North American Property Firms Eye Tel Aviv IPOs

Long popular as a place to issue debt, the Tel Aviv Stock Exchange is starting to attract equity offers, too

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An electronic board displaying market data is seen at the entrance of the Tel Aviv Stock Exchange, in Tel Aviv, Israel January 29, 2017.
An electronic board displaying market data is seen at the entrance of the Tel Aviv Stock Exchange, in Tel Aviv, Israel January 29, 2017. Credit: \ BAZ RATNER/ REUTERS
Eran Azran
Eran Azran

The Tel Aviv Stock Exchange has for several years now attracted North American property companies issuing debt at low rates of interest. With the decline of United States interest rates and the crisis in the U.S. real estate sector, however, American companies are now turning to The Tel Aviv Stock Exchange to sell shares.

Two North American companies are readying for initial public offerings right now and a third has filed a prospectus.

Hertz Group Realty Trust, which is headquartered in California and acquires and manages high-rise office towers across the United States, is conducting an IPO right now, although it’s being held up due to a dispute over the company’s valuation.

Keystone Property Group, a Pennsylvania-based developer and investor in commercial properties, is expected to issue shares in the first half of 2020 at between $400 million and $500 million, or about the level of its shareholders’ equity.

Meanwhile, Proreit, a Canadian real estate investment trust, or REIT, traded on the Toronto Stock Exchange at a 270 million Canadian dollar ($153 million) market cap, plans to dual-list in Tel Aviv while raising several tens of millions of dollars in new capital.

North American companies have a long list of reasons for raising money so far away from their home bases.

Among them is finding a new source of capital in a liquid market like the TASE. In many case, the U.S. financial markets are too big for these smallish companies; Tel Aviv offers an opportunity to be bigger fish in a smaller pond and win better valuations.

Meanwhile, the decline in equity fundraising on the TASE in recent years has created an appetite with investors for new shares that North American companies can fill. Dual-listing agreements with stock exchanges like Toronto’s have also facilities the process.

Controlled by Bill Glazer and Marc Rash, Keystone was founded 30 years ago and today has a portfolio of office properties in Philadelphia and New Jersey worth $1.5 billion. Until now, the company has raised money via a series of private investment funds. However, the funds have a limited lifespan, at the end of which they have to cash out their assets.

Going forward, Keystone plans to consolidate its funds into a single publicly traded REIT while raising additional capital on the TASE to be used for buying more properties. As a REIT, it will be free to hold on to its assets for the long term.

Keystone’s offering is being managed by Radhan, a boutique investment banking firm led by Eyal Jedwab, Yuval Barak and Eden Ozeri.

Last month Radhan staged a “beauty contest” for picking an underwriter; Leumi Partners and Poalim IBI won. They hope to interest investors from New York in the IPO.

Founded in 2013, Proreit has a portfolio of 84 properties (49 of them retail, 19 industrial, nine offices and seven mixed use) with a combined value of $600 million. It pays a 9% annual dividend.

Like Keystone, Proteit’s IPO is being managed by Radhan, with the investment bank Orion serving as underwriter.

Hertz, whose property portfolio is worth about $3 billion, is seeking to raise 450 million shekels ($127 million) in its IPO and turn itself into a REIT, like Keystone. Through its Hertz Properties Group unit it has already sold 500 million shekels in bonds trading on the TASE at a yield of 7.6%.

In a prospectus published last month, Hertz said it aimed to sell shares at an $800 million company valuation. However, the IPO has been delayed by differences of opinion with institutional investors over the valuation.

Hertz and Keystone will be issuing shares using a new model different from the one used by North American real estate companies to issue bonds.

This is because in order to convert themselves into REITs, the two companies have to engineer a complex legal structure to avoid a tax event in the U.S.

“These are very difficult and complex transactions. It’s not an optimal structure, so the offerings also take longer," said a source in the IPO market who asked not to be named.

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