The funds from the Phoenix framework will be used to finance 65% of the necessary equity investments in each of the projects in accordance with the project’s support agreements. In respect of setting up the framework, the Phoenix will be entitled to 30% of the profits of each of the four projects after the return of the capital investments of the Phoenix and Aura Israel, so that the parties will share in the profits of those projects in a ratio of 70/30. In addition, Phoenix will receive a right of way to provide a capital commitment framework as mentioned in an additional fifth project. For the additional project, the Phoenix is expected to set aside an additional NIS 250 million.
Following the agreement, Aora’s shares jumped by 11% yesterday and today rose by another 3% to a price of NIS 5.6, which represents a market value of NIS 1.44 billion.
Yaakov Etrakchi, the CEO and owner of Aurasays in an interview with Bizportal that “This is a very important strategic agreement for the company. Those who follow the company see that it is the company that most initiates and works mainly in urban renewal, building residential neighborhoods all over the country with 90 projects in the pipeline in the next two years. In 2022 the company opened marketing and execution of 5 projects in renewal Urban, I estimate that in 2023 we will open again 5. The company has greatly strengthened its equity in recent years and reduced leverage, so last year it was rated A minus and I hope it will even improve even more. I think that a company that is strong alongside its fantastic activity in the field of entrepreneurship , must constantly maintain a solid financial backbone, and therefore this agreement gives that to the company. There is an agreement here that in the coming year brings the company NIS 350 million in equity in four projects with an option at the end of the year for another project of NIS 250 million. It should be emphasized that this is equity and not debt. Very easy Raise debts but then you have to pay them back. At this time we think that we need to strengthen the equity more and less the debt also because it is very expensive but also because we want to maintain good financial relations.
“3-4 years ago we claimed that we were a leveraged company and I think that today we are one of the least leveraged companies in the industry. This is due, among other things, to the fact that we are the strongest in urban renewal. Everyone talks about it, but if you look at who is actually doing it, there is only one company that stands out In this field, we are in ten urban renewal projects in progress, and the reference is to neighborhoods and not to a TMA building because we are not involved in that. I don’t know another company that has more than 1-2 of these in the works. The real estate industry needs money, so I think this partnership is an excellent strategic partnership. The transaction contributes to a decrease in leverage, to savings in financing and interest costs, and it will give the company a windfall to enter and start more and more projects. The Phoenix is one of the strongest and high-quality entities in Israel, and at the same time it is a tremendous expression of confidence in Aura I know that the Phoenix checked the company and the transactions for months and I see it as a certificate of honor for the company.
“We saw the company’s ability to do presales last year. Our sales are good this year as well, even though there is a decrease in sales in the entire market of about 30%-40%. I detect fewer construction starts in the industry this year, and I think in a few months we will see these figures due to the credit crunch and banks , elections for local authorities that will stop issuing building permits, entrepreneurs who feel difficulty, and more. All of these will cause an increase in the shortage and the demand for apartments will increase even more this year, in my opinion, because the need for people to buy apartments exists. In 2024, when interest rates start to drop a little, I estimate that buyers will return to buying apartments and the market In my opinion, it will pick up speed and apartment prices will rise next year. This year is a little more challenging and those who are involved in urban renewal are a little more comfortable because they don’t have the land component and 2024 will be a good year for entrepreneurs. Because there is no land component, we allow customers to pay in a route of 20-80 – 20% in the contract and another 80% close to occupancy. There is no inventory and all we sell today is to be occupied in 3-4 years, and then the customer has this time to sell his second-hand apartment or take out a mortgage. Even selling a second-hand apartment today is difficult because Whoever buys it needs a mortgage today.”
You are actually saying that urban renewal does not need significant funding and the profit is relatively large, so why did you take Phoenix as partners who will take a part of the profits?
“An urban renewal deal is a weighted combination deal from the point of view of the bank and the insurance companies that accompany these projects. In large projects, since we want to build as one piece, we need equity. The equity is needed on the day construction begins because on that day the bank issues guarantees to all the long-term tenants And that’s hundreds of millions in each project. The equity capital for each project is around NIS 100-150 million and it is needed at the beginning. In addition, it helps so that at the beginning of the project there will be cash and you will be less in need of credit. This entry of the Phoenix into equity is critical in order to allow us to enter more And other projects also in order not to take on debt.”
You reduce leverage and sacrifice profitability, does it make sense to say that this expresses a return of 20 or more on the projects?
“As far as Phoenix is concerned, they have done their math, they are entering into an equity transaction without a guarantee of return. This is not a debt and there is no promise here. On the one hand, I assume that they expect to see a double-digit return, and that is what I also hope will happen. On the other hand, they share the chance with us and to the risk, so it’s a partnership. We give up 30% of the profit and in my view this is an important step in strengthening the capital when entering projects. In the end it’s better to do many projects and earn 70% on them than to do fewer projects and earn 100%. There is risk sharing here and we are optimistic people. There are no projects and no businesses No risk and as mentioned they enter into a partnership with us.
“From our point of view, as soon as we are required to put 35% equity in these projects, it first of all frees up our free money to also launch new projects with our equity, and we will also have to raise less debt. That is why it is a WIN-WIN. A good deal is when both parties are satisfied And it’s a great deal.”
We are before the first quarter report, what are we expected to see? What is the position of the company?
“In terms of entry into new projects, since the beginning of the year we have reported many entries into urban renewal projects. I think that Aura’s branding as well as its function and partnership with tenants gives the company a great advantage when more tenants and more neighborhoods trust us. As of today, as mentioned, 90 projects and 40,000 units “D in the purchase, which guarantees the company many years to come. In my opinion, this is the future of the residential market in Israel.
“Regarding sales, I think we will have a 30%-40% decrease in the amount of sales, but not in prices. We don’t need to create promotions, those who need an apartment buy from us and get good financing terms. As I said, in 2024 I expect the trend to reverse, there will be demand And sales will be excellent. Regarding the expected profitability in 2023-24, we said that we expect the company’s equity to increase in the next two years from NIS 650 million to NIS 1 billion and the massive performance of these years will boost the profit. Our focus on urban renewal, building neighborhoods, maintaining Very low leverage relative to the industry and our option with flexibility for customers have proven themselves. We have no special risks and we only focus on one area of building residential neighborhoods without other adventures.”
You said yes there is a decrease in sales but not in prices. The market actually shows a decrease in the prices of new apartments and second-hand apartments, can this also reach apartments in urban renewal?
“Second-hand apartments are indeed more difficult to sell because those who buy must pay the price immediately, take out a mortgage and nowadays it is expensive. Those who have to sell a second-hand apartment today may compromise and lower prices, which is quite logical. Those who buy a second-hand apartment today expect to lower the The price is because the interest rate and the mortgage weigh on him. The payment option with us makes it significantly easier for the buyers and increases the demand for apartments in urban renewal over the new or second-hand ones. I think that this year there is an opportunity for buyers to argue more, to get financing terms and maybe even lower the price, but buy because I’m watching Next year there will be increases because it is still a market with a shortage.”