Azrieli buys 7th Texas office building for $100m

Income-producing real estate company Azrieli Group Ltd. (TASE: AZRG) has invested $100 million in the acquisition of an office building in Texas, where most of its properties outside Israel are located. Azrieli, controlled by chairperson Dana Azrieli, said that the five-storey, 23,000 square-meter (250,000 square-foot) building was located in southwestern Austin and had an occupancy rate of nearly 100%.

Azrieli added that the lease for the property, which also includes nearly 1,000 parking spaces, "contains permanent mechanisms for raising the rent during the entire period of the agreements." The annual net operating income (NOI) on the property is $6.7 million, amounting to a 6.7% annual return. According to Azrieli, the area in which the property is located is an exclusive office area "due to its proximity to luxury neighborhoods and the special surrounding nature areas and landscape. Construction of the building was completed in 2015, making it the newest office building in this area." Azrieli is paying for 40% of the price in the deal from its own resources and the rest through external financing.

Azrieli began to diversify its overseas real estate investments in 2001. The company made several deals in Texas in 2011-2017, including its first in Austin in 2016. Azrieli stated in its financial statements that its aim was to "enlarge its overseas income-producing real estate portfolio to 15% of its total real estate properties." 90% of the value of the group's income-producing real estate for investment and construction is currently attributable to real estate in Israel.

Focus on Texas

Azrieli also states, "The group is concentrating on buying existing A-rated properties with a minimum value of $40 million… The US continues to be an important target, but the company will consider activity in other Western countries from time to time."

Before the current deal, Azrieli had seven rental office properties abroad: six in Texas and one in Leeds in the UK, with a total area of 213,000 square meters (the company's share) leased to 170 tenants. The company stated that these "did not amount to material assets."

Azrieli's revenue from income-producing real estate in the US dipped 3% to NIS 221 million and its NOI slipped 2% to NIS 121 million, mainly due to the drop in the shekel-dollar exchange rate.

While Azrieli's average occupancy rate for its properties in Israel is nearly 100%, its occupancy rate in the US is 85%.

Two of Azrieli's office buildings in Houston suffered water damage last year from Hurricane Harvey. These properties were downwardly revalued because of provisions for damage repair. Completion of the repairs is scheduled for the third quarter of 2018. Azrieli reported NIS 64 million in revenue in its 2017 financial statements "as a result of receivables from the insurance company for indemnification for the damage."

At the end of the first quarter of 2018, Azrieli held 1.15 million square meters of income-producing properties for rent and 10 projects under construction.

The Azrieli Group's share price has dropped 10% over the past year, pushing its market cap down to NIS 21.5 billion, making it the eighth largest company on the Tel Aviv Stock Exchange (TASE).

Published by Globes [online], Israel business news - www.globes-online.com - on July 16, 2018

Azrieli buys 7th Texas office building for $100m

The five-storey, 23,000 square-meter buildings is located in southwestern Austin.