“Residential Clusters Are Characterized by Strong Demand”: Electra Real Estate's Credit Rating Has Been Upgraded

TheMarker – Capital Market

Midroog has upgraded the credit rating for the Electra Real Estate Bond Series (D and E) from Baa1 to A3l - and changed the rating horizon from "positive" to "stable"

Eran Azran

The credit rating agency Midroog has upgraded the credit rating of Electra Real Estate (+ 1.56% 1500) from Baa1 to A3, and changed the rating horizon from "positive" to "stable". The rating upgrade applies to the Series D and E, traded at yields to maturity of 2.2% - 3%.  Midroog noted that the rating upgrade was influenced, inter alia, by the company's focus on multi-family properties (residential clusters) in the US, an area characterized by strong demand, which is reflected in high occupancy rates and consistent rents.

"In recent months, in the wake of the consequences of the Corona crisis, the multi-family sector has shown stability in relation to other income-generating real estate areas (hotels, commerce, offices, etc.), and  collection rates have remained relatively high and have not been materially affected compared to the same period last year", noted Midroog.

Midroog mentioned that as the crisis continues and leads to a recession in the US, it could have a medium-term effect on occupancy rates and rents in Electra's residential clusters. On the other hand, they noted that the company's property betterment strategy, along with the volume and dispersal of the residential clusters is likely to Mitigate this influence.

The rating agency emphasized that “Electra Real Estate's business profile is supported by optimal diversification of activity and high occupancy rates of the properties over time; by significant leverage ratios in relation to the rating level - a ratio of 50 between the financial debt and the capital base (CAP); and by liquidity balances that are expected to continue to be satisfactory in relation to the bond series.

After a 155% increase in three years, Electra Real Estate is traded at a value of NIS 960 million. The company manages more than 32,000 housing units in 99 residential clusters, in accordance with the strategic plan submitted by the company in January 2016. According to the plan, Electra has become the income-generating real estate arm of the Elco Group, which is controlled by the Salkind family, with a focus on residential clusters in the United States.

Last week, Electra Real Estate published its financial results for the second quarter of 2020. Despite the crisis, net profit in the second quarter rose by 10.6% to NIS 28.7 million (attributable to shareholders), compared to NIS 25.3 million in the corresponding quarter. The increase in profit resulted, inter alia, from a decrease in net financing expenses in the quarter compared with the corresponding quarter last year, mainly in light of a decrease in volume of the Company's bonds.

Electra Real Estate's revenue in the quarter amounted to NIS 39 million, compared with NIS 44 million in the corresponding quarter last year. Revenue in the quarter was mainly affected by an increase in revenue from management fees, success fees (Promote) by the share of the company's results in residential clusters at balance sheet value. On the other hand, a decrease in the Company's share in matching the fair value of the assets - an item that is affected by the revaluations made each quarter.

Amir Yaniv, VP of Business Development at Electra Real Estate, said: "Upgrading Electra Real Estate's rating to the A Group during these challenging times is another significant milestone in bolstering its financial strength. The rating upgrade reflects the successful implementation of the company's strategy - focusing on the management of investment funds (Private Equity) that invest in residential clusters in the US along with bolstering the financial strength and consistently lowering the level of leverage. We will continue to expand and improve our activities in both investment funds and residential clusters in the Southeastern part of the US, utilizing our professional and operational capabilities."

The original Hebrew version of this article can be found here.