Covid-19 reverses the fortunes of real estate companies


The growing number of infections and widespread reports of a possible second wave of the coronavirus pandemic in Israel are clearly reflected in the stock prices of the income-generating real estate sector, which lost 5-10% in the first two trading sessions this week.

These declines, which weigh on the entire market, reflect investors’ fears of a further blow to the assets of lucrative local real estate companies, mainly shopping centers and office buildings, if the government decides on new restrictions on the movement of people. .

This follows the blow these assets suffered earlier this year when the government imposed a lockdown, leaving shopping centers and offices almost entirely empty for more than a month from mid-March. Since then, the level of activity of these assets in the near and distant future continues to look uncertain.

Major income-generating real estate companies in Tel Aviv, which last year provided dream returns to investors, have fallen 30-40% this year, including market leaders (by market capitalization): Azrieli Group ltd. (TASE: AZRG), Amot Investments Ltd. (TASE:AMOT) and Melisron Ltd. (TASE: MLSR).

The best returns among the leading companies are those of Big Shopping Centers (2004) Ltd. (TASE:BIG). The type of assets it owns (open shopping centres) have enabled it to restore activity more quickly than its competitors. Big’s stock price has fallen “only” 25% since the start of the year. At the other extreme is Gazit-Globe Ltd. (NYSE: GZT; TASE: GLOB), controlled and managed by Chaim Katzman, whose stock price plunged by more than 50% during this period, amid fears of the effect of the pandemic on its commercial real estate activity around the world, particularly in the regions hard hit Brazil.

Azrieli still leads on market capitalization

In less than six months, the steep declines wiped out as much as 34 billion shekels, or about a third, of the value of the top ten income-generating property companies on the Tel Aviv Stock Exchange. About 30 percent of the loss (nearly NIS 11 billion) is in the Azrieli Group, controlled by Dana Azrieli, while another 40 percent (about NIS 13 billion) is in Melisron, Amot, Airport City and Mivne.

With a current market capitalization of around 20 billion shekels, Azrieli is still far ahead of its closest competitor in the real estate sector, and it remains one of the ten largest companies listed on the Tel Aviv Stock Exchange. It is followed by Amot (controlled by the Alony Hetz Group) and Melisron (controlled by Liora Ofer), which have market capitalizations of nearly NIS 6.5 billion each.

The aggregate market capitalization of the top ten income-generating real estate companies in Tel Aviv, which are involved in the development and maintenance of shopping malls, malls and office buildings, is now below NIS 60 billion, against more than 90 billion NIS. at the beginning of the year.

Nadav Berkovich‎, Real Estate Analyst at IBI, said: “In 2019, it looked like all macro conditions were ripe for a continued rise in real estate stocks, with low interest rates, a growing economy, rising occupancy rates high and strong private growth. consumption, but the coronavirus event changed all that.

“Real estate stock prices are now at historic lows in terms of their multiples, but there’s a reason for that, and that is the drastic change in the macro environment. Even if we assume the peak of the pandemic coronavirus is behind us and there will be no second wave, investors’ fears about the future relate to damage to the economy, recession and falling private consumption. These are long-term processes, and we’re only at the point. Real estate is a mirror image of the economy, and if the economy is headed for a downturn, that will be reflected in business activity.

“In some cases, the market is forecasting a 20-30% drop in the NOI, which has not happened in previous crises. It is impossible to know if we will really reach such a drop, but the market is already there. .”

Is there anything positive to be said about stocks in this sector?

Berkovich: “Current prices are probably already pricing in a lot of the damage. But you have to remember that as we’re only beginning to see the aftermath of the crisis, stocks in the sector are shaping up for a tough year.”

Published by Globes, Israel business news – – on June 24, 2020

© Copyright of Globes Publisher Itonut (1983) Ltd. 2020


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