The challenging state of the real estate industry on the one hand, and the stagnant primary offerings market on the other, have led to a huge deal in which Africa Israel Residences (TASE: AFRE) has brought Clal Insurance (TASE: CLIS) into its subsidiary Africa Urban Renewal as an investor. In addition, the two companies are setting up a partnership that will invest hundreds of millions of shekels in residential real estate development. The sides have signed an agreement in principle for a private placement of shares in the subsidiary, with the aim of reaching a full agreement within two months.
Under the agreement being put together, Africa Urban Renewal will allocate to Clal Insurance shares amounting to 20% of its share capital in return for NIS 330 million, at a pre-money valuation of NIS 1.3 billion, subject to such adjustments as will be agreed between the sides. The upshot is unlocking of value in Africa Israel Residences, and investors responded by sending the company’s share price up 8% yesterday, giving it a market cap of NIS 2.4 billion. So far this year, the share price of Africa Israel Residences, which is controlled by Jacob (Luxi) Luxenburg’s Lapidoth Capital, has risen 27%.
Together with its partners (apartment and land owners), Africa Urban Renewal has a backlog of projects amounting to almost 8,000 housing units around Israel. These are just the projects for which Africa Urban Renewal has the signed agreement of over 60% of the owners of the existing apartments on the site. For more complicated projects that involve the demolition of existing buildings and construction of new ones on the site, the company needs the agreement of over 80% of the property owners. The company’s projects are spread all over Israel, from Nahariya to Beersheva, with a higher concentration in the center of the country.
Even before the private placement agreement is finalized, Africa Israel Residences and Clal Insurance will set up a joint company, 51% owned by Africa Israel Residences and 49% owned by Clal Insurance, and exclusively managed by the former. For a period to be determined, the joint company will bring under its wing the development and sale of Africa Israel Residences’ residential real estate projects in Israel. Up to NIS 800 million will be invested in the company. Africa Israel Residences will be entitled to management fees and success fees from it.
In addition, Africa Israel Residences will allocate to Clal Insurance options to buy a 4% stake in it, exercisable for 42 months after the allocation, at a price of NIS 240 per share, 25% above the current market price.
Africa Israel Residences CEO Micha Klein said, "The new partnership with Clal represents a significant expression of confidence in Africa Israel Residences." He said that the agreement would strengthen Africa Israel Residences’ ability "to continue developing residential projects in Israel of significant scope, especially in a period in which there are many opportunities for development of the company."
Among the reasons for the deal is the rise in interest rates, making it difficult to obtain credit for new construction projects. An investment agreement of this size will provide the finance required for projects to be carried out.
Clal Insurance has been involved in several large deals in shares of public companies in the past few months. In July, it bought from the state nearly 5% of El Al Israel Airlines (TASE: ELAL) for NIS 60 million, and received an option to buy a further stake. It has also bought substantial holdings in Meshek Energy (TASE: MSKE) and Arad Investment (TASE: ARAD).
Published by Globes, Israel business news - en.globes.co.il - on September 19, 2023.
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