The largest IPO in the history of the Tel Aviv Stock Exchange (TASE) is getting underway. After a three-year drought in the primary market, Azrieli Group, controlled by David Azrieli, published its prospectus for the issue of a quarter of its shares to the public with the ambitious target of raising up to NIS 2.7 billion. The offering reflects a company value of over NIS 10 billion, after money.
Azrieli Group, which posted a profit of about NIS 1 billion in 2009, will become Israel's largest public real estate company after the IPO, in terms of market cap. The company currently runs most of its business privately, and only a small part are public companies: Granite Hacarmel Investments Ltd. (TASE: GRNT), the parent company of Sonol Israel Ltd., and paint manufacturer Tambour Ltd. (TASE:TMBU).
A syndicate of underwriters are handling the IPO: Leumi Partners Ltd., Poalim IBI Underwriting and Investments Ltd. (TASE:PIU), Clal Finance Underwriting Ltd., and Leader Underwriters (1993) Ltd.
Azrieli Group's shares are expected to immediately join the Tel Aviv 25 Index. It will be one of the ten largest companies on the index, in terms of market cap, alongside Cellcom Israel Ltd. (NYSE:CEL; TASE:CEL), Partner Communications Ltd. (Nasdaq: PTNR; TASE: PTNR), and Elbit Systems Ltd. (Nasdaq: ESLT; TASE: ESLT), all which have market caps of around NIS 10 billion. Underwriters believe that, despite the ongoing weakness of the primary market, most institutional investors will participate in the IPO, because of Azrieli Group's size and soundness.
Azrieli Group has set aside NIS 1.5 billion of the proceeds of the IPO for the establishment of various projects. In order to diversify risk, 30% of the rest of the proceeds will initially be invested in Tel Aviv 100 stocks, and the balance in bonds with ratings of at least BB+, or in deposits at financial institutions.
Azrieli Group had NIS 5.8 billion in revenue in 2009 from its activity in malls, offices, and from its subsidiary Granite Hacarmel. Revenue was 25% less than in 2008, mainly due to lower accounting revenue, because of upward revaluations of the company's real estate holdings in previous years.
Azrieli Group posted a net profit of NIS 956 million in 2009, 55% more than in 2008. The company's mall business accounted for about half of the profit. The company also had NIS 217 million in one-time gains from fair value changes on its properties and NIS 288 million in taxes.
One of Azrieli Group's more impressive figures in its statements is the NIS 1.4 billion in cash flow from current operations in 2009. Most of the cash flow was from the operating profits of the company's malls and commercial centers, and from office space that it leases.
Azrieli Group's net operating income (NOI) was NIS 783 million in 2009, 60% more than in 2005 and 23% more than in 2008.
An average of 160,000 people visit Azrieli Group's 11 malls a day, making them its cash cows. The malls have 1,500 stores altogether. The company's members club, Multi Azrieli, currently has 50,000 members. The malls have a strong mix of stores, including 34% anchor stores, 36% fashion stores, 8% food stores, and 22% are other businesses.
The prospectus also states that Azrieli Group has a long waiting list of stores wanting to set up shop in its leading malls. Rents are high, reaching 15-20% of proceeds, Bargaining power in recent years has shifted from manufacturers and suppliers to retailers, above which are the mall owners.
Published by Globes [online], Israel business news - www.globes-online.com - on May 12, 2010
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