US real estate developer Jeff Sutton's Tel Aviv Stock Exchange (TASE) bond issue scored a big success yesterday with the bond issue of the company he controls - Wharton Properties. Demand for the bonds in the institutional part of the issue totaled NIS 1.7 billion, with the size of the issue being increased from NIS 800 million to NIS 960 million as a result, of which NIS 862 million has been guaranteed in the institutional part.
The interest rate set for the bond series was only 3.9%, compared with the maximum 5% rate cited in the prospectus. This interest rate, the lowest rate paid by a foreign real estate company in a TASE bond issue, was achieved thanks to the participation of concerns managing long-term savings, mutual funds, and portfolio management companies.
Sutton specializes in buying, upgrading, and leasing prestige stores located on major New York City Streets. He gave the bond company all of his holdings in 18 commercial income-producing properties, most of which are located on the main streets of Manhattan and Brooklyn. Sutton buys most of the stores, and after upgrading them, leases them to leading retail companies under long-term leases.
The aggregate space of these properties totals over 213,000 sq.ft. (19,800 sq.m.). The book value of the properties totals $723 million, and they generate $27.1 million in yearly net operating income (NOI). Wharton Properties reports equity of $421 million, 59% of its balance sheet. These figures have given the company a high AA minus debt rating.
Learning lessons made the difference
This is Sutton's second foray in the Israeli capital market. He held meetings here in 2015 with investment institutions concerning a NIS 2 billion debt offering, but the enormous size of this issue, combined with a rather widely dispersed portfolio of properties, complex financial engineering of the proceeds from the offering, and expectations of a particularly low interest rate, made investors uncomfortable, and Sutton elected to forego the offering.
This month, after learning his lessons from his earlier attempt, Sutton tried his luck again. He first announced an attempt to raise NIS 400 million, which quickly doubled in size. This time, he also decided to hire two of Israel's leading underwriters to jointly lead the offering: Poalim IBI Underwriting and Investments Ltd. (TASE:PIU) and Leumi Partners Ltd.. This decision probably also contributed to the bond issue's success.
The prospectus states that the company will use the proceeds from the bond issue to finance its activities, with an emphasis on the purchase of new properties, buying its partners' shares in the company's properties, and repaying $30 million in loans taken by the company's subsidiaries.
Published by Globes [online], Israel Business News - www.globes-online.com - on February 22, 2017
© Copyright of Globes Publisher Itonut (1983) Ltd. 2017