Bloomberg News

Delek Real Estate Sells Canadian Assets to Raise Funds for Debt

June 26, 2011

June 26 (Bloomberg) -- Delek Real Estate Ltd. is one step away from accomplishing its goal of exiting the Canadian market by the end of August, Chief Executive Officer Eran Meytal said.

Delek has been selling Canadian properties since late last year as it works to repay some 1.7 billion shekels ($494 million) of outstanding debt, according to data compiled by Bloomberg. Delek operates primarily in the U.K. and Europe and holds the Canadian assets through Delek Global Real Estate Ltd., which last week announced agreements to sell a property in Quebec and its holdings in 30 shopping centers known as Jean Coutu.

“The market is very strong in Canada and the prices are high so the yields are optimal,” CEO Meytal told Bloomberg in a telephone interview on June 23. He declined to comment on the status of the final Canadian property.

High energy prices and low interest rates are helping property prices in Canada to recover and are buoying the country’s economy, Ross Moore, director of market and economic research at Seattle-based Colliers International, said in May.

Crude oil closed at $91.16 a barrel on June 24, 19 percent above year-earlier levels. Bank of Canada Governor Mark Carney said June 15 housing prices in some parts of the country are reaching “severely unaffordable” and that the bank plans to “eventually” raise its benchmark rate from 1 percent, where it has stood since September.

Mitigating Declines

The Ramat Gan, Israel-based company’s quarterly loss narrowed from 255.4 million shekels in the second quarter of 2010 to 89.5 million shekels in this year’s first quarter. Canadian holdings helped mitigate first-quarter declines in the value of the company’s property portfolio, it said.

“There are no massive future capital gains to be made,” Terence Klingman, analyst at Tel Aviv-based Meitav Investment House Ltd. said by telephone. “They can make reasonable profitability from rental income but they are deleveraging.”

The shares of Delek Real Estate have plummetted 82 percent over the past year, compared with a 7 percent gain for the TA-100 index. Gazit Globe Ltd., another Israeli real-estate company with international holdings, rose 22 percent over the same period. RioCan Real Estate Investment Trust, Canada’s largest real-estate investment trust by market value, rose 36 percent in that period, compared with an 11 percent jump for the S&P/TSX Composite Index.

‘Weak Liquidity’

Since Meytal’s appointment as chief executive officer in October 2009, the company has sold property in countries including Finland, Canada and Britain to help meet debt obligations. Standard & Poor’s Maalot on March 2 cut its credit rating to ilCCC, eight levels below investment grade, from ilBB. The rating agency cited “weak liquidity” and said the company had “no certain resources to pay bond holders” after it cancelled plans to sell a significant property in the U.K.

Delek’s controlling shareholder agreed on May 30 to provide guarantees for a 30 million-shekel bank loan so the company could make a payment to bondholders. Isaac Tshuva, who holds more than 50 percent of Delek Real Estate, also has interests in Canada through an 88 percent stake in Elad Canada Inc.

--Editors: Susan Lerner, Shanthy Nambiar

To contact the reporter on this story: Gwen Ackerman at gackerman@bloomberg.net.

To contact the editor responsible for this story: Claudia Maedler at cmaedler@bloomberg.net.


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