Azrieli Sees Lower Loan Costs Amid New Israel Projects

Azrieli Group, Israel’s largest commercial developer, is talking to local lenders and insurance companies to raise about $288 million for mall and office developments, Chief Executive Officer Yuval Bronstein said.

The company, which is controlled by Canadian billionaire David Azrieli, has 5 billion shekels ($1.4 billion) of developments under way including Azrieli Sarona, a 121,500 square meter retail and office project in Tel Aviv. Some of the planned loans, amounting to 1 billion shekels, will be used to refinance existing borrowing at a rate as much as four percentage points lower, Bronstein said.

“In the past the average financing was inflation plus 5 percent, today we are talking about inflation plus 1 percent,” Bronstein said in an interview yesterday at his offices on the 48th floor of the Azrieli Center’s circular tower in Tel Aviv. “That will lead to a very significant rise in the funds from operations of the company.”

Azrieli, which has a larger market value than local peers at 14.4 billion shekels, plans to tap into Israel’s economic recovery with the shopping and office projects under construction, Bronstein said. The country’s economy will grow 3.5 percent in 2015, above the 2.26 percent forecast for G10 countries, according to the median estimate of 13 economists in a survey compiled in February by Bloomberg.

“The engine of growth for the group will be the development of the 5 billion shekels projects we are initiating in Israel,” Bronstein said.

More Shops

The Azrieli chief executive said he expects demand to be high for retail space at Sarona, which is scheduled for completion in 2017, and that the company also plans to extend its 1983-built Ayalon Mall in Ramat Gan, expand the Azrieli Center and build more shops and offices in the metropolitan area.

“In malls for years we have had 100 percent occupancy rate and we think that already at the opening of our projects we will also see an occupancy rate at that level,” Bronstein said. “In our office projects we estimate occupancy of 50 to 60 percent in the first year,” growing to 95 percent in the third year.

Azrieli shares have underperformed the Israeli property segment in the past 12 months, advancing 13 percent compared with a 17 percent gain for the Tel Aviv Real Estate 15 Index through today. The TA-25 Index has increased 14 percent in the same period.

The company’s debt included 3.6 billion shekels in loans from institutions and 1.5 billion shekels of bonds at the end of 2013, according to a 2014 investor presentation.

Bronstein also plans to sell non-real estate assets, including fuel company Sonol Israel Ltd. and paints manufacturer Tambour Ltd.

“Investors like our focus on real estate in Israel,” he said. “We have said we are in negotiations for the sale of companies that are not in the real estate business. The sale is challenging but we are patient because we want to get the right price.”

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