Ziv Ein Eli, real estate analyst, IBI Beit Investments, provides an analysis of the recent upheavals at Norstar, and this is what he writes:
Last week she completed
Norstar
+5.89%
Base:1,172
opening:1,200
High:1,255
low:1,190
change:7,861,419
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Successfully completed the planned capital issue, which is the first step in the overall plan to strengthen the company’s financial strength and capital structure. The public was offered a package that includes Norstar shares and stock options
G City
+2.87%
Base:1,254
opening:1,301
High:1,320
low:1,256
change:7,565,008
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While the controlling owner announced in advance that he would participate to the extent of NIS 90 million. The composition of each package is as follows: 100 square meters of Norstar at a price of NIS 1,318 and 50 options to purchase G City shares free of charge.
The price per package set in the tender is NIS 1,500, and the company has approved orders for 203,776 packages, so the gross immediate consideration to be received by the company for the offering amounted to approximately NIS 306 million. The expected gross future consideration for the company assuming the full purchase options on G City shares are exercised will amount to approximately NIS 143 million. In total, according to the results of the auction, the company allocated 20,377,600 Norstar ordinary shares and 10,188,800 purchase options for G City shares. It should be noted that when the G City stock options are exercised, Norstar will transfer from the shares it owns in G City, and no additional shares will be added to the capital Issued by G City.
In the bottom line, this is a significant injection into the company which, together with the repayment plan for part of the bonds and the deferment of the debt, solves the short-term cash flow problem at Norstar and stabilizes the group.
We examined how the IPO affected the company’s NAV model, and the upside derived from it in light of the significant infusion.
Marketable NAV including the issue proceeds
Prior to the company’s announcement of the IPO and its terms, Norstar shares traded at a price of NIS 16.87, and our model determined a price per share of NIS 12.5 and a downside of approximately 25.7%. After the cash income received from the offering in the amount of NIS 306 million and the increase in the company’s issued share capital, our model determines a price per share of approximately NIS 11 and a downside of approximately 8.6%. The above model also includes the effects following the announcement of the capital issue of G City yesterday evening.
It is important to note that following the IPO the company reduced its leverage and the LTV dropped from 56% to 38%.
Marketable NAV including the issue proceeds
As of today, the G City share is trading at a price of approximately NIS 12.54. The option goes into the money at a price of NIS 14 per share, and this until July 24, 2024. In this model, we started from the assumption that during the next 18 months the G City share will reach a price of NIS 14.5 and go into the money, and this following G City’s exercise plan that is currently being conducted as the company Safetha, the stabilization of Norstar due to the issue, as well as the capital issue that G City announced yesterday evening. The above assumption is also reflected in the value of Norstar’s holding in G City.
If the G City options are fully exercised, the company will decrease its holding in G City by about 6%, to 44.4%.
After adding the cash that will be received from the full exercise of the options for G City shares and the dilution of the company’s holding, our model determines a price per share of approximately NIS 13.7, and an upside of approximately 14.2%. In addition, we performed a sensitivity analysis showing the effect of the exercise price that would result from G City options on the share price derived from our model and on the upside: here, too, we started from the assumption that the G City share price is NIS 14.5. It can be seen that the amount of options that will be exercised does not significantly affect the company’s share price and the upside derived from it.
New flow and postponement of debt payment
The proceeds of the issue will be used by Norstar to implement its second phase of the plan: early redemption of Series 11 bonds and a voluntary exchange purchase offer to holders of Series 12 bonds in exchange for cash at a rate of 10% of the adjusted value of the bonds as well as additional consideration for Series 11 bonds ‘ secured by pledging G City shares in an amount reflecting 90% of their adjusted value.
* The cash includes a payment to G City for the issuance of 3.62 million shares in exchange for NIS 45.6 million.
** The total amount in 2023 includes full repayment of Series 11 at a value of approximately NIS 370 million, as well as a payment of NIS 25 million resulting from the exchange of 10% of Series 12 in cash.
We started from the assumption that the company will repay with the cash received from the issue all of the series 11, and that all the holders of series 12 will respond to the company’s offer to exchange with series 13. The new flow created for the company shows low principal and interest returns until 2027. By performing these actions, Norstar “buys” more time and postpones the repayment of the debt, minimizes the dependence on dividends from the subsidiary company G City, and also allows for industrial peace in order to stabilize the central asset of Norstar – G City.
In the bottom line, it seems that the controlling owner, Haim Katzman, manages to stabilize Norstar with a successful capital issue both in terms of demand and in terms of the price per package, and after the issue the company trades close to its tradable NAV. The proceeds of the issue improve the company’s capital structure, its financial strength and also allow the company to refinance the debt. Also, the stabilization of Norstar will allow the controlling owner to reduce the dependence on receiving dividends from G City and thus will improve the flow of the subsidiary and will be able to continue with peace of mind in his plan of realizations in G City and getting it back on track. In addition, the capital issue of G City yesterday shows confidence on the part of the institutions in the company.
