Home / America / GAZIT GLOBE (GZT): A Quality Global Shopping Center REIT That Is Reasonably Priced
GAZIT GLOBE (GZT): A Quality Global Shopping Center REIT That Is Reasonably Priced

GAZIT GLOBE (GZT): A Quality Global Shopping Center REIT That Is Reasonably Priced

Gazit Globe (NYSE:GZT) is a retail shopping center REIT which is globally diversified with properties in the United States (21%), Canada (20%), Central European countries (22%), Nordic countries (17%), Brazil (8%) and Israel (12%). Through a merger, the American properties are held through its ownership of an 8.

2% stake in Regency Centers (NYSE:REG), which owns some of the finest grocery anchored shopping centers throughout the country. This is reflected in that Regency sells at a high FFO and also has a low dividend yield.

I am fine with that as it is an excellent REIT. Gazit’s other investments are in rapidly growing economies which can only add value to its investments.

As part of its strategy, Gazit has elected to focus on densely populated urban areas, having 69% of its assets in the following cities:

Stockholm, Helsinki, Oslo, Tallin, Tampere Copenhagen 29%

Sao Paulo, Brazil 14%

Warsaw, Prague Wroclaw 13%

Tel Aviv, Israel 11%

New York, Miami Boston 2%

Most of its interests are held through minority interests in publicly held companies, as follows:

Citycon – Nordic 45.4% Mid Stage

Atrium – Central European 59.

6% Mid Stage

First Capital – Canadian 32.6% Mature Investment

Regency Centers – United States 8.

2% Mature Investment

Gazit, starting in 2005, began establishing what it calls the “private collection” to pursue more aggressive investments. It has been doing so, as follows:

2005 Gazit Israel

2008 Gazit Brasil

2017 Gazit Horizons

Gazit Horizons, has been established to invest in the United States and has been the most active.

This year alone, it purchased two shopping centers in Brooklyn, New York. The first is long established and located off the Belt Parkway in Bay Ridge, serving a densely populated established middle class population.

The second is in Williamsburg, which is a rapidly growing young urban community. Although both centers are in Brooklyn, they are far from each other and do not compete.

Gazit also purchased 2 retail sites in Boston, near a train station and in a newly developing neighborhood. Gazit intends to invest $3 -$5 billion in these kind of shopping centers over the next 5 years.

Previously, in 2017, Gazit Horizons invested in a 45,000/sq. ft.

building on Brickell Avenue, in Miami, Florida, which is a young trending community. It also bought a 92,000/sq.

ft. retail condominium at 401 East 60th Street, one First Avenue and a block north of the Queensboro Bridge, containing only two tenants, Bed, Bath Beyond and Starbucks Coffee.

I happen to know four of these locations (I do not know Boston) and regard them as prudent long term investments.

Gazit Brasil focuses on retail and mixed use projects in Sao Paulo, Brazil.

They now have a total of 8 properties. They take pride in their proactive management and believe in the continued growth of the city.

They provide in their latest presentation, three specific examples of the kind of properties they seek to acquire and renovate. I know nothing about Brazil and cannot give any opinion.

Gazit Israel has a total of 10 properties, all situated near the Mediterranean and running from Haifa through Rishon LeZion. 4 of the 10 properties are located in or near Tel Aviv.

These are all rapidly growing, densely populated and more affluent neighborhoods. Gazit provides 3 case studies in its current investors presentation.

I cannot comment on the specific properties but I do know the neighborhoods and they are truly growing and expanding.

Atrium in which Gazit has a 59.

6% interest invests in Central and Eastern Europe with a total of 40 separate properties, which are situated in the following countries:

Poland 21

Russia 7

Czech Repblic 4

Hungary 4

Slovakia 3

Romania 1

Broken down by value, the percentages are as follows:

Poland 58%

Czech Republic 20%

Russia 11%

Slovakia 6%

Romania 3%

Hungary 2%

These are regarded by Gazit as emerging markets with “opportunistic growth prospects” and managed exclusively by local teams. Key tenants include H M, Decathlon, Ahold, Spar, Albert and Auchan.

Gazit has been investing here since 2008 and seem to have been having success. 60% of assets are in Poland, while 19% are in the Czech Republic.

Since 2011, it has divested 114 non-core assets for 297 million Euros, acquired 7 assets for 936 million Euros and invested 200 million Euros in development and redevelopment.

Citycon in which Gazit has a 45.

