US real estate firms are again taking advantage of the lively Tel Aviv Stock Exchange (TASE) bond market to issue relatively cheap corporate debt. Three new companies raised an aggregate NIS 1 billion last week. Even when one of them had trouble with its issue, it eventually managed to complete it.
The first is Urban Investment Research Corporation (UIRC), which raised NIS 275 million in two bond series. The issue, led by Discount Underwriting, was completed a month late, after being postponed in August due to slow demand from financial institutions.
UIRC received a relatively low BBB rating from S&P Maalot, which said that the company's business profile "was limited, due to the fact that most of the company's properties have a single tenant," and because "the ownership structure of the properties restricts to some extent the transfer of cash flow from the group of properties to the company if the surplus cushion is not complete."
The timing of UIRC's issue last month was a problem for the company, because it took place on bad days in the market when prices fell substantially for some corporate bond instruments, including the Tel Bond Global Index, which contains 25 bond series issued by the foreign real estate companies operating in the US.
Four partners control UIRC: Stephen Bismarck Brackett, Edward Rutledge, Eric Warden, and David Peluso. The company rents out properties to the US governmental sector and to US states with a high credit rating. The company currently has 45 income-producing properties throughout the US, mainly in Florida and Texas. Half of the proceeds from the originally planned issue ($50 million) are for buying 14 additional properties after the issue. If this purchase does not go through within 60 days of the issue, the company will repay its debt before the scheduled time.
"Chosen Properties depends too much on a single tenant"
Last Thursday, Chosen Properties, controlled by Moshe Orlinsky, ensured that it would raise at least NIS 330 million in the institutional stage of its bond issue, after making several clarifications and revisions for the issue, following Hurricane Harvey in Texas last week, which raised concern about the company's three properties in that state.
Apex Issuances, managed by partner and CEO Eliav Bar-David, led the bond issue, Apex's first since the fiasco of Urbancorp's collapse. Following the issue, Chosen Properties will hold 22 income-producing properties, 21 of which are nursing homes leased to and managed by companies controlled by Orlinsky.
Chosen Properties received a BBB+ preliminary rating from S&P Maalot, which wrote, "The company is very dependent on a single tenant, because all of its properties are leased to operating companies, all of which are owned by Orlinsky, the company owner. The company's revenue depends exclusively on the performance of the operating companies, which focus on a single segment - nursing services. We rate the risk in this segment as higher than income-producing real estate activity."
Another US company likely to join the local stock exchange soon is Noble Assets, controlled by husband and wife Joel and Shaindy Schwartz, which recently announced that it had ensured proceeds of NIS 360 million, compared with the NIS 304 million it originally sought to raise, after the institutional part of its issue was oversubscribed.
Noble Assets received a BBB+ preliminary rating from S&P Maalot ahead of the issue. The rating agency wrote that the issue "would increase the company's leverage up to 65% in 2018," adding, "In the coming years, the coverage ratios and leverage will improve somewhat (after the completion of the bond issue and the use of the bond proceeds)."
Noble Assets focuses on residential real estate in New York. Most of its properties are located in several neighborhoods in northwest Brooklyn. $35 million of the bond issue proceeds are earmarked for repaying loans totaling this amount that the company obtained from groups of investors, which provided it with capital to buy and develop some of its properties.
Poalim IBI Underwriting and Investments Ltd. (TASE:PIU) led the Noble Assets issue, which will probably be the underwriter's last issue of debt for a foreign company under the management of dominant CEO Erez Goldschmidt. He is leaving the company to found a new underwriting firm, together with Rafi Lipa and Gal Amit, two consultants for foreign issues who recently announced the end of their fruitful cooperation with Poalim IBI in leading issues for foreign companies.
Last week's issues bring the total raised on the TASE by nearly 20 foreign real estate companies since the beginning of the year to over NIS 7 billion (15 of these companies had raised NIS 6.3 billion by the end of August).
Nearly 30 foreign companies have issued NIS 18 billion in bonds now listed on the TASE.
Published by Globes [online], Israel Business News - www.globes-online.com - on September 11, 2017
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