Azrieli Chairman Favors U.S. Investment as Israeli Developer Looks Abroad

Azrieli Group Ltd. (AZRG), Israel’s largest commercial real-estate developer by market value, seeks to add U.S. assets as the company invests part of its 1.5 billion shekels ($395 million) in cash, Chairman David Azrieli said.

“The U.S. is the best market to expand and that’s where we’re looking for further investments,” the Canadian billionaire, 89, said in an interview on the top floor of Azrieli Center’s circular tower in Tel Aviv. “We have passed through a number of crises in the economy and the downturns have created opportunities.”

Azrieli bought three office towers in Houston last year and has 14 shopping malls and 13 office complexes in operation or under development, mostly around Tel Aviv. The company dropped a plan to buy a shopping-center project in the coastal city of Netanya in January because it didn’t agree with terms set by the Israel Antitrust Authority.

“Due to antitrust regulations, the likelihood that Azrieli will invest more abroad has grown,” said Noam Pincu, an analyst at Tel Aviv-based Psagot Investment House Ltd.

Israel, with a population of 7.8 million, has about 60 companies traded on the Nasdaq, the most after the U.S. and China. The country, which had one of the fastest recoveries from the 2008 financial crisis, grew an estimated 4.8 percent last year, more than triple the average of the world’s developed economies, according to the International Monetary Fund.

“We are essentially an Israeli company and we want to remain one and continue to invest in the country,” Azrieli said in the March 5 interview. “I would be very unhappy if excess funds flowed out of Israel.”

High Occupancy

The group’s shopping malls are almost fully occupied and its offices had a vacancy rate of about 5 percent, according to Azrieli’s third-quarter financial report. Clothing chains such as Pittsburgh-based American Eagle Outfitters Inc. (AEO) and Hennes & Mauritz AB (HMB) have opened stores across the country since 2010.

Azrieli was listed on the Tel-Aviv Stock Exchange (TA-25) in June 2010 after raising 2.5 billion shekels in an initial public offering and a private placement. The company’s policy is to distribute 35 percent of its net income as dividends.

“Before we went public, we plowed everything back into the company,” the chairman said. “We paid a 240 million-shekel dividend last year and we are going to maintain the same policy.”

Azrieli, based in Tel Aviv, is the fifth-largest Israeli property company by assets. Its shares trade at 7.1 times earnings, compared with an industry average of 5.8, according to Bloomberg Data. The stock has dropped 11 percent over the last 12 months, less than the 15 percent decline for the benchmark TA-100 index and the 18 percent slump in the EST-15 real estate index.

Costly Assets

“Azrieli’s share price has been hit by its stakes in non- real estate assets,” said Pincu of Psagot. “The company is worthy of a higher multiple.”

The developer owns about 61 percent of holding company Granite Hacarmel Investments Ltd. (GRNT) and a 4.8 percent stake in Bank Leumi Le-Israel Ltd. (LUMI), the country’s largest lender by assets. Shares of both companies plunged 34 percent over the past year and Azrieli booked a third-quarter charge of 236 million shekels on the falling value of its Leumi stake. Net income in the period fell 26 percent to 179.4 million shekels.

“It is a good bank and I am happy that we are part of it,” Azrieli said of Leumi. “At the same time it is not within our plans, at least not now, to increase our share in the bank.”

In terms of acquiring competitors in the company’s home market, “we would look to invest in anything in Israel that has synergy and opportunities for our company,” he said.

To contact the reporter on this story: Sharon Wrobel in Tel Aviv at swrobel4@bloomberg.net

To contact the editor responsible for this story: Andrew Blackman at ablackman@bloomberg.net

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