Mega Or sells Modi'in logistics center at record rent multiple

Zahi Nahmias Photo: Miri Nahmias

Value Base: The return on which the deal was based was the lowest ever for an Israeli public income-producing real estate company.

Income-producing real estate company Mega Or today reported an agreement for the sale of a logistics property. Its profit on the deal will be NIS 150 million before taxes and NIS 116 million net of taxes. Mega Or has already piled up NIS 110 million in profits from this property.

In the deal, Mega Or (controlled by chairperson Zahi Nahmias), will sell it 59,000-square meter logistics center in Modi'in for NIS 470 million. As far as is known, the buyer is a private individual whose business is not in real estate, and who was looking for in income-producing property with a strong and stable cash flow.

The property contains four buildings located on Hareches Street in the Modi'in technology park. In its reports for the first quarter of 2019, Mega Or valuated the property, which is fully rented out, at NIS 296 million. The main tenant is Israel Postal Company, which has a 15-year lease on 85% of the space with no escape clause. Another tenant is dental implant manufacturer Alpha Bio Tec.

The property generated net operating income (NOI) of NIS 3 million in the first quarter of 2019 and NIS 8.5 million in 2018. The figures show that Mega Or's rent on the property averaged NIS 35 per square meter.

Mega Or said, "The sale value was based on a 5% return, meaning a 20 multiple on the expected annual rent for the date of full payment," adding that the sold property was free of liens, and its free cash flow was therefore NIS 410 million - the sale price minus NIS 60 million in tax. NIS 47 million of the proceeds were already paid to Mega Or when the agreement was signed, and the remaining NIS 423 million will be paid when possession of the property is transferred one year after the signing of the sale agreement.

The Value Base investment house described the deal as "stunning," and said today that the return at which the deal took place was "the lowest ever at which an Israeli public company sold an income producing property." Value Base analyst Shay Lipman added, "The company's properties are capitalized at a 7.9% return in its books. It is now clear that the returns on properties in general are declining, especially logistics properties. Assuming a 6% return on the company's properties, the company's pre-tax profit on its current properties will be NIS 644 million."

Published by Globes, Israel business news - en.globes.co.il - on June 24, 2019

© Copyright of Globes Publisher Itonut (1983) Ltd. 2019

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Zahi Nahmias Photo: Miri Nahmias
Zahi Nahmias Photo: Miri Nahmias
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