Blue Square Real Estate (TASE: BLSR), controlled by Moti Ben-Moshe, is likely to acquire full ownership of TLV Fashion Mall in central Tel Aviv. Sources inform "Globes" that Ben-Moshe's Blue Square Real Estarte. which already owns half of the mall, is in advanced negotiations with two private companies owned by the Gindi family, for acquisition of the remaining 50%. The mall opened over two and half years ago, and has been plagued by business difficulties and disputes between the owners.
As far as is known, the banks financing the mall have agreed to the deal. At the same time, earlier negotiations by the Gindis in recent years for the sale of their stake in the mall failed to produce results, among other things because of disagreements between them. If the deal goes through, the sellers will be reimbursed for hundreds of millions of shekels in owners' loans to the mall and nearby residential project.
A spokesperson for Moshe and Yigal Gindi and Gindi Investments (each of which holds 25% of the shares in the mall) said today in response, "From time to time, we receive offers to sell our holdings in the TLV mall, which is experiencing major growth. We always examine each offer according to its merits. At this stage, we have nothing to report in the matter. Gindi cites the fruitful cooperation with Moti Ben-Moshe."
Blue Square Real Estate said in response that it "welcomes the fruitful cooperation with the Gindi family, and has full confidence in the mall and the joint properties. Blue Square Real Estate strongly believes in the TLV mall, whose results are constantly improving, and in the joint properties in fellow subsidiary Tel Aviv Towers (a residential real estate company). If the Gindi family wishes to sell its share on the joint properties, Blue Square Real Estate will therefore examine the offers on their merits."
Liabilities of NIS 1.5 billion
TLV Fashion Mall, which was built in the triangle bordered by Carlebach Street, HaHashmonaim Street, and Menachem Begin Street (the wholesale market site) in Tel Aviv, contains 32,500 square meters of commercial space. The mall was opened to the public in March 2017 for a running-in period and officially opened in September 2017.
The mall's opening was accompanied by business difficulties and light traffic of buyers and visitors, which forced the developers to increase their marketing expenses and had a negative impact on its operating results. This came on top of the heavy financing expenses attached to the mall, whose construction was financed primarily with a NIS 1.1 billion loan from Bank Hapoalim and Mizrahi Tefahot Bank.
As of the end of June, the mall company had NIS 1.5 billion in liabilities, including a NIS 900 million debt to Bank Hapoalim and Mizrahi Tefahot Bank, which financed the entire wholesale market project. The remaining debt was mostly to the shareholders in the mall company, who gave the company owners' loans and capital injections currently amounting to NIS 500 million. Under a new financing agreement signed last year, the banks extended the repayment date of the loans for construction of the mall and forgave some breaches of the loan terms. In return, the mall owners reduced the size of the loan by NIS 200 million.
As far as is known, the loans to the mall owners and the nearby residential project amount to NIS 800 million, including NIS 450 million to Blue Square Real Estate. Blue Square Real Estate's demand to make its loan equal in size to the Gindis' loan very likely triggered the sale of the shares belonging to the Gindi family's companies.
96% occupancy
Ownership of the TLV mall is currently shared among Blue Square Real Estate (50%), a private company owned by brothers Moshe and Yigal Gindi (25%), and Gindi Investments, a company owned by Moshe Gindi's children and sons-in-law (25%). As of the end of June 2019, leases and memoranda of understanding had been signed for 28,400 square meters of space in the mall, and the occupancy rate for the mall's commercial space (not counting the commercial space in the adjacent street) was 96%.
The TLV mall is held by City Mall. The company's reports, which are attached to those of Blue Square Real Estate, show that the company's revenue rose 8% to NIS 25 million in the second quarter of 2019, and totaled NIS 47 million in the first half of the year. The company's value, however, continues to slide. A NIS 31 million drop in the value of the mall caused the company holding it to finish the second quarter with a NIS 19 million loss. The mall company lost NIS 22 million in the first half of 2019 because of that write-down, following a huge NIS 109 loss in 2018, reflected primarily in a NIS 115 million decrease in the value of the property.
The mall's current value is estimated at NIS 1.62 billion, after being written down by NIS 140 million in 18 months. Blue Square Real Estate explained that the revised value "was reflected in the rise in the occupancy rate for the commercial space to 87% on the one hand, and a decrease in the average rent for the leased space from NIS 292 per square meter to NIS 278 per square meter on the other, due to changing tenants and the entry of new tenants, as well as a revision of various estimates." According to the company, these estimates consist mainly of the adjustments necessary to rent out the space, marketing expenses, and support for tenants.
Last year, Ben-Moshe, as well as other parties, negotiated to buy Gindi Investments, which holds 25% of the mall, after that company experienced cash flow problems. These negotiations were preceded by a period of several years of crises, beginning with the collapse of balconies in the apartment towers project developed by Gindi Investments in Hadera, and continuing with concerns about the company's ability to pay its bond debt, given the difficulties experienced by the mall in which it was a partner.
A deal for the company's sale eventually failed to materialize, and Gindi Investments announced early repayment of its remaining NIS 62 million bond debt to the public in May 2018. The company's stake in the mall was attached to secure this debt. After this measure was completed, the bonds were delisted from the Tel Aviv Stock Exchange (TASE), and the company ceased to be a reporting corporation. Gindi Investments earlier redeemed NIS 45 million of its bonds, after taking a NIS 75 million loan from Yelin Lapidot Investment House at a weighted interest rate of over 10%.
A NIS 40 million lawsuit was recently filed by the Fox fashion group against City Mall, alleging that it was charging stores opened by the group's chains excessive management fees. Fox asserts that City Mall thereby breached an obligation stipulated in the leases and management agreements between it and Fox, under which it was required to grant to the group's companies renting space in the mall beneficial commercial terms, including a discount rate on management fees equal to the highest discount rate it granted to other tenants in the mall. The TLV mall responded by saying, "The lawsuit is fundamentally false and contrary to the written agreements between the parties. We will prove this in court."
Published by Globes, Israel business news - en.globes.co.il - on November 13, 2019
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