Gazit Globe licks the wounds of the corona – the capital market

Company

Gazit Globe
-0.94%

Base:2,131

opening:2,131

High:2,149

low:2,101

change:586,838

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In an impressive recovery. 7 months ago, there was a real risk that the pyramid of Haim Katzman, who owns Norstar, which owns Gazit, will not last. Since then, against the background of the recovery in the financial and real estate markets, Gazit’s situation has stabilized and the stock has risen accordingly. Still – this is a company that trades with a low FFO compared to similar companies. Is the market rightly afraid, or is it an opportunity?

Let’s start with the simple facts – The company’s share jumped 50% in 3 months to a price of NIS 21.3, which expresses a value of NIS 3.1 billion. The value is still significantly lower – about 45% of the equity attributed to shareholders – NIS 5.7 billion.

The FFO (Current operating profit less one-time items) amounted to NIS 360 million in the first nine months of the year, but in the third quarter amounted to only NIS 62 million – a sharp decrease, which according to the company management reflects the crisis and hence the results will improve against the effects of vaccinations and exit From the economic crisis.

Gazit, which operates in Europe (via Itrium), in the United States (mainly directly, after the realization of tradable holdings), in Israel (directly) and in Brazil (directly – it intends to issue the activity) was hit hard in Brazil, when the damage was minor in Europe. “B are suffering, but improvement is expected in the fourth quarter and in 2021. If we become conservative (maybe too much) and estimate that FFO will not rise in relation to the third quarter, then this is an annual FFO of close to NIS 250 million. FFO multiplier of 12. If we go back to third gear, the FFO will already be 350 million and in fifth gear it will reach NIS 500 million or more. In other words the FFO multiplier is expected to be between 6 and 12. Go for the average – 9 – not bad.

In the asset value test – the situation looks less good. Gazit is traded at NIS 3.1 billion. Its asset value at market prices of the trading companies and value in the books of the non-trading companies amounts to an amount close to the market. But while the assets in Tel Aviv and in Israel are generally displayed in economic value (as well as in the US), in Brazil there may be a problem. The activity in Brazil is shown at NIS 2.3 billion but Gazit who tried to sell it failed and will try to issue it on the Brazilian stock exchange and dilute its holding.

If you look from a conservative angle – then the net asset value given the market value of the companies traded and the losses in Brazil, is significantly below the market value. However, some reservations – not a bad chance that the company will dilute its holding in Brazil, a good chance that the continued recovery in Europe will also have a positive effect on Gazit’s large holding. And also – a certain chance that the itrium that pulls Gazit’s value down (the market value of the holding in itrium is significantly lower than the value in the books) will eventually be wiped out of trading. Gazit has already tried to make a move, and it is not imaginary that she will try again.

And yet – in the net asset value test there is still a problem. A value lower than the market value of holding assets in the amount of NIS 16 billion. This means that it is a leveraged option on the assets, an option on the income-producing real estate field, an option on the economic recovery in the world. An option is also a great opportunity.

Additional advantages of Gazit are expressed in the ability to raise debt. The company issued bonds several months ago easily and quickly, and it has a large surplus of unencumbered assets. This is important – because the big crisis it was in 7-8 months ago was mainly due to the fear that the market loses training and against the background of rising interest rates. Recover debt.Once this issue is resolved and the company can return to the market and raise, the biggest threat is removed.Because after all – it does not matter if you have weak periods, as long as you are in the game, and Gazit in the game.

Third quarter – is it the weakest?
Rental income during the third quarter last year amounted to NIS 611 million, a decrease of about 7.5% compared to NIS 660 million in the corresponding quarter. The company’s profitability was also affected by a decrease in NOI in the third quarter, which amounted to NIS 285 million, compared with NIS 318 million in the corresponding period, and the FFO fell by 55%.

On the bottom line, Gazit Globe managed to present a net profit of NIS 23 million, a huge decrease compared to last year, but it was mainly due to the decrease in value recognized in the assets. In terms of “boots in the mud,” meaning Gazit Globe’s overall collection rates have remained at high rates throughout the crisis. The company noted that most customers are vital customers. The rate in the third quarter was 86% (improvement over the second quarter).

Regionally, no significant collection problems were recorded outside of Brazil where collection rates were at a low rate of 67% compared to an occupancy rate of 94.5% which indicates difficulty in business in the country of football and samba. Brazil accounts for 18% of the group’s activity, again, a significant injury but not one that cannot be recovered from.