An ocean separates them

S&P Maalot rating for real estate firms' bonds depends on where they invest.

The Israeli real estate industry has been reeling of late. Companies' stocks have plummeted, the returns on many companies' bonds has skyrocketed to junk bond status, and now Standard & Poor's Maalot Ltd. is conducting a thorough review of the industry.

In May, Maalot put 24 real estate companies on its credit watch list because the global real estate crisis had metastasized into a global financial crisis. Maalot has since downgraded the bonds of four companies - Arazim Investment Ltd. (TASE: AZRM), Gazit-Globe Ltd. (TASE: GLOB), Africa-Israel Investments Ltd. (TASE:AFIL; Pink Sheets:AFIVY), and Electra Real Estate Ltd. (TASE:ELCRE) - because of their increased risk, and more are likely to follow.

It appears, however, that Maalot is not worried about the real estate sector as a whole, but is distinguishing companies that operate internationally from those whose primary business is domestic. As far as Maalot is concerned, it sees a difference between developers and income-producing real estate owners.

The proof is in Maalot's bond rating for Airport City Ltd. (TASE:ARPT), which received a high rating. Maalot has also not downgraded the bonds of other real estate companies that do business in Israel. The reason is that income-producing real estate owners whose property and rents are in Israel are showing resilience these days, which is reflected in their financial reports and bond prices.

The condition of Israeli residential and income-producing real estate companies is not bad at all. Companies are selling and leasing space at a steady pace, and any slowdown will only be seen in their financial reports in two or three years time.

The result is that the bonds of fairly small real estate companies that operate in the domestic market have the same or even higher ratings than the bonds of the largest companies in the industry who also operate internationally.

The different pricing of risk that Maalot is applying on domestically operating real estate companies compared with internationally operating companies will probably persist. It now remains to be seen whether investors will adopt Maalot's reasoning.

Published by Globes [online], Israel business news - www.globes-online.com - on August 12, 2008

© Copyright of Globes Publisher Itonut (1983) Ltd. 2008

Twitter Facebook Linkedin RSS Newsletters גלובס Israel Business Conference 2018