The third quarter of 2021 was marked by a return to an almost complete routine in the Israeli economy. After the long days of closure at the beginning of the year and the battle against Hamas later, came a quarter in which the economy operated non-stop, with the exception of certain restrictions imposed by the green and purple mark.
These few restrictions were not felt by the mall companies, which enjoy particularly strong financial results, after a year of closures that severely hampered their operations. The local mall giant Melisron Reported this week that it ended the third quarter with a net profit for shareholders of NIS 293 million, reflecting a growth of 275% compared to the corresponding quarter last year.
Melisron, controlled by Liora Ofer, operates in Israel, and owns 17 malls worth NIS 14.8 billion, five high-tech complexes worth NIS 3.2 billion and five properties with a single tenant worth NIS 1.1 billion. The company is also involved in the initiation of three projects in the field of offices, headed by a pair of Landmark Towers in Tel Aviv, which are being established in collaboration with the company Epic Properties .
In a conversation with Globes, Melisron CEO Ophir Sarid says that “we had an excellent quarter with an increase in FFO (net cash flow income) and NOI (profit from rental activity), which is due to an increase in tenant redemptions. In fact, we have seen this since we opened the malls, especially in the field of retail and fashion, through home products and electrical products. “
Melisron’s rental and other revenues grew by 18.5% in the third quarter to NIS 397 million. In the third quarter, the company granted rent relief of only NIS 2 million for corona damage, compared with the relief of NIS 21 million given to tenants in the corresponding quarter last year.
The NOI attributed to the owner increased in the third quarter to NIS 281 million, compared to NIS 230 million in the corresponding quarter last year and compared to NIS 274 million in the third quarter of 2019. The FFO increased in the third quarter of 2021 to a peak of NIS 201 million, compared to NIS 141 million and NIS 180 million in the third quarters of 2020 and 2019, respectively.
“Fortunately, the current prime minister is not keen on closures”
According to CEO Sarid, “It should also be remembered that this is no longer a matter of completeness after leaving a locksmith. Although the fourth outbreak of the corona in Israel began in July-August, fortunately the current prime minister is not keen on closures. He took the right bet and that’s why we are where we are.
“The economy and consumption are in this place only because we did not have a closure of another two extra months, as we had for the third time. So despite the corona in August and September we are showing very nice growth in redemptions, and they are much higher than in 2019.”
Sarid explains, “We see that when it comes to consumption habits, people have greatly increased their consumption. I think what leads to this is that consumption has always existed, but a large part of it was directed abroad, and once the foreign part weakened shopping remained in the country.
“I call it ‘Zionist shopping.’
“So we know exactly what happens when the sky is closed but online shopping works, and even what happens when online shopping does not work because there was a time when there were no shipments from abroad. From this we have learned that unequivocally the open sky is the greatest competition, and the very fact that the sky is closed is what leads to an increase in redemptions.
“Beyond that, as a result of keeping the malls open for as long as possible, we made people not change their consumption habits. People come to the malls en masse and we set records.”
Petah Tikva Grand Mall / Photo: Bar-El
According to Sarid, this is seen first and foremost in the revenue of fashion and footwear stores, which increased in the third quarter by 13% compared to the corresponding quarter, but also in sectors such as jewelry with a 5% increase, home design with an 8% increase, electrical products and technology with an increase of 5 % And more. Thus, in fact, there is only one engine left in the mall industry that has not yet returned to full operation, and that is the field of cinemas, which currently operates under “crazy” restrictions, he said.
“I’m glad cinemas make up only 1% of our NOI, so it’s not dramatic, but they did not work properly again, and with them some of the cafes and restaurants that rely on their proximity to cinemas. If in March-April they showed a decrease of 10% – “11% in redemptions, so today they show a decrease of 4% -5% compared to the period before the crisis.”
The Landmark project contributed to the increase in the value of real estate
What we have not yet seen in the third quarter, but we are already seeing now, is the beginning of a wave of price increases in consumer goods in the economy. The ones who raise the prices are the manufacturers and importers, while the stores themselves will seek to roll them out to consumers.
In your opinion, will price increases affect consumption and, consequently, your tenants’ redemptions?
“I see a very strong consumption, which I do not know if a 2% or 5% increase in price will affect it. It is clear that if prices increase by 50% then it will affect, but everything increases. Housing is rising and online prices will rise and even more, because wages Work goes up, fuel prices go up, so shipping costs go up.
“By the way, the most green and non-environmental thing in the world is online purchases, because of the deliveries of individual products.”
According to Melisron’s management, from the opening of the malls at the end of February this year until the end of September, there was a significant 6% increase in revenue in the company’s malls, compared to the same period in 2019. In addition, during the first nine months of 2021 the company showed an average increase of 5. % In real rents for new contracts and contract renewals in malls, and of about 4% in real rents in offices.
These contracts were also translated into an increase in the fair value of investment real estate, owned by Melisron. In the third quarter alone, it recorded an increase in real estate investment value of NIS 250 million, which led to a sharp jump in net profit.
According to the company, the increase in value was due to the increase in the consumer price index, which increased its income, an increase in rents and an update of the valuation of the Landmark Tel Aviv project. Revenue from the flagship project she is initiating.
The Landmark project includes two office towers, and during the quarter Melisron signed a first contract to occupy about 11% of the total area of the project, which stands at about 150,000 square meters of offices and commerce. 2023, is now estimated at NIS 290 million (NIS 145 million, the company’s share) at full occupancy, compared to an estimate from the beginning of 2021, which was only NIS 190 million (NIS 95 million, the company’s share).
The stock has risen 60% since the beginning of the year
Melisron, like the other income-producing real estate companies, suffered a sharp drop of tens of percent in response to the outbreak of the corona crisis. 60% since the beginning of the year.
According to Sarid, a share of real estate companies like Melisron provides investors with protection against inflation. “All our contracts are linked to the consumer price index and all our expenses are linked to the index, but in between there is a profit of NIS 1 billion.
“So if you are afraid of inflation, and want to be on a safe haven in the event of the erosion of the shekel due to inflation, then Melisron’s stock is what you should go for. It is also long on real estate and it is also long on the shekel, because it is index-linked.”