The steep falls in bonds issued by US real estate developers in recent months are not deterring underwriting company Barak Capital, which today submitted a prospectus by US real estate firm Westdale for a NIS 500 million issue of new Series A bonds to the Tel Aviv Stock Exchange (TASE).
Westdale Properties was founded in the British Virgin Islands for the purpose of raising debt in Israel, after which it will become a bonds company. The company is part of the Westdale Group, which buys, constructs, and rents out income-producing real estate, with a focus on leasing housing units and offices. The group's headquarters is in Dallas, Texas, and most of its properties are concentrated in the Sunbelt states in the US.
The Westdale group was founded in the early 1990s following a meeting between real estate developer Joseph Beard from Texas and representatives of the Kimels, a Jewish family from Canada. They began investing together in real estate, mainly rental housing, in Texas, especially in the Dallas-Fort Worth area.
The Kimel family includes the children and grandchildren of the late Emmanuel Kimel. The family has a chain of fabric stores in Canada and real estate activity in the country under the Westdale brand going back 50 years.
More than half of the issue proceeds are designated for reducing the owners' liabilities
The bond company owns a US limited partnership named Westdale Properties America I (WPAI) in which Beard holds 10% of the rights and the Kimel family 90%. On the other hand, Beard fully owns the WPAI general partnership, and is therefore also defined as the controlling shareholder in the bond company and serves as its chairperson and CEO.
The prospectus published today shows that subject to completion of the issue, WPAI will transfer 37 income-producing properties to the bond company, including 27 rental housing sites, nine rental office buildings, and property being developed for office rentals. These properties are recorded in the books at a value of $1.3 billion. 27 of them are concentrated in Texas, while the rest are in Georgia, North Carolina, Virginia, and Washington state.
There is an outstanding loan against these properties of $672 million, bearing a 4.65% average interest rate, with a duration of 7.7 years. According to the company, the LTV ratio as of September 30, 2018 was only 49.4%, while its equity was $628 million.
The company reported $79 million in revenue and $40 million in net operating income for the first nine months of 2018, 5% less than in the corresponding period in 2017. The company also posted $41 million in revaluation income in the first nine months of 2018, boosting its net profit during this period to $73 million.
The prospectus also shows that the proceeds from the issue ($135-140 million) are designated for repaying a $49 million owners' loan granted for one of the transferred projects, and for repayment of two senior loans totaling $22.5 million personally guaranteed by Beard. Over half of the amount raised will therefore be used to reduce the owners' liabilities.
The prospectus further shows that the planned bonds will repaid in three unequal payments: 10% of the principal will be repaid in September 2022, 10% more in September 2023, and the rest in September 2024, five and a half years from now. The company says that it has not yet gotten a rating for the bonds to be issued, but is working with the rating companies to obtain a rating before the issue.
Published by Globes, Israel business news - en.globes.co.il - on February 28, 2019
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