Delek Real Estate Buying Sahar Development & Investments

Will pay NIS 213 m in net terms, CEO is confident the Delek group can improve the assets' returns

Delek Real Estate (TASE: DLKR)  is materially expanding its investments in Israeli yield-generating properties, by buying Sahar Development & Investments from Paz.

The company, run by Ilik Rozenski, says it's paying NIS 213 million in net terms for Sahar, which owns 44,000 square meters in rent-generating assets, mostly in Tel Aviv. It also owns some buildings in Netanya and Haifa, as well as holdings in some companies that own property in Germany.

Delek explains that the transaction prices Sahar at NIS 251.5 million. However, the transaction includes an undertaking by Paz to sell assets within 24 months, for a profit that shall not be less than NIS 30.5 million, linked to the consumer price index and bearing interest.

If it does earn less than NIS 30 million on the transactions, Paz will pay Delek the difference.

It will also over NIS 8.5 million in tax payments.

Delek belongs to energy baron-cum-real estate mogul, Yitzhak Tshuva. Paz belongs to another energy baron-cum-banker, Zadik Bino.

The assets in Sahar's portfolio generate NIS 18.5 million rental income a year. However, not all of the buildings are fully occupied, a situation that Delek believes it can amend.

Among other things Sahar owns 50% of Beit Zion on Rothschild Blvd in Tel Aviv, which includes 8,000 square meters of office space rented to leading law firms and to Markstone's Prisma investment arm. It owns the Sahar Tower on Yehuda Halevy Street, Tel Aviv; Beit Herzl on Herzl Street; and much more.

Delek is buying Sahar through a subsidiary that owns several central malls and office buildings in Israel. Rozanski commented that the transaction complies with the company's policy of expanding its portfolio of yield-generating properties in Israel, and improving the returns on the assets.