Elbit Targets Eastern Europe After Blackstone: Israel Overnight

Elbit Imaging Ltd. (EMITF), the Israeli real estate investment company that sold U.S. shopping centers to Blackstone Group LP, will bolster investment in eastern Europe, Co-Chief Executive Officer Dudi Machluf said.

“We’re looking to duplicate this model and to continue to focus on real-estate opportunities,” Machluf said yesterday in a phone interview from Tel Aviv. “Still, we don’t operate in a vacuum, we also depend on what happens in the markets.”

Shares of Elbit surged 27 percent in New York yesterday after Blackstone and DDR Corp. agreed to purchase 46 U.S. shopping centers from a unit of Elbit for $1.43 billion. The Bloomberg Israel-US 25 Index of the largest New York-traded Israeli companies fell the most in two weeks yesterday, led by Teva Pharmaceutical Industries Ltd. (TEVA)

The yield on Elbit bonds due in April 2020 dropped 49 basis points at or 0.49 percentage point, to 31.79 percent at the 4:30 p.m. close in Tel Aviv today. The yield was at the lowest level in two months after surging almost sixfold last year. Shares in the U.S. climbed to $3.32 yesterday. Tel Aviv shares declined 1.5 percent to 12.25 shekels, or the equivalent of $3.20, at the close today. They soared 20 percent yesterday.

The TA-25 Index rose 0.5 percent today. The Bloomberg Israel-US 25 Index dropped 1.4 percent yesterday.

Significant Step

Tel Aviv-based Elbit has about 5.2 billion shekels ($1.4 billion) of debt outstanding, according to data compiled by Bloomberg. Moody’s Midroog Ltd. on Nov. 3 lowered the ratings on the company’s bonds to Baa1 from A3, citing “challenges in improving its cash flow situation.”

“This is a significant step for the company,” said Amir Arad, an analyst at Excellence Nessuah Investment House Ltd. in Ramat Gan, Israel. “They needed to liquidate one of their assets to get through this year.”

Blackstone Real Estate Partners VII (PEF3096), a fund managed by the New York-based private-equity firm Blackstone Group LP (BX), will own 95 percent of a venture formed to buy the properties, with the rest owned by an affiliate of DDR Corp., a Beachwood, Ohio-based real estate investment trust, according to a statement yesterday.

The retail centers are being sold by EPN Group, a subsidiary of Tel Aviv-based Elbit’s U.S. unit. The purchase price includes assumed debt of $640 million and at least $305 million of new financing, according to the statement. DDR also will invest $150 million in preferred equity in the venture and provide leasing and management services.

Polish Market

“We continue to get financing for our projects,” Machluf said, adding that the company opened a mall in Poland six weeks ago and that it’s planning to establish a shopping center in Serbia in the next few months.

In the 12 months ended Oct. 31, foreign investors poured $3.4 billion into Polish commercial properties, compared with $1.6 into Russia’s, New York-based Real Capital said in a report last month. Most of the demand is for retail and office buildings, according to Dan Fasulo, managing director at the research firm, which tracks commercial real estate sales.

The properties that Blackstone and DDR are buying have 10.6 million square feet (984,800 square meters) of space and are 90 percent leased, according to the company’s statement. The 10 largest tenants by base rent at the centers, located in 20 states, include TJX Cos., Kohl’s Corp. and PetSmart Inc.

U.S. shopping centers had their first net gain in occupied space in four years in the fourth quarter as consumer confidence and job growth began to strengthen, Reis Inc., a provider of real estate information and analysis, said earlier this week. Landlords have struggled since the recession that ended in 2009 after weak sales drove more than a dozen retailers to file for bankruptcy protection and online stores captured more sales.

Gap Franchise

Elbit said on Jan. 10 that it agreed to sell its Elbit Trade & Retail Ltd. unit, including all its interests in the franchisee of Gap Inc.’s brand in Israel, to Gottex Models Ltd. for about 40 million shekels.

“We’re looking to focus our business on real estate,” Machluf said. “This is an area we feel comfortable in. We were able to do this deal in a down market and I hope we’ll be able to continue this way.”

Israel, whose population of 7.8 million is similar in size to Switzerland’s, has about 60 companies traded on the Nasdaq, the most of any country outside the U.S. after China. It is also home to the largest number of startup companies per capita in the world.

Apple Inc. (AAPL) announced this week the acquisition of Anobit Technologies Ltd., an Israeli company that makes flash memory storage drives for the iPhone and iPad.

Teva

Teva, the world’s largest maker of generic drugs, dropped 2 percent to $43.95 in the U.S yesterday. In Tel Aviv, Teva shares dropped 1.2 percent to 169.80 shekels, or the equivalent of $44.32, today.

Teva is seeking acquisitions in Asia to bolster sales in the region and to expand its product lines, Chief Financial Officer Eyal Desheh said.

“A lot of the future growth of the generic industries is going to happen in Asia,” he said yesterday in an interview at the JPMorgan Healthcare Conference in San Francisco. “The population is very large.”

Magic Software Enterprises Ltd. (MGIC) climbed the most in two months, increasing 5.8 percent to $5.57. The Tel Aviv shares gained 7.6 percent to 21.77 shekels, or the equivalent of $5.68 at the close.

The Israeli software technology company signed a three-year $1.9 million order from AOD Software Inc., which provides tools to long-term care and senior health care industries.

To contact the reporter on this story: Tal Barak Harif in New York at tbarak@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net

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