A rare meeting between academic research, technological innovation and industry
“During the second quarter of 2022, the company conducted valuations for most of its assets. The revenues stem mainly from an increase in the fair value of the logistics and industrial assets, in the amount of approximately NIS 376 million, as a result of the increase in the land value of these assets (approximately NIS 290 million) as well as the increase in the consumer price index and the reduction in discount rates.”
Avi Yakubovitz, CEO of Gav-Yam / Photo: Eldad Refaeli
Preliminary data recently published by some of the largest income-generating real estate companies in Israel reveal that rising interest rates and falling rates on global stock exchanges have not yet begun to affect the value of their assets. For example, Reit 1 recently reported According to initial indications, it is expected to record substantial profits in the second quarter of 2022 in the amount of NIS 230-280 million from an increase in the fair value of the investment real estate it owns.
Brit 1 explained that the increase in the value of its assets stems from a decrease in discount rates and an increase in rents, which were used in the valuations of its assets. The next day, Big Shopping Centers also reported that it may recognize revaluation gains in the second quarter of an estimated NIS 185-235 million, thanks to an increase in the fair value of some of its assets, according to external valuations conducted once a year.
A similar trend also emerges from the financial reports of the income-generating real estate giant Gav-Yam , which is traded on the stock exchange at a value of approximately 7 billion shekels. In the second quarter of 2022, Gav-Yam recorded income from an increase in the fair value of investment real estate of 684 million shekels, following income from an increase in the fair value of 161 million shekels recorded in the first quarter of the year.
According to Ms. Yam, “During the second quarter of 2022, the company conducted valuations for most of its assets. The revenues stem mainly from an increase in the fair value of the logistics and industrial assets, in the amount of approximately NIS 376 million, as a result of the increase in the land value of these assets (approximately NIS 290 million) as well as the increase in the consumer price index and a reduction in discount rates.”
Ms. Yam further noted that revenues in the amount of approximately NIS 238 million stem from an increase in the fair value of the office assets, mainly as a result of the increase in the consumer price index (approximately NIS 130 million), a real increase in rents and a reduction in discount rates. It should be noted that in the Israeli real estate market, it is customary to link rents to inflation, and therefore an increase in the consumer price index increases Gav-Yam’s income from rents.
Gav-Yam notes that the average capitalization rate of its assets is 6.3% for properties used for high-tech and offices, 5.8% for properties used for logistics and industry, and 7.8% for properties used for commerce.
Gav-Yam, managed by Avi Yakubovitz, is engaged in the initiation, construction and leasing of high-tech parks, business and industrial parks, office buildings, logistics and commercial spaces in demand areas throughout the country. The company has income-generating properties with a total area of 1,044,000 square meters and is working to establish another 19 different projects throughout the country, with a total scope of approximately 714,000 square meters. With a total investment of approximately 6.3 billion shekels.
The company’s list of projects under construction includes the Matam East Towers in Haifa, Gav-Yam Park Ra’anana, Gav-Yam Park Hevrit in Jerusalem, Gav-Yam Park Herzliya North, ToHa2 Tower in Tel Aviv, Gav-Yam Park Holon, and more. This year, the company completed the construction of two condominiums, one in Gav-Yam Park Gederot and the other in Gav-Yam Park Haifa Bay, which were fully occupied.
Gav-Yam ended the second quarter with revenues from building rentals and management fees of NIS 160 million, reflecting growth of 7.4% compared to the corresponding quarter last year. Net income from rental activities (NOI) grew in the second quarter by 5.4% to NIS 137 million, while during this period the company also signed lease agreements for existing properties reflecting an average real increase of 10.9% in rents.
CEO Yakubovitz says that “We are experiencing strong and stable demand for the establishment and expansion of development centers from the world’s largest technology companies, most of which are located here. We are also seeing the recruitment of personnel in these companies, unlike all kinds of events that are happening in companies of other sizes. The big tech companies have not stopped and continue to recruit employees.”
According to him, “the above-mentioned companies are digesting the crisis, showing resilience and thinking about a long-term path. International tech companies are here to stay, grow and develop for many years, and are leading the market trend. We expect this trend to be maintained in the coming years, both in terms of occupancy levels and the high rent levels in long-term leases. These centers are at the forefront and leading, and are expected to strengthen and grow in the coming years,” emphasized Yakubovitz.
The data from Gav-Yam also shows that the FFO (free cash flow) attributable to shareholders grew in the second quarter by 35% to NIS 82 million and now reflects an annual rate of approximately NIS 320 million. During the coming year, the annual FFO is expected to grow by an additional NIS 40 million to a volume of approximately NIS 360 million, as a result of the completion of projects and their occupancy.
Thanks to the increase in fair value and the improvement in operating parameters, Gav-Yam reported a net profit of NIS 508 million in the second quarter, reflecting growth of 93% compared to the corresponding quarter last year. The huge profit increased the company’s equity to NIS 3.85 billion at the end of June.
In the first half of 2022, the company’s revenue from building rentals and management fees increased by 6% to NIS 314 million, while revenue from an increase in the fair value of investment real estate increased by almost 50% to NIS 845 million, so that net profit jumped by 38.5% to NIS 637 million during this period.
According to Yakubovitz, “Our sector is working strong and running strong. The company presents a huge backlog of projects with a wide spread, which focuses on the country’s main demand centers. These rely on high-quality human capital and maximum accessibility to public transportation, creating a broad base for development in the coming years, including in the Tel Aviv metropolitan area, the Herzliya area, and Matam Park.
“These areas are leading the trend and are expected to strengthen and grow in the coming years, with record demand and high rents. We also reported that the average life expectancy (ALP) that we signed in the new leases in projects under development is 11 years, which is a very high number that has never been seen before.”
At the beginning of the Corona crisis, we saw some of the income-generating real estate companies in Israel stop or at least postpone decision-making regarding investment in new projects. Do you feel something similar in the industry today in light of the economic changes?
“With us, there is no pause, the projects are not stopped, and everything continues according to schedule.”
And what about financing options? Has anything changed following the increase in interest rates in Israel?
“Interest rates are rising and we will take everything into account, but we do not see a problem with that. When we need to raise funds, we will see how we raise funds, but it will not stop anything,” Yakubovich emphasized.
Gav-Yam also reported that the company’s board of directors decided to distribute a dividend of NIS 130 million to shareholders. The bulk of the dividend will be paid to Properties and Building , which currently holds 86.7% of Gav-Yam’s shares after completing the purchase of 37.2% of the company’s shares from Aharon Frankel about two months ago for about NIS 3 billion.
Properties and Building is controlled by the Discount Investments , whose major shareholders include Mega Or, controlled by Tzachi Nachmias, as well as the Elco Group, controlled by the Zalkind family. In light of the completion of the share purchase, Gav-Yam announced that the company’s chairman Eldad Fresher will step down from his position in about a week, and the position of chairman will now be filled by Mickey Zalkind.
A TASE study found that 63 publicly traded companies consistently distributed dividends over at least ten years. Their shares in the last decade yielded average returns of 350% compared to 56% generated on the TA-125 index. 75% of the companies that maintained consistency recorded triple-digit returns.
The company, whose products are sold mainly to the defense industry, leased the new office spaces in Jerusalem at an annual cost of around ILS 7 million; the Givat Ram Campus project is a joint project of Gav-Yam, The Hebrew University and the Jerusalem Development Authority; tenants are expected to occupy the project’s first stage in late 2024
To the article on the portal 
Share the article
