Azrieli shares bounce back after $245m deal
The group's shares rise after last week's fall, following pact to buy North Carolina office tower.
Azrieli Group shares fell Thursday but bounced back on Sunday, following the company's announcement last week that it has entered into an agreement to buy the One Wells Fargo Center office tower in Charlotte, North Carolina, for $245 million (about NIS 950 million ), plus associated costs estimated at $1.6 million.
Completion of the deal is subject to the satisfactory completion of a 45-day due diligence period. Despite the announcement on Thursday, Azrieli shares fell the same day by 2.1%, but bounced back on Sunday and currently trade at a company value of NIS 10.9 billion.
Azrieli said it is negotiating with foreign sources to finance $160 million of the deal through a non-recourse loan, with the building serving as sole security, for a loan-to-value ratio of 65%. Deals of this type are commonly 60% to 70% financed by financial institutions, with the remainder financed through equity. The loan would carry a fixed annual interest of 4.5% and extend for a period of 10 to 12 years.
Completion of the deal, however, is not conditional on obtaining financing. Azrieli holds about NIS 1.3 billion in cash resources and can currently generate around NIS 600 million in cash flow a year - a sum expected to grow considerably over the next few years with the completion of six projects in Israel entailing an overall investment of NIS 3.2 billion.
The building, located in Charlotte's burgeoning central financial district, includes 91,500 square meters of floor space and enjoys a 98% occupancy rate, with 70% leased to banking and financial services giant Wells Fargo for use as its East Coast division headquarters. The bank has an ironclad commitment to remain in the building until December 2021.
Azrieli, controlled by real estate tycoon David Azrieli and managed by Shlomo Sherf, expects an average annual net operating income until the end of the Wells Fargo lease of $18.5 million, reflecting a 7.5% return on its total investment.
Expanding its real estate operations in the United States reflects Azrieli Group's continued implementation of a strategy to diversify its investment portfolio by looking for opportunities around the world, beyond its core operations in Israel. This transaction joins two other U.S. purchases by the company since the beginning of 2011. In January last year it bought 90% of the rights in Houston's three Galleria Office Towers for about $176 million, and at the beginning of this year it bought another Houston office building anchored by Dow Chemical Company for $108 million.