For Israel's two shopping mall giants, Azrieli Group Ltd. (TASE: AZRG) and Melisron Ltd. (TASE: MLSR), the first quarter of 2021 divided into quite different periods. The first saw a lockdown that led to the closure of the malls on the orders of the government, while in the second the malls were opened under the Purple Tag rules, and the buyers flocked back.
The lockdown (the third that Israel underwent) that began in December 2020 ended on February 20, 2021, and from that date the malls opened, a situation that has remained as the coronavirus pandemic has receded in Israel. Azrieli and Melisron's revenue dipped sharply because of concessions they made to tenants in their malls. In the case of Azrieli Group, revenue from rent, management, maintenance and sales fell by a net 21% to NIS 437 million, while in Melisron's case these revenue items fell by 31%, to NIS 260 million.
Both companies, however, saw a sharp recovery in the days following the end of the lockdown, despite the need to meet the Purple Tag requirements (due to end on June 1, 2021). Azrieli, for example, states that proceeds reported by the tenants in its malls in March 2021 were 30% higher than in the same month in 2019. The figure excludes proceeds of tenants that had not yet returned to full activity because of regulatory restrictions, such as cafés, restaurants, cinemas, fitness clubs, and so on.
The comparison is made with 2019 because the first lockdown began in March 2020. Melisron too reports sharp growth in tenants' proceeds in the second half of the first quarter of 2021 in comparison with the corresponding period in 2019.
Melisron CEO Ophir Sarid writes "The growth in proceeds was especially noticeable in clothing and footwear, in which growth was 36%, and in home design stores, where growth was 62%. The trend continued in April, as we saw growth according to RIS (Retail Information Systems) data in comparison with the corresponding period."
Melisron reports that it gave tenants rent relief amounting to NIS 96 million in the first quarter of 2021 for the days on which it smalls were shut. This compares with rent relief of NIS 213 million in 2020 as a whole. At Azrieli, rent relief in the first quarter of this year amounted to NIS 115 million.
Malls and hotels are the main commercial victims of the coronavirus pandemic among income producing properties. Azrieli Group has twenty commercial centers and shopping malls in Israel (including one in the process of being sold), with space totaling 351,000 square meters and valued at NIS 12.46 billion. These represent 36% of its property portfolio, which totals NIS 35.2 billion.
The group also has a small amount of hotel activity, with assets worth NIS 296 million (1% of the its portfolio). The rest of Azrieli's income producing portfolio has so far provided substantial protection against the effects of the coronavirus pandemic.
The group has seventeen office buildings in Israel with 640,000 meters of space, eight office buildings overseas with 248,000 square meters total space, four sheltered housing properties in Israel with 1,034 housing units and 150,000 square meters of space, and also investments in data centers and other assets.
The group states that the proportion of commercial centers and malls on its balance sheet will decline over time because of greater development activity in the coming years in offices and sheltered housing.
For the first quarter of this year, Azrieli Group posted a 27% decline in NOI to NIS 301 million, and a 25% decline in FFO to NIS 228 million, although net profit rose 20% to NIS 110 million because of very large write-downs of asset valuations recorded in the first quarter of 2020 because of the outbreak of the coronavirus pandemic.
The trend was similar at Melisron. NOI fell by 34% in the first quarter to NIS 189 million, FFO fell by 38% to NIS 121 million, but the company posted a net profit of NIS 143 million, which compares with a net loss of NIS 86 million in the corresponding quarter of 2020, when the company made large write-downs of asset valuations.
Melisron has sixteen malls totaling 499,000 square meters and valued at NIS 14.3 billion; five properties each with a single tenant totaling 41,000 square meters and valued at NIS 1.1 billion; and five office sites adapted for technology companies totaling 231,000 square meters and valued at NIS 3.6 billion.
Melisron's higher dependence on the commercial segment, in comparison with Azrieli, caused it to sustain a heavier blow from the coronavirus outbreak, but this will change with the completion of the Sarona Tower in Tel Aviv and of other buildings in the Ofer Park in Petah Tikva and the Shaar HaCarmel Park.
Published by Globes, Israel business news - en.globes.co.il - on May 26, 2021
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