For example, one of the largest loans taken out by the company is from the non-bank credit company Manif Financial Services, which is traded on the stock exchange and controlled by Shamir Insurance. This is a loan that was taken out in August two years ago to finance the company’s activities at 65 Nachmani Street, and was extended in the second quarter of this year, so that the scope is estimated at NIS 47.7 million. The loan currently carries an annual interest rate of prime plus 8.5%, i.e. an interest rate of 12%, this before the Bank of Israel’s new interest rate decision this week.
Maz’e 71 Tel Aviv / Photo: company presentation
Another angle, the cost of evicting a sheltered tenant: NIS 1.8 million
The company states in the draft prospectus that it has many years of experience in promoting and managing statutory planning and improvement processes, including zoning changes, promoting city building plans, expanding building rights, improving properties for preservation and properties rented in sheltered housing, including eviction of sheltered tenants.
In three of the buildings she owns in the heart of Tel Aviv, there are apartments and shops that are rented to protected tenants, who pay discounted rents, significantly lower than the market value. The cost of evicting the protected tenants, as revealed in the prospectus, is an expensive procedure, the cost of which is estimated by the company to be about 50% of the value of the property if it were a freehold property (at market prices).
As of the date of the prospectus, a legal proceeding is underway to evict a protected tenant from the company’s properties, and in the last five years it has evicted five protected tenants, three through negotiations and two through legal proceedings. NIS 1.8 million – NIS 900 thousand as a down payment and the balance is expected to be paid during the current year.
The property at 71 Maza Street in Tel Aviv includes 18 apartments, most of which (16 apartments, before the eviction of the protected tenant) are rented to protected tenants. The company plans to promote, based on the building’s conservation plan, the construction of 40 apartments in the project, which will last over five years.
M. and Investments
Line of Business: Initiation, construction and rental of residential apartments
history: was founded in 1982. Owns 53 apartments in six different projects. The CEO is Neely Weinberg and the chairman is Guy Weinberg. The scope of the planned raising is NIS 110 million in the issuance of shares to the public. Controlling owners (on the eve of the offering): Moshe Weinberg (50%) and Neely Weinberg (50%)
data: First half 2022 (pro forma reports): Value of real estate for investment: NIS 281 million