Trouble, as has been said, comes in bundles. And for the commercial real estate company Gazit Globe, it can be said that the Corona was a challenging period to say the least. On Wednesday and Thursday, two negative developments were recorded in the company, when it announced a halt to the issuance of its assets in Brazil and a downgrade by S&P Maalot due to the completion of the takeover of the public subsidiary Atrium.
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On Wednesday, Gazit Globe announced that on the recommendation of its underwriters, it had decided not to publish a final prospectus for the issuance of a REIT fund called Gazit Moles, on the Sao Paulo Stock Exchange. The IPO was supposed to raise NIS 300-500 million, and Haim Katzman, the CEO and founder, told Calcalist that the company “has no problem waiting a few more months” to complete the IPO.
On Wednesday, when the company announced the postponement of the IPO in Brazil, to which it has been preparing for about a year, the stock plunged 6.5%, and the next day recovered and rose by 0.7%. Since the beginning of the month, Gazit Globe has still recorded an increase of 5.4%, after in 2021 the stock recovered and jumped by 23.4%. However, the swing continues, and since the outbreak of the corona in the world, two years ago, the stock has fallen by 23%. No collapse, certainly, but not yet a return to stable ground, as has happened in some of the major income-producing real estate companies in the Tel Aviv-Yield-Overseas Index.
In the income-producing real estate index abroad, 14 of the 16 companies in the index have a trading history of two years. Among the rest of the stock there are five companies that are still in negative territory at the end of the period (two years). The negative record is Norstar – Gazit’s parent company, which lost 53%. In second place is Sim Commercial (53% -), followed by Gazit Globe. At the top of the index are the companies that are further away from commerce, focused on housing or have moved to focus on housing: Electra Real Estate, which operates in the housing cluster and jumped 256%, and Summit, which entered the residential area in New York during the period and rose 58%.
On Thursday, after the close of trading, Gazit Globe announced the reduction of its credit rating by one notch by S&P Maalot. Although the downgrade was officially announced a day after the postponement of the IPO in Brazil, it does not mention it and focuses on completing the purchase of minority shares in Atrium. The deal was signed last October 18, and was approved by a majority of Atrium minority shareholders in December. Last Sunday (16.1.22), the deadline for objections to the deal has passed, so it is expected to launch and close on February 18. That is, in less than a month.
Maalot downgraded Gazit Globe’s rating from AA- to A +. Although it is a one-step downgrade, it has downgraded the company’s rating to its lowest level in nearly nine years. Gazit Globe’s rating rose to AA in May 2013 and maintained its stable level until the outbreak of the corona. In July 2020, the rating horizon was changed to negative and in August last year the company entered the watch list. On Thursday, as mentioned, the rating was lowered and the horizon was stable again.
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Haim Katzman
(Photo: Amit Shaal)
Maalot explained that the downgrade was due to the fact that “a weakening of the company’s financial profile” is expected. Gazit Globe will buy the minority shares in Atrium for NIS 1.3 billion at a price of 3.63 euros per share, a premium of 23.9% relative to the market price before the announcement of the intention to make the move. At the same time, Atrium will distribute a special dividend of NIS 830 million. Which will actually offset some of the large expense. Maalot estimates that Gazit Globe’s leverage will increase to 66% to 68% (debt-to-equity ratio), by 2023. This is compared to a ratio of 66.6% at the end of 2020. The EBITDA ratio to the company’s financing expenses is expected to range from 1.5 to 1.7 times versus 2.1 times in 2020.
Atrium’s deal comes in line with Gazit Globe’s strategy to make real estate private or to realize properties in territories that have been exploited, such as in Brazil. Yes, some of the activity will continue to be carried out still through a holding in a public company and not through a direct holding in assets.
In Brazil, this is a different story, which, as mentioned, was not mentioned in the downgrade. There it is a postponement of the issuance of 5 of the 7 shopping centers that the company owns in the country. In February a year ago, Gazit Globe announced a combined move in the Brazilian capital market to raise debt and issue. The IPO plans to raise 530 to 1.04 billion Brazilian reals, which are between NIS 300 and 590 million (currently). The debt raising amounting to 650 million Brazilian rials (NIS 405 million at the time of raising) was completed in May last year. In October, she submitted an updated draft prospectus for the IPO and received the approval of the State Securities Authority – which allows the move to be completed within 180 days.
Brazil’s capital market conditions have changed adversely in recent months. The flagship index on the Bau Paolo Stock Exchange, the BOVESPA, has fallen 11% since the beginning of the year and since the last peak last June has lost 18% of its value. The current situation is that the issue market in the country is frozen, and if Gazit Globe had insisted on making the issue, it would have had to make a sharp cut in value. To this must be added the Brazilian real, which has eroded like most currencies in the world at a sharp rate against the shekel. Within a year it lost 7.6% of its value and within two years it dropped by a fifth of its value against the shekel.
Katzman referred to the point and told Calcalist that “we postponed the IPO because under the conditions of the capital market in Brazil we could not maximize the value. Gazit is working on an IPO and a sale offer as part of its strategy to reduce exposure in Brazil at full price and we have no problem waiting a few more months. ” “To serve all of its obligations for at least the next three years. The completion of the Atrium deal, which is expected to close on February 18, will further increase the group’s liquidity and financial flexibility.”
Gazit Globe owns seven income-producing properties in Sao Paulo, Brazil. At present, there are no special restrictions on the activities in the company’s commercial centers there, but the wave of the omicron has not yet erupted in the country, as is happening in Israel and Western Europe. Katzman even visited and was impressed by the activity in them about a month ago. The rate of vaccination in Brazil is high relative to the size of its population (212 million citizens) – 70% received a second dose.
In addition to Gazit Globe’s problems, even on the “top floor”, ie in the company Norstar that controls it (55.25%), there have been interesting changes recently. A new stakeholder, Itzik Sela, joined the company and on December 20 bought shares for NIS 44 million and became a stakeholder with 5.14% of the company. Sela is not known for conducting control struggles and media acquisitions, such as those carried out by Aharon Frenkel at Gev Yam and in the past at Aeronautics.
But since Sela became a stakeholder, there has been a revival in Norstar shares. The average daily turnover in the stock has jumped from NIS 2.7 million a day in the past year to NIS 7.9 million in the last month. On Sunday and Monday (January 10 and 11) last week, an unusual turnover of NIS 29 million and NIS 17.5 million was recorded, respectively. On the two days together, the stock rose 19%, amid the unusual turnovers, as the company did not report a change in rock holdings or other stakeholders thereafter.