Aaron Frenkel has shown an impressive ability in recent years to spot investment opportunities on the Tel Aviv Stock Exchange to generate huge gains for himself. This was the case in the case of the drone company Aeronautics, and especially in the case of the income-generating real estate company Gav-Yam (Bayside). Now, Frenkel has embarked on another major acquisition move, again in an income-producing real estate company, this time Alony Hetz, which mainly owns office buildings in Israel and abroad.
Aloni Hitz reported the allocation of a 10% stake in the company to Frenkel for NIS 685 million at a price 10% above the market price, although the valuation still represents a discount of more than 40% of the company’s equity. . Today, after this announcement, the share price of Tel Aviv’s Alono Hitz has risen by almost 10%. At the same time, as far as we know, Frenkel agreed to buy another 2% of Aloni Hitz’s shares from the insurance company The Phoenix Holdings for NIS 114 million, bringing his total investment to about NIS 88 million.
Thus, Frenkel will own 12% of Aloni Hitz shares, and the company is expected to give him the option to purchase additional shares, the details of which have not yet been finalized, for a period of one year. Exercising the option could make him the largest shareholder in the company. Currently, Alony Hetz’s largest shareholder is the CEO, Nathan Hetz, who has been associated with the group’s business for more than 30 years. After the allocation to Frenkel, Hetz’s stake in the company will decrease from 14% to 12.5%.
Frenkel is buying Alony Hetz shares after the company’s share price fell by 50% since its peak in January 2022, following huge losses in its overseas real estate portfolio (mainly in the US) due to rising interest rates. Before today’s rise, the company’s market capitalization was NIS 5.5 billion, making it look like an easy takeover target, as it has no controlling stake.
Nathan Hitz himself told Globes: “There was an approach to us from Aaron, which we took into account, and decided that this was an investment at an appropriate share price. The board of directors is expected to approve the deal, which will significantly increase the value of the company.” Frenkel is A respected investor expresses his confidence in the company. In the past few months, from our point of view, the worst is behind us. We hope that things will improve and we also hope that the situation here in Israel will improve and that it will improve for all of us.”
Aren’t you afraid of a takeover like the one made by the Amir brothers in Shuversal, and in other companies recently that are managed without a controlling stake?
Hitz: “As far as I know, in the events that happened this year, it was not about a private placement of shares, but about players operating in the market. That is not the situation here. Aaron came through the front door with an investment in the company, so I don’t think the cases “Similar.”
Aloni Hitz is a holding company that controls the revenue-generating real estate company Amot and the renewable energy company Energix in Israel, and two revenue-generating real estate companies in the United States, Carr and AH Boston, with offices in Boston, Washington, D.C., and Texas. It also controls British real estate companies Brockton and Brockton Everlast.
What does Frenkel see in Aloni Hitz? One reason for his investment appears to be the expectation that the company’s business will improve following the sharp cut in interest rates by the US Federal Reserve last month, which could be good news for the battered office market there. Over the past two and a half years, Aloni Heights has suffered greatly from rising interest rates, and was forced to incur revaluation losses amounting to more than NIS 4.5 billion, as capitalization rates on the expected cash flow from the properties it owns rose.
With the publication of Aloni Hitz’s second-quarter results two months ago, Hitz spoke of the positive impact that will follow the expected reduction in US interest rates, adding that, unlike what is the case with other companies, “our offices are located in high-quality locations in the market, in city centers.” The US office market is weak, but this is mainly happening in older properties that were built decades ago. We have reason to believe that we will see even a positive revaluation of US properties in the third quarter as appraisers have not yet taken into account Carr’s signing On a new convention downtown in Washington.”
Last year, Aloni Hitz made a bad bet against the shekel. When the war broke out, the shekel/dollar rate rose to more than 4 shekels/dollar, the highest level in fifteen years, and Aloni Hitz increased her exposure to foreign currencies, from 25% of her portfolio to 45%. But the shekel strengthened again, and the company lost hundreds of millions of shekels on its position. In total, from the beginning of 2022 until the end of the second quarter of 2024, Aloni Heights shareholders lost NIS 3.1 billion.
Frenkel clearly believes Alony Hetz’s problems lie behind this, and that it may represent an opportunity as US office real estate recovers. Market sources are unable to determine whether this was an opportunistic financial move, like what Frenkel made in Gav-Yam, or a long-term investment, like what he made in the Tamar natural gas partnership. Last week, Fraenkel bought another 3.5% of Tamar, from the Israeli infrastructure fund and Harel, for $280 million, raising his direct stake in the tank to 14.5%. It also owns a 24.9% stake in Tamar Petroleum, which holds 16.75% of the rights to the Tamar and Dalit leases. In total, Frenkel has invested approximately $900 million in Tamar, and his total direct and indirect holdings are approximately 20%.
Published by Globes, Israel Business News – en.globes.co.il – on October 6, 2024.
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