Azorim Investment, Development and Construction Ltd. (TASE: AZRM) today notified the TASE that it was negotiating to buy half of Boaz Gilad's controlling interest in Brookland Upreal. Azorim stresses that the terms of the deal have not yet been settled, and that it is also likely to depend on agreements with third parties. There is therefore no certainty that the negotiations will result in a binding agreement.
Azorim's report comes two weeks after Brookland Upreal announced that Assaf Fitoussi, Gilad's partner in the controlling interest in the company, would sell Gilad his stake in the company for an undisclosed sum believed to be a few million dollars. Brookland Upreal, which operates in the Brooklyn real estate market, thereupon announced that Fitoussi was ending his term as chairman of the company.
After buying Fitoussi's shares, Gilad will own 51% of Brookland Upreal, half of which is to be sold to Azorim. The other shares are owned by David Goldberger and Eyal Yagev (the Upreal group). Fitoussi is expected to remain as a party in personal guarantees, which he provided, among other things, to secure loans taken by corporations held by the company.
Brookland Upreal issued two BBB-rated bond series in 2014-2015 totaling nearly NIS 200 million. The company deals mostly in development of real estate for sale in Brooklyn, New York. It also has income-producing real estate development, buying, and construction business in the same area.
The company is currently developing relatively small projects of up to several dozen housing units, and its strategy is to invest in projects with a total cost of $12-25 million. Brookland Upreal's revenue grew 22% to $66 million in 2016, with the help of recognition of revenue from sale of projects whose construction has been completed, and which have been delivered to buyers. The company's net profit jumped 18% to $18 million.
Heavy losses on a New York project
If the Azorim-Gilad deal goes through, Brookland Upreal will gain a partner capable of boosting its business and stabilizing the company. Azorim, which operates mostly in the Israel residential real estate market, is currently involved in a large residential real estate project in Yonkers, New York, which it entered in the middle of the preceding decade, and on which it has posted heavy losses.
This project involves the construction of hundreds of housing units on a 30-dunam (7.5-acre) lot in well-to-do Westchester County. The lot is part of a shopping and entertainment complex inaugurated in 2011. It cannot be ruled out that if the deal to buy Brookland Upreal's shares is closed, that company will manage the project.
The New York project is not Azorim's only connection to the US real estate market. Two years ago, "Globes" revealed that Azorim CEO Dror Nagel was assisting an agent in the Tel Aviv Stock Exchange (TASE) bond issues of a number of US real estate companies. Nagel put US agent Yanky Sax in touch with underwriting company Poalim IBI Underwriting and Investments Ltd. (TASE:PIU) and underwriting consultants Rafi Lipa and Gal Amit. Sax introduced the Israeli consultants to three real estate companies that raised debt on the TASE, and whose offerings yielded him millions of shekels in commissions.
Nagen, 54, was appointed CEO of Azorim in 2013. He previously served as CEO of the The Phoenix Holdings Ltd. (TASE: PHOE1;PHOE5) investment arm and a series of executive positions at Bank Hapoalim (TASE: POLI). The cost of his salary at Azorim in 2016 was NIS 3.2 million.
Most of the business of Azorim, controlled by Hershey Friedman, focuses on developing residential projects in Israel, and the company is considered one of the main players in the industry. Azorim sold nearly 750 housing units in 2016 (together with partners) for a total of nearly NIS 1.4 billion and 850 housing units for NIS 1.6 billion in 2015. The company's profit leaped 150% to NIS 137 million last year.
Early this week, Azorim announced that it was considering offering shares to the public in a special purpose vehicle that would serve as a fund for land investments. In this framework, the subsidiary submitted a draft prospectus to the Israel Security Authority. At this stage, no final decision has been taken about the structure, timing, or whether the offering will actually be held. The Azorim share price has risen 25% over the past year, but has lost 8% in the past three trading days, bringing the company's market cap to NIS 865 million.
Published by Globes [online], Israel Business News - www.globes-online.com - on May 17, 2017
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