Yitzhak Tshuva floating Canadian real estate company in Tel Aviv

It seems that Yitzhak Tshuva will be floating the Canadian arm of his private company Elad Group in Tel Aviv.

The real estate and energy magnate was in Miami yesterday, discussing Elad's business plan for 2010 with senior company executives. A key point in the plan is to raise $200 million on the Tel Aviv Stock Exchange, by floating part of Elad subsidiary, Elad Group Canada, according to a company value of $1 billion.

Representatives of the Israeli branch of Ernst and Young are in Canada, and have begun preparing a prospectus for the stock offering.

The funds Elad raises will be used to repay debts and expand operations.

If market conditions are appropriate, the initial public offering will take place in early 2010, based on Elad Canada's financial statement for 2009.

At a later stage, the new company will be dual-listed for trade under the Elad Canada brand on the Toronto Stock Exchange in Canada.

Elad Group Canada is considered one of the largest and leading real estate companies in Canada, with operations in the provinces of Ontario and Quebec since 1998. The company owns 15 residential rental properties, office buildings, protected housing, commercial space and parks. Four or five of these properties will be transferred to the new company.

Elad Group, Tshuva's private real estate arm in North America and East Asia, finished the third quarter of 2009 with net losses of $18.5 million, an improvement over losses of $44 million in the parallel quarter last year. Most of the losses stemmed from the accounting effects of the devaluation of properties, which have nothing to do with working capital. Third quarter operating profits totaled $24.2 million, compared to operating losses of $24.4 million in the parallel. Elad netted $31.2 in the first nine months of the year, up from $60 million in losses in the parallel period and massive losses of $292 million for all of 2008.

Company executives sounded optimistic about the status of the both company and the North American real estate market. "Elad was profitable in the first nine months of 2009," Elad Group President and CEO Miki Naftali told TheMarker. "This is a sign of the company's strength and its ability to maintain profits even during weak periods for real estate markets around the world. We believe there are interesting investment opportunities in the markets in which we operate, and we plan to take advantage of this situation for new investments and the continued development of the company's activities."

Naftali noted that the company's Canadian activities, which are the bulk of Elad's operations, made a very significant contribution to the company's prosperity, and said he expects the Canadian market to remain strong in 2010.

Decline in revenues

Elad Group's revenues, which include income from rents, residential construction and hotels, fell 57.5% in third quarter of 2009 compared to the parallel quarter in 2008, to $120.5 million. This drop in revenue was due mainly to the reduction in Elad's income-producing property inventory, following the sale of $145 million worth of properties in the third quarter of 2008. In the past quarter Elad also had no significant income from properties in Canada and the United States that are up for sale, and listed in the company's financial report as "Real estate inventory designated for sale."

This inventory includes an 11-story apartment building in New York. Elad had signed a contract in late 2007 to sell this building to a group of Russian investors for $ 201 million, but the investors backed out in 2008 and Elad has apparently yet to find another buyer.

Billions in debts

Elad's total debts (payments to bondholders, mortgages on properties, bank credit and debts to third parties) are estimated at $4.3 billion. In order to finance the expansion of the company's operations in Canada, New York, Las Vegas, Los Angeles, Singapore and China, a few years ago Elad Group raised NIS 3.5 billion from the sale of bonds in Israel (issued by the company and its subsidiaries). NIS 654 million of this sum (principal and interest) is owed to Elad Group series B1 bondholders, and another NIS 1.46 billion is owed to series B1 bondholders in subsidiary Elad U.S. (also known as Elad National Properties, which mainly rents out thousands of residential apartments in ten U.S. states).

Elad Group Canada owes bondholders about NIS 1.4 billion, but payments are not due for another few years. Elad Group and Elad U.S., however, will have to pay their series B1 bondholders about NIS 200 million by September 2010.

Elad Group's biggest bondholders are five of Israel's six biggest institutional investors: Psagot Investment House, Clal Finance Batucha Investments, and the Migdal, Harel and Menorah Mivtachim insurance groups.

Elad Group will have no difficulty meeting its payments for the coming year, as the cash and cash equivalents in the company's coffers at the end of September 2009 totaled $290 million. Still, Elad Group executives are not ignoring the heavy debts that will be due in a few years, and are busy drafting plans to reduce this debt burden. One of the alternatives being considered is the establishment of a new investment fund, possibly a REIT real estate investment trust fund, to which Elad Group Canada will transfer Canadian assets worth about $1 billion.

The plan for the REIT fund will be presented to institutional investors in Israel, who will be offered participation units in exchange for waiving some of the bond payments Elad owes them. In addition to reducing Elad's bond debt, the company plans to use the REIT fund for making new investments in North America - mainly in Canada.