Africa-Israel Investments Ltd. (TASE:AFIL), controlled by chairman Lev Leviev, posted a net loss attributable to majority shareholders of NIS 725.4 million (NIS 5.36 per share) for the second quarter of 2012, compared with a net profit of NIS 32.4 million for the corresponding quarter of 2011. The loss was in line with the company's profit warning of a loss of NIS 720-800 million, due to downward valuations of properties held by its Russian development arm AFI Development plc (LSE:AFID). Africa-Israel's net loss was NIS 1.09 billion for the second quarter, compared with a net profit of NIS 74.1 million for the corresponding quarter.
In second quarter of 2012, Africa-Israel made a net write-down of NIS 892 million, due to a fair value reduction on investment properties of NIS 873 million, most of which was for four projects of AFI Development as a result of planning policy changes by the Moscow Municipality. AFI Development also made a write-down of NIS 254 million for the drop in value on its inventory of buildings and land in its Botanic Garden project, after a petition for liquidation was filed against the project's main investor.
In the first half, Africa-Israel made a net write-down of NIS 860 million, due to a fair value reduction on investment properties of NIS 771 million.
Africa-Israel's loss from real estate operations was NIS 959 million for the second quarter, compared with a profit of NIS 104 million for the corresponding quarter.
Rental income rose to NIS 128 million for the second quarter from NIS 115 million for the corresponding quarter; income from industrial operations (through Africa-Israel Industries Ltd. (TASE: AFID)) fell to NIS 34 million from NIS 54 million, mainly due to lower steel sales in Russia. Profits from subsidiaries rose to NIS 120 million for the second quarter from NIS 109 million for the corresponding quarter. Altogether, operating loss was NIS 770 million for the second quarter, compared with an operating profit of NIS 308.1 million for the corresponding quarter.
The value of Africa-Israel's income-producing properties was NIS 9.4 billion at the end of June, the value of projects under construction was NIS 3.2 million, the value of residential properties for sale was NIS 1.8 billion, and the value of land was NSI 1.9 billion.
Africa-Israel CEO Avraham Novogrocki said, "We concluded a quarter in which the financial results were affected by the reduction in fair value that we were compelled to make on several investment properties in Russia, the construction of which has not yet begun. Despite the write-down, we continue to believe in the great potential in Russia, and we are acting in line with our business plans to arrange permits and investments needed to realize this potential and to improve the value of the properties.
"This was another quarter in which we see that the extreme uncertainty and volatility in the world's capital markets has not yet passed. Despite this fact, all the company's subsidiaries continue to grow and expand their business operations."
Novogrocki concluded, "Africa-Israel will continue to implement its business strategy, which is focused on development, redevelopment, and business development, especially of income-producing properties in Israel, Russia, and Eastern Europe. The company will use its more than NIS 800 million in cash reserves to exploit current possibilities in the market, with the goal of repaying all its debts and create value for shareholders."
Africa-Israel's share price fell 0.6% in morning trading to NIS 5.68, giving a market cap of NIS 767 million.
Published by Globes [online], Israel business news - www.globes-online.com - on August 29, 2012
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