Real Estate Dev Mishorim Stock Opportunity

Evan Liberman Analysis, Articles, Israeli stocks 0 Comments

There is an interesting Israeli real estate developer that has caught our attention. It can be invested in directly via the company's stock or bonds on the Tel Aviv Stock Exchange.

Here are highlights from an economic analysis commissioned by Portfolio Management firm Cramim by Senior Financial Analyst Zuri Ilan. [TABLE=30] (This analysis is intended for institutions only; see legal disclaimer at the end of the article)

Company Overview

Mishorim ("Levels") Development Company Limited is engaged in the initiation and development of real estate projects, hotels, tourism and resort properties in Canada and Israel. The group owns income-producing real estate properties, hotels and other assets totaling about 85,000 sqm and land for development and improvement totaling approximately 3,000 housing units and more than 13,600 acres.

The company is controlled by businessman Gil Blutrich, Chairman of Mishorim and President and Chairman of the Canadian subsidiary Skyline. Mishorim's business strategy includes identifying opportunities in stable and and developed countries, identification of strategic and financial partners to reduce risk, equity extraction, development and asset enhancement, improvement of cash flow and asset realization with significant capital gains. Mishorim is characterized by excess yield compared to the industry while maintaining a low risk profile.

Primary Activities

  • Hotel Management - management, acquisition, holding, improvement and sale of hotels, resorts and rental hotel rooms.
  • Real Estate Investment in Canada - initiation, development, construction and sale of real estate for usage in residential, commercial, hotels, recreation, industrial and office settings in Canada.
  • Rental Real Estate and Development in Israel - initiation, development, operation and sale of entrepreneurial and income-producing projects in Israel.

Corporate Structure

Mishorim Development Corporation:

  • Direct ownership of assets in Israel
  • 70.31% interest in Skyline Canada Israel
  • Skyline Canada Israel has a 94.36% interest in Skyline International Inc.

Mishorim Awarded a "Buy" Recommendation

Mishorim made a number of positive, significant moves last year that required us to renew our attitude about its stock valuation. Despite the weakness of the market and in particular the weakness of small cap Israel stocks, we actually now find a opportunity to award a "Buy Recommendation" with a target price of 17.1 shekels, reflecting a premium of 98% over the price in the market today (as of the date of analysis).

The management at Mishorim continues to surprise and show consistent success and steadfastness of strategy that it set for itself by the ability to improve assets and their sale with significant profits in relation to its size. We can see this in the realization of assets in Israel and Canada, especially in the last two years as operations and the significant potential future in Canada (via the controlling 66% interest of Skyline International) starts to gain momentum and taking off with a return to economic stability in Canada.

The company recently demonstrated its ability by a land sale in downtown Toronto (Temperance 66) with a significant cash profit of about 94 million shekels within only three years, and the sale of luxury apartments at the King Edward Hotel for a profit of about 15 million shekels within a few months with a full equity recovery. These are just two examples of many that have not yet manifested themselves in the stock's performance.

Holding Mishorim's shares reflects a direct exposure to the strong and developed economy of Canada, which has infinite potential for entrepreneurship. The enormous potential of existing assets of Skyline, combined with a relatively low risk level, will cause the stock to climb sharply with the onset of the second stage of the company's asset improvement plans.

Some Key Properties

King Edward (17%) - the purchase this property with a number of sizeable partners in Canada raised the company another notch. Within only a few months, the group managed to improve and sell unused land for a total profit of $24 million which will be recognized in the first half of 2012's financial reports, which will in fact return 50% of its investment from its hotel activities, and that doesn't include the increase of cash.

Deerhurst Resort - in January, the company completed the acquisition of the site at a price of $26 million with a $19 million bridge loan. It is likely not coincidental that the bridge loan was taken now, as this year the company plans to sell 124 condominium units + 95 land parcels for building for a net profit estimated as at least $ 22 million. Here, too, the company will succeed in restoring the equity invested in the acquisition plus additional profit within a short period of time.

Horseshoe Valley - without relating to the internal growth of the field of hospitality and hotel management, there also exists in this property high potential value. Here, too, one can not ignore the success of the company to increase the building rights to approximately 1276 units + 370 additional hotel rooms + 37 000 square meters of retail space. The entire site was purchased for $36.8 million when the company last year invested another approximately $3.4 million in renewing the park that offers adventure sports and recreational activities. This investment will immediately increase the NOI already in the coming year. Again in this case, just the future incremental value from the enterprise yields high capitalization rates of 18% - 20%, which cannot be understated.

