Teva will lease new 17-floor Tel Aviv HQ from Vitania

Teva's new headquarters Photo: Yashar Architects

Teva will pay NIS 26.7 million in rent annually plus VAT for 19,600 square meters and 710 parking spaces.

Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) is leaving Petah Tikva and has announced that its headquarters will be moved to Ramat Hahayal in Tel Aviv in mid-2020.

The building is located on Dvorah Haneviah Street, near the entrance to Kiryat Atidim. Vitania Ltd. (TASE:VTNA) real estate company, which is leasing the property to Teva, today published additional details about the deal in its report to the Tel Aviv Stock Exchange (TASE). Vitania reported that the office tower had 17 storeys (Vitania Tower) with 19,600 gross square meters, including 710 parking places. The lease will begin no later than July 1, 2020 and end after 12 and a half years. Teva has an option to extend the lease by two addition five-year periods and another option to extend it by 2.5 years, making a total of 25 years.

The monthly rent is NIS 2.2 million plus VAT, amounting to NIS 26.7 million a year, linked to the October 2018 Consumer Price Index. Rent will rise by 7% after five years, reaching NIS 28.6 million annually, and will be revised by 10% in the first option period and 5% in each of the additional option periods.

The agreement states that Teva will provide a bank guarantee equal to six months' rent, and will pay an advance on January 1, 2020. Vitania's investment in the tower is NIS 140 million, not including the cost of the land, and an additional NIS 90 million investment will be needed to complete the building for delivery to the tenant. Vitania's share price is up over 6% in TASE trading, while Teva's share price is down 3.5%.

The lease for Teva's current headquarters on Basel Street in Petah Tikva expires in December 2021. The current building's area totals 35,000 square meters. Teva has been active in Petah Tikva for many years, based on a historical connection: Petah Tikva was founded by Yoel Moshe Salomon, father of Haim Salomon, one of the Teva's founders in the early 20th century.

Teva decided in 2015 to leave its current headquarters in Petah Tikva and concentrate its headquarters (currently spread among a number of buildings in the city). At that time, however, the company's situation was completely different; it decided to buy land in Ra'anana and build its headquarters there. It is believed that Teva paid NIS 200 million to George Horesh, the landowner. Teva selected Electra Real Estate Ltd. (TASE:ELCRE) and Tidhar to build the new headquarters. The total cost of the project was estimated at NIS 1.2 billion.

Teva's ensuing crisis and the need to service its enormous debt incurred in the Actavis acquisition caused the project to be abandoned. Teva posted a NIS 42 million decrease in the value of real estate in Israel in the third quarter of 2017 following the sale of the land. The new campus of Amdocs Ltd. (NYSE: DOX) is currently under construction there.

Concurrently, Teva continued its search for a new location for its headquarters. In October 2017, "Globes" reported that Teva was negotiating with Vitania construction of a new headquarters in Petah Tikva in the Kiryat Arie area. The long-term lease under discussion was for 40,000 square meters plus parking places, twice the size of the building eventually selected in Ramat Hahayal. The eventual selection was part of Teva's cost-cutting measures (Teva's US headquarters was moved from Pennsylvania to New Jersey, which will reportedly save Teva $40 million).

Asked why the negotiations for construction of a new headquarters for Teva in Petah Tikva were unsuccessful, Vitania CEO Ofer Ziv said today, "The negotiations were completed up to the very signature on the agreement, but Teva then replaced its CEO, and it was decided to suspend the plan until the new incoming CEO learned exactly what the company needed."

"Hard times for Teva, but it is still a flagship"

Vitania, which has a NIS 522 million market cap, develops, builds, and leases income-producing real estate in Israel and overseas, including office and commercial space, parking places, and residential construction. The company has 170,000 square meters of income-producing properties and 195,000 square meters more in planning and development processes. Shareholders in Vitania include chairperson Ehud Samsonov and companies Flying Cargo, Gitam Image Promotion Systems, Hamama Brothers, and investment institutions.

"The deal with Teva will have a considerable effect on our revenue," Ziv said today. "We're leasing an entire building to the company. It is true that Teva has been through hard times in the past two years, but it is still a flagship of the Israeli economy. It's good for Ramat Hahayal, which has suffered from problems with tenants in the past two years since the parking lot there collapsed. It's a positive sign of recovery in the real estate market in this area."

"Globes": What about transportation access to the location?

Ziv: "There is an urban legend that Ramat Hahayal has transportation problems. As somebody who travels there every morning, I don't see any such problem. If we check the time needed to enter Herzliya Pituah and central Tel Aviv, it's much easier to get to Ramat Hahayal."

Is the rent that Teva will pay similar to the average rent in the area?

"A comparison is usually according to the rent for a building in shell condition, in other words without internal adjustments. In Ramat Hahayal, this is NIS 60-65 per square meter, which is cheaper than in central Tel Aviv. Since we're also doing the adjustments, the rent is higher, but if I translate it, the rent is similar to the prevailing rent in Ramat Hahayal. Both sides did a good deal here."

Architect Avner Yashar designed the building. The interior planners are Vered Gindi and Alex Meitlis, and the performance contractor is SGS. Ziv says, "The building is suitable for Teva in size, and it has many parking places - this was a requirement of Teva. It was built to a very high engineering level, with a double shell that helps save on energy."

Approval of two biosimilars

Teva announced late last week that it had obtained US Food and Drug Administration (FDA) approval to market Herzuma, a biosimilar (generic version of a biological drug) version by Teva and its partner, Celltrion, of Herceptin, Roche's best-selling drug for treatment of breast cancer in a number of regimes. At this stage, Teva is making no announcements about its plans for commercializing the drug. This is the second approval for a biosimilar for Teva and Celltrion in one month, after they recently obtained approval for Rituxan.

"We are delighted to continue building Teva's presence in the biosimilar sector," Teva EVP North America commercial Brendan O'Grady said. "The addition of Herzuma to our biosimilar portfolio will enable us to leverage our strengths in both oncology and generics."

Published by Globes, Israel business news - en.globes.co.il - on December 16, 2018

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

Teva's new headquarters Photo: Yashar Architects
Teva's new headquarters Photo: Yashar Architects
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