IDB units buy HSBC Tower in New York for cash

IBI: The building is an asset in one of the best places in the world.

IBI Investment House Ltd. analyst Shay Lipman has reacted favorably to the notice to the Tel Aviv Stock Exchange (TASE) by two Nochi Dankner-controlled IDB Holding Corp. Ltd. (TASE:IDBH) units bought a major Manhattan property, calling the building "an asset in one of the best places in the world," and "a very impressive deal."

Property and Building Ltd. (TASE: PTBL) and Koor Industries Ltd. (TASE:KOR) have bought the HSBC New York headquarters on Fifth Avenue from HSBC Holdings plc (LSE:HSBA; HKSE: 005; NYSE, Paris: HBC) for $330 million in cash in a sell and lease-back deal. The two companies made the purchase through a joint subsidiary owned in equal shares. Each company will put up $165 million in equity for the purchase.

The 80,000-square meter HSBC Bank Building comprises two structures, one 12 stories and the other 29 stories, at 425 Fifth Avenue and 1 West 39th Street. HSBC will lease back 51,000 square meters of the buildings under a ten-year lease, with a ten-year option to extend. It will pay $45 million in rent in the first year, while the IDB units will pay $18.5 million in annual expenses on the property.

Lipman gives Property and Building a "Buy" recommendation with a target price of NIS 280, 16% above today's opening price. He says, "Many parties were interested in the property, but I believe that they were unable to secure financing for a deal." He notes that Koor and Property and Building fully financed the purchase from shareholders' equity, without the need for external financing. Property and Building has NIS 2 billion in liquid assets. Koor is also cash-rich, and is the means through which Dankner has been buying and selling shares in Credit Suisse Group AG (NYSE: CS; SWX: CSGN; XETRA: CSGZ) and French-based retailer Carrefour SA (Euronext: CA).

Lipman nonetheless warns that the leases a third of the tenants in the HSBC Tower expire within a year. "If the tenants do not exercise their options to extend their leases, it will not be easy for the companies to lease the space, since New York has a surfeit of available office space."

IDB's share rose 1.6% by early afternoon to NIS 92.50, Koor's share fell 2.3% to NIS 112.80, and Property and Building's share rose 1% to NIS 244.

Published by Globes [online], Israel business news - www.globes-online.com - on October 4, 2009

© Copyright of Globes Publisher Itonut (1983) Ltd. 2009

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