Haim Katzman was prepared to make significant capital injections into the company Norstar through which he controls the real estate giant G City (formerly Gazit Globe) as long as it stops the distribution of its dividends. This is in the face of protests in the market after the distribution of the dividend that G City announced last month despite the huge debts looming over it and the jump in its bond yields.
● Haim Katzman continues to distribute profits: “There are people who live off the dividend of profitable real estate companies”
● Katzman tries to downplay the value of investors, but his empire depends on them Weekend column
● The drama at Norstar: investors lose confidence, the businessman may be required to inject capital
G City has bond debts of about NIS 8 billion that trade at a yield of up to 16%, while Norstar itself has a bond debt of about NIS 700 million that trades at junk yields of up to 30%.
Norstar’s only source of debt repayments is the dividends it receives from G City, its sole holding (51% of the shares). Therefore, the company’s board of directors decided that to the extent that G-City refrains from distributing the current quarterly dividend in 2023, Norstar will work to ensure the company’s liquidity, among other things by making capital issues, including by way of issuing rights, in an amount equal to or greater than the total dividend not distributed by G City and at a time close to the time when the dividend was supposed to be received.
Haim Katzmanthe controlling owner (28%) and CEO of Norstar, informed the company that he intends to participate in each of these IPOs, as they are carried out. Norstar recently completed a rights offering that was almost fully subscribed, the immediate gross consideration of which was NIS 64.5 million.
The bond holders went against Katzman and the board of directors
Last month, with the publication of the financial statements for the third quarter, G City surprised when it announced the distribution of a dividend of 53 million shekels, despite the fact that its bond yields were high and reached about 12% – which led to a protest from entities that hold the company’s bonds, who claimed that Katzman and the G City board acted in the interest of the controlling shareholder at the expense of its creditors.
Katzman then said in response that “we are a real estate company that has been paying out a fixed dividend for 30 years, like many yielding real estate companies. We have an obligation stemming from a policy announcement to continue to distribute a dividend. I heard that I should support the bondholders and that I may have to buy the debt My. If a shareholder who will receive a dividend thinks my debt is attractive, he can take his dividend money and buy bonds with it.
“But there are also people who live off the dividend that comes from real estate companies, so I think that a company, as long as it meets all the distribution tests, should continue to distribute the dividend according to the original plan, and that’s how we practice.” Now, it seems, there has been a change in his approach after the protest of Debtors in the company.
G City is a real estate company that operates in Europe, Israel, North America and Brazil, and engages in the purchase, improvement, development and management of profitable real estate. In the summary of the first nine months of the year, the company presented a loss of NIS 411 million, compared to a net profit of NIS 326 million in the corresponding period in 2021.
At the end of the quarter, G City had a financial debt of approximately NIS 17 billion in solo terms (almost half of it to the bondholders), with the ratio of net debt to the total balance sheet standing at 65%. The company had liquid balances and lines of credit of NIS 2.4 billion, alongside Unencumbered assets worth NIS 9.4 billion.
G City: “We will expand the plan to sell assets”
As part of the attempt to reassure the bondholders, G-City announced this week the increase in the plan to sell assets in the group by NIS 1.7 billion to a total of NIS 5.3 billion. The company stated that in relation to the original plan, advanced negotiations are currently taking place for the sale of six assets amounting to NIS 1.8 NIS 1 billion, agreements were signed for the sale of two properties – one in Europe and one in the US – for NIS 1 billion, with the completion of the sale of the first property expected this month and the completion of the sale of the second property expected during 2023.
Among other things, the company reported last week on an agreement to sell Bridge Tower in New York for NIS 528 million gross, similar to its value in the company’s books. The property is located in the northeastern part of Manhattan (upper east side), its area is about 11 thousand square meters and it is leased to Home Depot for 20 years, and to the Stubbs chain.
Non-binding intentions for loans from banks
G-City anticipates entering into new binding agreements for the sale of assets in the amount of NIS 1.5-2 billion during the first half of 2023. In addition, G-City updated this week that non-binding letters of intent were received from European banks to receive loans in the total amount of 315 million euros, which will be guaranteed in three specific properties in Europe.
In Norstar, the parent company, the most prominent shareholder besides Katzman is the Israel-Canada company of Barak Rosen and Assi Tochmeir with a holding of 21.9% of the shares – a reminder of a failed takeover attempt from the beginning of the year – which was valued at more than 3 times the current market value of Norstar, which is 650 million NIS after a decrease of about 50% in the stock at the beginning of the year. G City’s market value stands at NIS 2.1 billion – after a similar drop.