IBI rates Fishman company Jerusalem Economic a Buy

Eliezer Fishman's Jerusalem Economic Corp. has received a Buy recommendation from IBI Investment House, which expects the stabilization of the global economy this year to revive the West European real estate market and increase deal flow.

Real estate analyst Shay Lipman is also bullish about the company's debt situation. He revised his 12-month price target to NIS 42, 30% above the stock's price on the Tel Aviv Stock Exchange yesterday.

"After a hiatus of about a year, during which there were fears regarding the company's ability to repay its debt, we are again reviewing the company's share after first checking and becoming convinced that the firm is able to repay its debt," IBI wrote in a report. "We estimate that the company's assets are worth considerably more than its liabilities."

Jerusalem Economic's stock gained 234% last year to a market cap of NIS 1.5 billion, and the company's bonds are trading at yields of up to 13%. According to Jerusalem Economic's latest cash flow forecast, by the end of September it will have paid bondholders about NIS 500 million; it expects a balance of cash and cash equivalents totaling NIS 390 million.

"No matter what happens," says Lipman, "even if the global economy declines and the company is unable to raise capital via bond issues in the next three years, it could sell its holdings in Mirland (about 28% at a market value of NIS 300 million) or in Industrial Building Corporation (66.2% at a market value of NIS 1.4 billion; 15% of the shares in this holding are lien free). We will not be surprised if the company raises more capital this year, and this will increase its repayment ability even more."

Jerusalem Economic stated on Tuesday that it is negotiating to sell a 50% stake in three buildings on Kanfei Nesharim Street in Jerusalem's Givat Shaul neighborhood for NIS 215 million.

The buildings contain about 75,000 square meters of office and commercial space. The interested buyer is apparently Clal Insurance of Nochi Dankner's IDB Holding Corporation.

Jerusalem Economic, which is managed by Oded Shamir, operates in the income-producing and residential real estate sectors, building and managing projects in North America, Western Europe and East Asia.

Lipman notes that from the beginning of 2008 to the end of September 2009, Jerusalem Economic wrote down the value of its properties by NIS 700 million, with most of this coming in France, where the company has rental properties valued at NIS 3.1 billion. The occupancy rate in these buildings is 91%, generating about NIS 246 million in rental income a year.

Lipman believes that the declines in the French property values was a bit excessive and stemmed mainly from a lack of deals for comparison, which caused land appraisers to sharply increase the capitalization rate for buildings during the global economic crisis.

Lipman does not expect Jerusalem Economic to record any more depreciation for 2009 and forecasts that the company, which owns many yielding properties in Israel, particularly in the Jerusalem region, will continue to sell these assets to increase liquidity.