Following the rise in interest rates that has brought in train a rise in the capitalization rate of its assets, income producing real estate company Alony Hetz Properties and Investments (TASE: ALHE), headed by Nathan Hetz, continues to post huge revaluation losses on assets held by overseas units. The company reports that it expects an additional loss of NIS 400 million (NIS 2.2 per share), which it will recognize in its financial statements for the first quarter of 2024.
The company says that most of the loss (84%) is in subsidiaries Carr and AH Boston, which are active in the Boston city area, the state of Texas, and Washington DC, while the remainder is in Brockton Everlast in the UK, which builds and manages laboratory buildings for life sciences, and office buildings in London.
Investors ought not to be surprised, as Alony Hetz has been posting revaluation losses overseas for a year and a half, amounting to over NIS 3 billion in total.
The reason for the losses is the slowdown in the office market in the US and the UK. The write-downs have led to a decline of nearly 60% in the company’s share price from the peak that it reached in early 2022, before interest rates started to rise. So far this year, Alony Hetz’s share price has fallen about 17%, and the company now has a market cap of NIS 4.5 billion.
In 2023, Alony Hetz had revenue of NIS 1.3 billion, 9% more than in 2022, mainly thanks to the activity of Amot, the income producing real estate subsidiary in Israel. Amot recorded a revaluation gain of NIS 250 million, while its rental income rose as a result of the occupation of new buildings and CPI-linkage of rents for existing tenants. A further source of the rise in revenue was the UK activity, chiefly thanks to the leasing of new assets, but also to the depreciation of the shekel against the pound sterling.
Alony Hetz nevertheless posted a net loss, and cut its dividend by NIS 100 million to NIS 130 million. "We don’t want to raise capital at current market prices, and this is sort of a way of raising capital, to leave more cash in the company," Nathan Hetz explained.
Despite the losses, Alony Hetz’s seven highest paid executives had an aggregate compensation cost of NIS 45 million in 2023. Hetz himself has a compensation cost of NIS 6.5 million, half in management fees and the rest in bonuses.
Published by Globes, Israel business news - en.globes.co.il - on April 30, 2024.
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