Alony Hetz Property and Investments Ltd. (TASE: ALHE) has signed a non-binding term sheet to invest in Carr Properties Inc., an income-producing real estate development and management company in the greater Washington DC area. Carr Properties wholly or partly owns 20 office buildings with 350,000 square meters of space, of which its share is 230,000 square meters, leased to hundreds of tenants on contracts of varying length. The company is also developing three office projects, which are in varying stages of construction.
Carr Properties has a full in-house management team with many years experience in the Washington DC real estate market. The company has been run for the past ten years by president and CEO Oliver Carr III.
The term sheet states that a new company will be established to which Carr Properties will transfer the abovementioned assets. Alony Hetz will invest $300 million in the new company in exchange for a 45% stake, and its partner, Special Situation Property Fund of JP Morgan Chase Bank (SSPF), will also own the same stake. According to Carr Properties' presentation, the parties estimate that the new company will have $370 million (pro forma) in shareholders' equity at the end of 2012.
If and when a deal is closed, the new company's shareholders' equity, after Alony Hetz's investment, will be $670 million, and it will have assets worth $730 million.
On the basis of Carr Properties' business plan, strategy, and pro forma shareholders' equity after Alony Hetz's investment, the parties to the deal expect that the new company will be able to have, within a few years, through acquisitions and the development of additional properties, properties worth $1.5 billion. This can be achieved without the need for raising additional shareholders' equity from the shareholders, by focusing on investment in the office sector in the greater Washington DC area.
The parties estimate that the annual dividend flow from the new company will generate a 6% return on investment.
The parties intend to complete due diligence during the first quarter of 2013, with the intention of signing binding agreements (including arranging joint control) by the end of March 2013, and to close the deal by June.
Alony Hetz intends to finance its investment its investment in the new company from its own resources, use of part of its long-term credit lines from banks, and by raising capital or debt, if necessary.
The signing of the term sheet is not binding on the parties, except for the no-shop clause through the end of March 2013.
Alony Hetz CEO Natan Hetz said, "I am pleased with the signing of the term sheet to invest in the assets of Carr Properties together with the Special Situation Property Fund of JP Morgan Chase Bank. This is a preliminary document before due diligence has been conducted, and I hope that we will complete the due diligence satisfactorily and close the deal within the timetable set. For a long time, we have been seeking to invest in the US office market, with a focus on the greater Washington DC area. The greater Washington DC office market has an estimated 35 million square meters of space, making it the second largest market in North America, after New York.
"This market has been fairly stable for the past 30 years, maintaining stabling occupancy rates and rents. After many efforts and checks, we found an investment that seems to meet all our criteria, including the size of the investment, the quality of the properties, and veteran and experienced management with a decades-long track record. If and when we complete this deal, it will become another important investment arm for the company, alongside our holding in PSP Swiss Property Group AG (SWX:PSPN) and Amot Investments Ltd. (TASE:AMOT) in Israel, and without materially changing the company's leverage."
Published by Globes [online], Israel business news - www.globes-online.com - on December 23, 2012
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