At least six series of bonds of foreign real estate companies operating in the United States are currently traded in Tel Aviv at a double-digit yield to maturity, compared with only one at the end of 2021. El Bond A Of Waterstone, which traded at double-digit yields as early as last year, has also joined a series of Noble Estates (A’), Altitude Investments (A) fDe Zarasai (C) and others. The first three experienced declines of 11%, 9% and 5% Respectively From the beginning of 2022. Also the reference index Tel-Bond Global Recorded a negative return since the beginning of the year, but much more moderate, of only 1%.
Bonds traded at double-digit yields to maturity reflect a high risk in the opinion of investors, as to the Company’s ability to repay the debt to them on time and in full. Respectively, while Altitude’s A and De Zarasai’s C are trading at 13% and 10.9% yields, respectively.
Altitude’s A series of bonds suffered a downgrade from a company this week S&P degreesFollowing the effect of an incident of breach of loan terms on the Company’s assets in New Jersey (BNJD).
At S&P Maalot, they were content for the time being with a reduction of only one rank in the local ranking of the series, from A minus to BBB Plus, but added the series to the watch list. In response to the reduction in the rating, the interest rate paid by A bonds rose from 6.5% to 6.75%.
“Uncertainty about the liquidity picture and other liabilities of the company”
Altitude is a foreign company engaged in the purchase and rental of income-producing properties, which serve as medical institutions in the United States. As of the end of March this year, the company held 60 properties leased to companies that operate medical centers there.
The company, controlled by Eric Rotner and his son William, was incorporated under the British Virgin Islands (BVI) laws in December 2017. Three months later, it completed a NIS 186 million (gross) raising through a Series A bond issue, which was expanded by raising an additional NIS 81 million. February 2020. Currently, the average life expectancy (MM) of Series A is 1.8 years, with most of its fund repaid in one payment at the end of June 2024.
BNJD properties are two properties called Mulford and O’Brien, located in the state of New Jersey and leased for the benefit of medical centers. Both assets were valued at the end of 2021 at $ 91 million, and were financed by Altitude with a $ 62 million loan.
Following a lawsuit filed by the State of New Jersey against the tenant, and the possibility of revoking his license to run a medical institution, the terms of the loan were violated and the company was required to pay additional interest. About two weeks ago, the financing bank announced the position for immediate repayment of the loan made against the assets. At the same time, at the request of the authorities in New Jersey, the court appointed a functionary for the Molford property, with the aim of continuing its operation as a medical center.
“In our opinion, these events have a negative impact on the company’s credit quality, including on its business risk profile and financial relationship,” wrote S&P Maalot. “In addition, we estimate that there is still some uncertainty regarding the final impact of recent events on the quality of credit, including the liquidity picture of the company and its other liabilities.”
A profitable company with good capital ratios
Altitude, it is important to emphasize, is a profitable company, which ended the first quarter of 2022 with a net profit of $ 10.2 million, following a net profit of $ 32 million that it recorded in 2021 as a whole. Cash flow from operating activities was also positive, amounting to $ 10.6 million in the first quarter, following a positive cash flow from operations of $ 49.9 million presented in the 2021 summary.
The financial statements also show that in the first quarter of this year, the company recorded a profit from property rental (NOI) of $ 16 million and a net income from cash flow (nominal FFO) of $ 10.7 million. This, following a NOI of $ 63.3 million and a nominal FFO of $ 34.2 million in 2021 as a whole.
As of the end of March, the company presented equity of $ 26 million and a capital to balance sheet ratio of approximately 37%. However, the rating agency emphasizes that in view of the appointment of an official on behalf of the Court to the Molford property, and his intention to act to evacuate the property’s occupants and transfer it to the bank, Altitude may suffer a loss of equity of about $ 40 million.
In this context, S&P notes that to secure the bank loan on the same property, the controlling shareholders provided guarantees of $ 20 million. In addition, according to the rating company, a $ 30 million loan provided by Altitude to a borrower in the field of rehab institutions has not yet been repaid. “The company has announced that it is in negotiations with the borrower to extend the loan, and in its estimation this will be repaid through bank financing in the third quarter of this year,” it was noted.
It should be noted that even earlier, on May 31, Altitude’s Board of Directors approved the distribution of a $ 2.8 million dividend to shareholders. This board of directors includes seven members, including three Israeli representatives: external directors Guy Rosen and Michal Hochman, and independent director Shirley Observer.