High interest rates in the US pushed Israeli income-producing property company Alony Hetz Properties and Investments Ltd. (TASE: ALHE) to a huge NIS 2.4 billion loss in 2023. The consequent crisis in the office market in the US and the UK led to write-downs totaling NIS 2.6 billion on the assets of the company and its overseas subsidiaries. More than half of these write-offs were in the fourth quarter of 2023. The large write-downs led to a drop of about 50% in the share price of Alony Hetz since its peak in 2022. The company's market cap is NIS 4.7 billion.
Despite these heavy losses, the total salary cost of the seven senior executives of Alony Hetz in 2023 was about NIS 45 million. CEO Nathan Hetz received a salary of NIS 6.5 million, half of it in management fees and the balance in grants. Two other senior executives, VP business development Moti Barzilay and CFO Oren Frenkel, received salaries of NIS 4.5 million and NIS 3.5 million respectively. Four other senior executives in subsidiaries took salaries worth over NIS 7 million each.
Hetz is the biggest shareholder in the company with a 14.5% stake. He told investors that in the first two quarters of 2024 the write-offs will continue because high interest rates are eroding returns on income producing properties but he sees the crisis ending in 2025.
He said, "It is possible that in the first or second quarter we will still see negative valuations, because the market is really difficult, but probably towards 2025, preparations for the 'takeoff' will begin, when interest rates in the US will enter a downward trajectory. Inflation in the US, Israel and the UK (the countries where Alony Hetz's assets are located) is under control."
Alony Hetz's share price has fallen by 14% since the start of the year, but publication of the financial results last week did not lead to a panicked reaction from investors.
Alony Hetz is a holding company, which operates through its income producing property subsidiary Amot Investments Ltd. (TASE: AMOT) (51.1%), which owns offices, commercial buildings, and industrial and logistics parks in Israel. Alony Hetz also owns properties offices in the US through AH Boston and Carr in Boston, Texas and Washington D.C. The company also operates in the UK through Brockton Everlast, which builds and manages life sciences laboratories and offices in London. Alony Hetz also holds a 50.3% stake in Energix Renewable Energies (TASE: ENRG), which operates in Israel, the US, and Poland.
Alony's Hetz's revenue in 2023 from all these activities totaled NIS 1.3 billion, up 9% from 2022, due to the activities of Amot and a positive revaluation of NIS 250 million carried out last year. Rents charged by Amot for its properties increased as a result of occupancy and indexation to the consumer price index (CPI). Another reason for the increase in revenue was due to the activity in the UK, mainly from renting new properties and also as a result of the depreciation of the shekel against sterling.
As a result of the big loss in 2023, Alony Hetz decided to cut dividend payments by NIS 100 million and plans to distribute NIS 130 million in 2024. Hetz said, "We don't want to raise capital at the current level of market prices and this is a type of way to raise capital - to leave more cash in the coffers."
Bad bet against the shekel
Two weeks after the outbreak of the war, when the shekel depreciated sharply and market forecasts looked gloomy, Alony Hetz decided to increase its exposure to foreign exchange, and "bet" against the shekel. Alony Hetz's exposure to foreign exchange jumped from 25% of equity to 45%. In the fourth quarter of 2023, this meant an exposure of NIS 3.5 billion shekels (half exposed to the dollar and half to sterling). Following the greater exposure to foreign currency, and to the end of 2023, the shekel strengthened by 9.5% and Alony Hetz lost NIS 330 million following the decision.
Since the start of 2024, the shekel has weakened by more than 2%, so the company has offset the loss by about NIS 60 million.
Published by Globes, Israel business news - en.globes.co.il - on March 18, 2024.
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