Gazit-Globe mulls buying Gindi's TLV Fashion Mall stake

TLV Mall Photo: Alon Schneider

Blue Square Real Estate has first refusal rights to Gindi Investments' stake in the mall.

Will the TLV Fashion Mall become part of Gazit-Globe Ltd. (NYSE: GZT; TASE: GZT; TSX: GZT) controlling shareholder Chaim Katzman's global real estate empire? Sources inform "Globes" that Katzman and Moti Ben-Moshe, controlling shareholder in Blue Square Real Estate Ltd. (TASE:BLSR), which owns half of the shares in the Tel Aviv mall, recently met. It is believed that they discussed a possible purchase of Gindi Investments' share of the site.

Ben-Moshe has first refusal rights to any holdings in the mall that are not his, while Gindi Investments is being forced to sell its holdings in the mall due to liquidity problems resulting from the mall's failure to fulfill the optimistic plans for it.

Katzman and Ben-Moshe did not deny the report but decline to respond to questions from "Globes."

The TLV Fashion Mall was opened to great fanfare over a year ago in Tel Aviv by the City Mall Tel Aviv company, owned by Blue Square Real Estate (50%); Gindi Investments, owned by siblings Manor, Stavit, Tal, and Kfir Gindi and their families (25%), and Moshe and Yigal Gindi (25%). According to the agreement between the parties, Blue Square Real Estate has first refusal rights to acquire the shopping mall and has itself negotiated to buy Gindi Investments' stake in the site.

Despites its great potential and its location in central Tel Aviv close to the site of the former Tel Aviv wholesale market where a neighborhood is currently being built and occupied, the mall has not provided the revenue that its owners hoped for. Actually, the TLV mall has been in trouble since it opened. Its stores were not ready on the date of its "soft" launch, the strategic decision (since reversed) to leave restaurant businesses outside the site detracted from revenue, and tenants received a long period of exemption from paying rent.

The mall, which was opened to the public in March 2017 and promoted as a great fashion hope, has so far produced mostly disappointment with its performance, including the small number of visitors and relatively low proceeds from the stores operating in it.

High quarterly losses

At the same time, the mall's results for the first quarter of 2018 together with the financial statements of Blue Square Real Estate continued to portray a challenging situation. The TLV mall's first quarter losses totaled NIS 4.5 million, following a NIS 53 million for the whole year in 2017.

Another figure likely to indicate the less than sterling state of the mall is its 80% occupancy rate, the same as in 2017, while the average rent in the mall was NIS 311 per square meter, virtually the same as the NIS 312 per square meter in 2017.

As a result of the ensuing difficulty, it was recently reported that Blue Square Real Estate was negotiating to acquire Gindi Investments for NIS 40 million. In any case, Blue Square Real Estate is likely to be interested in acquiring Gindi Investments with its 25% holding in the mall. Gindi Investments owes money to its bondholders.

Katzman, one of Israel's leading real estate tycoons, made most of his money in overseas commercial real estate deals, with an emphasis on the US. In local activity, the group operates through Gazit Israel, a fully owned subsidiary. The company, founded in 2005, buys, develops, promotes, and manages urban shopping centers and areas under the G brand. It owns eight income-producing properties.

Gazit-Globe's portfolio of commercial properties in Israel includes the G sites in Rishon Lezion, Kfar Saba, and the Tel Aviv Park Tzameret and Tel Baruch neighborhoods, a property purchased towards the end of 2017 in Kochav Hatzafon in Tel Aviv, and others.

When it published its results for 2017, Gazit-Globe explained, referring to its portfolio of urban properties in Israel, that these properties "were located in densely populated neighborhoods with very strong demographic characteristics." This description ostensibly fits the TLV mall, which is located in the heart of the Tel Aviv close to the still not fully occupied project on the site of the former wholesale market.

Gazit-Globe "acquires, upgrades, develops, and manages shopping centers and multi-use retail-based properties in North America; Brazil; Israel; and North, Central, and Eastern Europe; with a focus on important cities in growing urban areas."

Ben-Moshe has become a recognized figure in the capital market in recent years, with his name being mentioned in connection with every major deal. He first tried to take over the IDB Group, but eventually gave way to partner Eduardo Elsztain and sold his holdings in the company at a loss.

Published by Globes [online], Israel business news - www.globes-online.com - on July 3, 2018

© Copyright of Globes Publisher Itonut (1983) Ltd. 2018

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TLV Mall Photo: Alon Schneider
TLV Mall Photo: Alon Schneider
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