Sela Capital attacks structure: “Deceived investors”

The battle behind the takeover move of a building company Sela Real Estate is taking another step. Sela Real Estate is expected to send a letter to the building today, alleging fraud by Sela’s shareholders, in a special presentation that prepared the building for the takeover attempt and was published a month ago (16.11).

Sela demands that Mivneh correct today (16.12) the presentation it presented at the time, against the background of the purchase offer submitted by Mivna in order to take over the Harit Foundation. Sela also sends a dedicated and revised presentation that she formulated on her own initiative.

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Sela’s letter to the building claims that the presentation prepared against the background of the tender offer published by the building on the same day a month ago (16.11), which was reported through the Stock Exchange’s announcement system to Sela shareholders, “includes information and explanations that are significantly misleading. The company, in an attempt to influence them to respond to the tender offer by providing partial information and presenting it in a misleading manner. “

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Among the defects found by Sela, according to her, in the presentation of a building is the issue of the number of tenants in the company’s properties. Structure claims in the presentation that in the proposal it increases the “portfolio diversity and reduces the dependence on individual tenants.” Because according to a structure presentation, it has 560 properties and the rock 36 properties.

In the letter, Sela states that “this presentation is misleading, since there is no connection between the number of properties and the number of tenants and their distribution. Sela has about 500 tenants, including many high-quality tenants who are financially sound, including the State of Israel And others. “

Shmuel Selvin Yu
Shmuel Selvin, Chairman of Sela Capital Photo: Abigail Uzi

“Structure shareholders do not enjoy dividend flow”

Another complains in the rock about the claim of a structure in its presentation as a priority in management. Structure noted that there is “an expectation of a significant reduction in the cost of management in light of the synergy in activities. The structure has a significant advantage in managing office and commercial assets in light of the greater experience and scope.”

Sela states in their letter that this claim is unfounded. “It is not clear what the contribution of this obscure statement is to the alleged benefit of a structure and how it is expressed in the results of its activities,” Sela notes in her letter. She further notes that “an examination of the results of the activity of rock and of a structure in recent years does not indicate any advantages for the management of a structure in relation to the management of a rock, but rather a clear inferiority of a structure relative to the rock.”

Rock from France A presentation in which she claims rock performance exceeds that of a structure. Sela presents in the presentation the data in which, in its opinion, it exceeds a structure: data on the distribution of dividends, dividend yield, tax advantages, occupancy rates, trading volumes in relation to market value, yield FFO ToEquity, The effective interest rate on the debt, the rate of the encumbered assets and the maturity of the debt.

Dudu Zabida CEO Dudu Zabida, CEO of a building Photo: Tomer Levy

Another issue about which to be furious in the rock is the matter of free cash flow. In a presentation of a structure, Sela notes, it was stated that “one of the apparent ‘benefits’ for Sela shareholders is that once the takeover bid is completed, the structure’s shareholders are expected to enjoy a significant free cash flow, which will support the possibility of a strong dividend policy.”

According to Sela, “This presentation is cynical and misleading. As of this date and for the past five years, the shareholders of a structure do not enjoy a dividend flow at all (other than a negligible amount). Hence, the source that will yield a free flow structure, as the bid is completed Rock only! ”

According to Sela, in the takeover bid, Mivna seeks to “stump the continuous flow that Sela has been paying its shareholders for more than a decade, by changing Sela’s bylaws, which in its current wording require a regular distribution of a current dividend.” That as long as it materializes, it will lead to the exact opposite result. ”

In addition, Sela claims that even after the takeover, if a dividend structure is distributed in amounts distributed by Sela so far, the share of Sela shareholders, who will convert their shares into structure shares, “will be significantly smaller than their share of the dividend given by Sela on the eve of the tender offer. “We count their dividend yield. So not only will the situation of Sela’s shareholders in this context not improve, but it will deteriorate significantly.”

In fact, Sela claims that turning it from a Reit fund into a regular company, for the purpose of taking over a structure, will stop the obligation to distribute the dividend and thus Sela shareholders will have a small portion (relative to holding in Sela) of a structure.

As stated, Sela has formulated and will submit to the building a presentation on their behalf, which should present the benefits to Sela’s shareholders, insofar as they need to examine the purchase offer of a building. The rock presents the dividend distribution, to which it is legally obligated to be a REIT fund.

According to the presentation, Sela is expected to distribute 48 agorot per share this year (2020), while a structure is 12 agorot, according to the third quarter reports of a structure. Sela’s presentation also shows that a structure did not distribute a dividend “other than a negligible amount” in 2019-2016. The tax advantages for sole, institutional investors and mutual funds in holding rock over holding in stock shares.According to rock data, tax savings tend in favor of rock at a rate of 11.75% to 23% over an alternative stock holding alternative.

Sela also claims that the majority occupancy of a building in its properties is less than 90% “in light of the fact that many historic properties are hundreds of which are industrial properties that are not in demand areas. Occupancy rates in the building are low compared to most real estate companies.”

Sela is trying to show that it manages the properties better since its occupancy rate is higher than that of a building. According to Mivna’s reports for the third quarter, the occupancy rate of its assets in terms of value was 92.2% and the occupancy rate in terms of square meters was 90.5%. Segmented by areas: in offices the rate was 88.5%, in shopping centers 92.9% and in industry and logistics 90.9%.

The shareholders’ meeting will convene on January 3

In any case, the battle between a building managed by Dudu Zabida and Sela Real Estate, headed by Chairman Shmuel Selvin, is already taking place in court. On January 3, a meeting of Sela Real Estate shareholders is expected, and the hawkish parties demanded various demands from the court. The structure requires that Sela correct the structure of the convening of the meeting and the way of voting on the various sections. Sela demands that a building correct the purchase offer and claims various defects and even alleged deception.

The move to take over a structure on a rock is relatively complex to a “standard” takeover. Sela Capital Real Estate is a Reit fund, and by law it must not have a controlling shareholder. Therefore, Sela’s shareholders must vote in favor of changing its bylaws to become a “regular” income-producing real estate company. This move should go through a majority of 75% of Sela Real Estate shareholders. Seemingly, this is a difficult hurdle to achieve, but in practice most of Sela’s shareholders (80%) are the general public, who are not expected to vote, so the decision on the issue is likely to fall on institutional ones.

As the change takes place, the shareholders will have to decide whether to accept the takeover bid – 0.92 building shares per Sela Real Estate share or a cash payment of NIS 6.751 per Sela share. The offer in the stock channel is about NIS 1.36 billion, according to yesterday’s building share price (NIS 8) and embodies a value of NIS 1.45 billion for the rock, similar to the one it was traded in yesterday, an offer that may be improved.