Even as Bank Leumi (TASE: LUMI) and Mizrahi Tefahot Bank (TASE:MZTF) consider creating value by selling real estate used in their business in sale and lease-back deals, sources inform ''Globes'' that the Bank of Israel's Banking Supervision Department may block the plans. A market source said, "The Bank of Israel does not like the idea", because it wants the banks to strengthen their capital without accounting gimmicks.
So far as is known, the Banking Supervision Department is thoroughly examining the matter, but it has not yet decided how, or whether, to act. The Bank of Israel said in response, "The matter is under review."
A market source told "Globes" today, "There is a feeling that this is an accounting gimmick, and it is important to determine where it will stop. After, if the banks sell their branches and commit to long-term leases, they could do the same with their computers, and even outsource employees. Where should this stop?"
Earlier this week, "Globes" revealed that Bank Leumi is moving forward on a review, which is still only in the early stages, of selling and leasing back real estate used in its operations. Bank Leumi may be joined by Mizrahi Tefahot Bank, which is much farther along in its review of the issue to undertake a plan similar to sell and lease-back plans by supermarket chains Shufersal Ltd. (TASE:SAE) and Alon Holdings Blue Square - Israel Ltd. (NYSE: BSI; TASE: BSI). Sell and lease-back deals would create considerable value for the banks, amounting to at least hundreds of millions of shekels, by spinning off real estate assets, which have an estimated value of billions of shekels.
Banks are not alone
Bank Leumi is mulling the sale of all or part of its real estate to investment institutions, possibly via a real estate investment trust (REIT), and leasing back the properties. The plan is undergoing an internal review, and has not been submitted to Bank Leumi CEO Rakefet Russak-Aminoach for approval. In its financial statements for the third quarter of 2012, the bank values its property and equipment at NIS 3.75 billion.
Mizrahi Tefahot Bank is in the advanced stages of a review of a proposal to establish a REIT, which would hold the bank's properties and sell some of them to investment institutions, or even to the general public. The bank's REIT would include scores of bank branches (the ones that it owns), and other properties which it uses, with an estimated value of NIS 600-700 million. The bank would lease back the properties after selling them to the REIT, occupying the properties and generating income for the REIT.
Sale and lease-back deals are not unique to the banking system, but are utilized by many companies with large numbers of properties that are sometimes worth as much as real estate companies. Another industry characterized by ownership of multiple properties is retail. Shufersal, controlled by IDB Holding Corp. Ltd. (TASE:IDBH), is now spinning off its real estate, following the lead of Alon Blue-Square, which spun off and floated Blue Square Real Estate Ltd. (TASE: BLSR). Shufersal plans to concentrate all its properties in a wholly-owned subsidiary during the current quarter, and may float or sell the business later.
Published by Globes [online], Israel business news - www.globes-online.com - on January 10, 2013
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