Alrov (Israel) Ltd. (TASE: ALRO) today published its financial report for the third quarter of 2008. The luxury real estate developer posted a net loss of NIS 269.7 million (NIS 19.67 per share) compared with a net profit of NIS 183.1 million for the corresponding quarter of 2007. Shareholder's equity was reduced by 21% to NIS 1.11 billion at the end of September from NIS 1.41 billion at the end of 2007.
A lethal cocktail of slumping demand for luxury real estate and collapsing investments during a financial and economic crisis caused Alrov to lose NIS 276 million on investments in securities during the third quarter, in line with the profit warning that the company announced earlier this month. Since the end of the September, when Alrov's securities portfolio was booked at a value of NIS 713 million, the value has fallen to NIS 542 million.
98% of Alrov's securities portfolio is invested shares of Bank Hapoalim (TASE: POLI; LSE:80OA) and Bank Leumi (TASE: LUMI); the value of the holding in Bank Leumi has fallen from NIS 615 million at the end of September to NIS 470 million; and the the value of the holding in Bank Hapoalim has fallen from NIS 82 million to NIS 59 million. Bank Leumi's share price has fallen 46% in the past year and Bank Hapoalim's share has fallen 58%.
Alrov chairman and CEO Alfred Akirov said, "We continue to believe in Alrov's core business, both through subsidiary Alrov Properties and Lodgings Ltd. (TASE: ALRPR) and in Israeli banking. We believe that, over time, the banks' share prices will again reflect their actual value."
2008 is projected to be a record year for incoming tourism, and Alrov predicts that its David Citadel Hotel in Jerusalem will report an operating profit of NIS 70 million. In contrast, however, the company failed to sell a single apartment in its Mamilla project in Jerusalem during the third quarter, despite a television ad campaign. The company sold two apartments in the project in the first quarter.
Alrov Israel subsidiaries, Alrov Luxury Hotels Ltd. and Alrov Mamilla Ltd. have also had to adjust to the new rules of the game. They promised their lender bank that their aggregate earnings before interest, taxes, depreciation and amortization (EBITDA) would not fall below $19 million in 2008 and $25 million in 2009. On the basis of this promise, the two companies were able to increase their credit line by NIS 550 million.
Alrov Israel's share price has fallen 84% since January. The share rose 20% today to NIS 21.28, giving a market cap of NIS 242 million. Akirov remains upbeat, saying today, "In view of our confidence in the company's financial soundness, we are buying back bonds of both Alrov Israel and Alrov Properties. We have already bought back NIS 33.5 million worth of Alrov Israel bonds and NIS 49.5 million worth of Alrov Properties bonds."
Published by Globes [online], Israel business news - www.globes-online.com - on November 25, 2008
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