Port McNicoll - The land was purchased at "bargain" price of only about $8 million with residential, commercial and hotel building rights. The management of the company has been able to improve  the value of the land and increase the building rights from approximately 650 units to approximately 1512 units in addition to increasing rights in the hotel and retail spaces. In the first stage with the sale of less than 5% of the land's potential, the company returned all capital invested and thus paved the way for the second phase which has a more significant future value according to all estimating methods and current valuations. Even at high capitalization rates of 16% - 25% the future value is significant.

Skyline Tower - April 2011, the Company signed an agreement to sell the land at Temperance 66 for approximately - 140.4 million shekels. After repayment of the mortgage totaling about $13 million, the company expected cash flow surplus amounts to 94 million shekels. The company’s proven ability to improve properties has not been reflected in its share value.

Activity in rental properties in Israel - the company manages rental properties in Israel with a fair value of 167 million shekels when the annual NOI attributable to the company amounted to approximately 13.1 million shekels in 2010. Despite an increase in cash flow forecast in the coming years following the continued increase in occupancy and rent price increase, we think they are fully priced.

Skyline International (66% interest)

Has potentially immense value for years to come. In accordance with the strategy, the company has made in recent years purchases of assets with tremendous upside potential, which with a conservative approach amounts to evaluating them at at least $113 million.

In the valuation we carried out on Mishorim, we chose to focus on the activities of Skyline Canada, as we believe that most of the future value of assets will come from asset improvements and from major property rights of the company.

Skyline International Highlights

  • The company was founded in 1998 by Gil Blutrich as a company engaged in the marketing of luxury apartment suites hotel and hospitality, beginning operations with 1,000 rooms and development of 1,500 additional rooms.
  • During the 13 years of operations, shareholders' equity grew from C$600,000 to C$80 million.
  • Today, the company focuses on the location and improvement of properties within hotels and resorts in Ontario, Canada, which produce a constant cash flow on the one hand and have significant land improvement and development potential on the other.
  • The company has proven in recent years the ability to purchase property at low priced and their profitable sale after improvement.
  • The second largest shareholder in Skyline is Israel Land Development Corporation, holding about 29.69% of the equity.
  • The company has a large land "bank" with building rights of thousands of housing units, hotels, retail space, berths for yachts and other assets.
  • The equity of Skyline is C$84.4 million, with financing amounting to about 34% of total assets.
  • The company has capital loss tax offsets of $12 million for the years to come.

How Can I Participate?

Interested in investing in this or other Israeli stocks directly in shekels? Contact us about opening an Israeli investment account.

Legal Disclaimer

This report is directed to institutional investors listed in the First Schedule to the Israeli Securities Law, 1968 only (Section 3). This report is based on public information visible and the sources of information that are considered by the company to be reliable. The assumption is that the information and data are correct, but their usage does not constitute verification and/or authorization of the checking of their correctness.
The analysis contained in this report is for informational purposes only and in no way is considered a proposal/solicitation or advice to purchase and/or sell and/or possess the securities described in the analysis. The analysis does not constitute in any way a substitute for investment advice that takes into account the special data and needs of each person. The analysis is directed only to institutional investors as helpful and should not form the basis of any investment decisions. Information in this report does not purport to include all necessary information to investors or others. Different investors may have different objectives, and accordingly any investor must adjust his investments to his specific goals and needs.
Cramim Capital Corporation Limited ("Vineyards"), companies controlled by it and its employees, their officers and their shareholders will not be responsible in any way for any damage and/or loss incurred from the use of this analysis. Cramim, and corporations in Cramim Capital Markets Group are engaged in investment marketing, portfolio management, investment banking, mutual funds, and other activities in the capital market. Accordingly, the reader should assume that Cramim and corporations in Cramim Capital Group, its employees, its officers and shareholders hold securities described in this report and/or have other connection to the securities and they buy and/or sell and/or distribute the securities wholly or partly after or before issuing the report. Additionally, the report can relate to securities which which Cramim Capital Group has an affinity because of the consideration received by the issuer of the securities and\or its sellers and\or its distributors in the framework of providing services, including capital market services.

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