Big in Good Reports – Buying Recommendation – Capital Market

Big Company posted good results for the last quarter of 2020. The corona year is over and now, in parallel with the optimism that is blowing thanks to the exit from the corona, analysts are encouraging. Leumi Capital Market provides a target price of NIS 394 – a premium of 13% on the market price.

Maayan Beck-Merom from Leumi updates – “We estimate that in the near term in Israel the redemption data will be good in light of consumers’ preference for open shopping centers. In the US, the company has decided in recent months to act Activity in other markets.

“In Serbia, the company acquired the partner holdings and increased its holding in the subsidiary, as part of its desire to continue to expand its operations in Serbia. As a result of the acquisition of 5 properties in Serbia in the past year, the NOI representing in this market has increased.

“In addition, Big has completed the acquisition of control of Effie Properties and has risen to a 62% holding in the company, which expands the group’s asset and geographical distribution.”

Big recently reported revenues of NIS 187.8 million in the last quarter of 2020, compared to NIS 218.7 million in the corresponding quarter last year. The change is mainly due to the fact that in light of the closure guidelines in Israel, the company did not act to collect rent and management fees from its tenants during October (except for vital businesses that continued to operate). Management in all centers.

The NOI in the quarter amounted to NIS 134.4 million, compared with NIS 153.7 million in the corresponding quarter last year. The decrease in NOI is due to the said relief given by the company to its tenants, mainly in Israel, and is estimated at NIS 27 million. The real FFO in the quarter amounted to NIS 93.2 million, compared with NIS 94.7 million. The extent of the damage to FFO in the fourth quarter following the Corona crisis is estimated at NIS 22 million. In other words, Big has returned to the FFO rate that was before the corona, and it is expected to rise towards NIS 110-115 million within a few quarters (expansion on the financial results in the fourth quarter and in the whole of 2020)

“The construction of the commercial center in Yehud has been completed and will open this week,” updates Ein-Beck, adding – “The construction of Big Glilot continues following the building permit received in November 2020, the project is expected to include two commercial floors and two office towers, with construction costing NIS 0.5 billion. In December 2020, Big announced the acquisition of two open shopping centers in Yishparo’s intelligence, for NIS 425 million, but the acquisition may be canceled due to a ban by the Competition Authority.

“Regarding the US market, in recent months the company has made a strategic decision to realize all US operations with the recovery of the US market from the corona crisis and divert the sources from the realization to expand operations in other operating markets.

Regarding Serbia – the NOI recovered from the effects of the corona and stood at € 4m similar to the third quarter and compared to € 2m in the second quarter. The assets in Serbia are fully occupied by 99% .In the first quarter of 2021, Big reached agreements with the partner in the Serbian subsidiary to purchase its shares for 24 million euros and rose from a holding of 82% to 95% in the subsidiary.The purchase was made in exchange for a Big share in the subsidiary. The company acquired 5 properties in Serbia in 2020. Initiation: In the first quarter of 2021, the construction of the office building in Belgrade was completed, which was mostly leased to NCR for a period of 10 years.

“In 2020, the company reduced the value of its assets by NIS 306 million (NIS 58 million in the fourth quarter) when it is a relatively negligible amount, and the reduction is due to expectations of relief for tenants in Israel and increased capitalization rates in some of the company’s assets in the US and Serbia. Recall that in our model we take into account a deeper impairment in the longer term following the crisis, however in the current quarter we lowered the scope of our forecast for impaired real estate companies due to our impression of the impact of the crisis on actual transaction value so far, leading to some decline in capitalization Real estate, depending on the leverage of each company.

“Big shows a slightly higher leverage rate relative to other real estate companies with a net debt to net CAP rate of 63%. During the coming year, the company is expected to repay bank loans in Israel in the amount of NIS 431 million, bonds in the amount of NIS 408 million and debt in the United States in the amount of NIS 183 million. On the other hand, the company has liquid balances of NIS 334 million, available credit facilities of NIS 660 million and good access to the capital market, so that the liquidity it presents is sufficient.

“In January 2021, Big completed an exchange purchase of Efi Properties shares (against the allotment of shares and options of Big), so that the company’s holding rate in Efi Properties rose from 23% to 62% and Big became the controlling shareholder in the company, which until then had no controlling interest. Will consolidate EPI’s reports as of the first quarter of 2021. The acquisition expands Big’s asset and geographical distribution. At the beginning of 2021, it announced a deal to purchase an office park in Hod Hasharon and is in negotiations regarding the purchase of an office building populated in Prague. The company also initiates and uses the land accumulation intended for the residential market, both for rent and sale, and aims to continue to expand the field of residential property for rent in Eastern Europe, mainly in the Czech Republic, Poland and Romania.

“Epi Properties ended 2020 with a decrease of NIS 7 million in NOI from identical assets in Israel (approximately 6%) and NIS 46 million in Europe (approximately 15%). The NOI in the fourth quarter was NIS 102 million compared to 74.4 million in the third quarter, but at a similar rate to the second quarter of the year. The company estimates that the impact of the corona this year is estimated at NIS 49 million, and accordingly, and for the full period of assets acquired during the year, the company estimates “The existing one is about NIS 642 million. We estimate that the company is expected to show significant growth in NOI this year, both in light of the acquisition and in the light of the initiated assets.”

As mentioned, the target price is NIS 394