4% interest invests in Northern Europe with a total of 47 separate properties, which are situated in the following countries:

Norway 19

Finland 15

Sweden 9

Denmark 2

Estonia 2

Broken down by value, the percentages are as follows:

Finland 37%

Norway 30%

Sweden Denmark 20%

Estonia 7%

These are all urban grocery anchored shopping centers, with growing populations and managed by local teams. Since 2011 it has divested 62 non-core assets and 5 residential complexes for 675 million Euros, invested 2.

5 billion Euros in acquisitions, while spending 800 million Euros on development and redevelopment. Key tenants include Kesko, S Group, ICA Gruppen, Stockmann, Tokmanni and H M.

Tallin, Estonia is becoming a center for internet activity with Estonia offering E-Citizenship to non-residents. It is a member of the European Union and has a substantial tourist industry.

Both Atrium and Citycon have the same strategy of focusing on high density urban markets. Both continually seek to recycle capital and enhance portfolio quality through divestment of non-core assets, selective acquisitions and investment in major redevelopments and expansions.

Equity One which was founded in 1992, was merged with Regency Centers (REG) in 2017. Although Gazit has sold 4.

4 million s, it still maintains an 8.2% interest.

Regency is one of the premier shopping center REITs in the United States, focusing on grocery anchored centers located in dense urban areas. It is defined by Gazit as a mature investment and that is exactly what it is.

Along with Federal Realty (NYSE:FRT), Regency sells at a high ration to its Funds From Operations (FFO) and pays a relatively low dividend. It is regarded by investors as a safe investment, with a secure dividend, which will rise over time.

Many other writers on Seeking Alpha speak about Regency and you can read their reports. No one questions the quality of Regency but some will feel that its relatively high price, may not be justified.

It has a market capitalization of $11.5 billion Dollars and an enterprise value of $15.

6 billion Dollars.

Putting it in perspective REG is trading at almost 18x FFO with a dividend yield of 3.

5% while GZT trades at 10.1x FFO with a dividend yield of 4.

5%. This reflects the fact that REG has all its shopping centers in the United States and its earnings growth is more certain.

Owning REG is a good, safe investment but it is very plain vanilla. GZT adds a little spice to everyone’s portfolio.

Gazit has a 32.6% interest in First Capital Realty (TSX: FCR), which they acquired in 2000.

It presently has 159 properties with an enterprise value of $9.2 billion Canadian.

It is one of Canada’s largest owners of grocery anchored, retail focused properties, in urban areas with high barriers to entry.

Gazit because of its global structure is difficult to analyze and trades at 60% of its fair value while generating a 4.

5% dividend yield. I do not think anyone can render an opinion as to the quality of its assets.

Judging by their Miami and New York properties and their investment in Regency, it would appear that they have high quality properties.

This one of the very few REITS which compares the book value of its investments, both public and non-public as against the market value of its investments.

Gazit believes that its stock is selling for 53.4% of its book value and has an implied CAP rate of 6.

89%. I do not know how accurate this is considering it does own substantial interests in First Capital, Citycon and Atrium which might affect its ability to realize full value upon the sale of those s.

In any event, the discount form book value is substantial enough as to make Gazit very appealing. The FFO multiple of 10.

1 also greatly adds to its attraction. Since 2010, the FFO multiple has fluctuated from 18.

9x to 8.9x.

Gazit s trade on the Tel-Aviv Stock Exchange, Toronto Stock Exchange and New York Stock Exchange.

I have been following GZT on the NYSE and it is not actively traded.

It is a very thin market with fairly large spreads. Although its finances and the finances of its subsidiaries look stable and they carry decent ratings from Moody’s and S P, because of the geographic diversity, it is difficult to try know.

Last year Gazit showed a 19% increase in FFO as well as a 22% increase in holder’s equity, there can be no certainty that it will continue.

Gazit appeals to me because it offers an opportunity to invest in areas that I would normally not.

I agree fully with their strategy of buying the best retail locations possible and then seeking to improve them. The very fact that they were able to merge their American subsidiary into Regency, means that they owned very high quality retail assets.

Specifically, they owned grocery anchored shopping centers located in high density urban areas. This is the kind of retail that will thrive in the present environment.

It also appears that their investments in Brazil, Israel, northern and central Europe are following the same pattern. I believe with management that GZT is selling at a substantial discount to its true worth.

I also believe that management is looking to the future in developing new projects and in reinvigorating existing properties. As I am receiving a decent dividend, I am prepared to sit and hold while awaiting future developments.

Disclosure: I am/we are long GZT.

I wrote this article myself, and it expresses my own opinions.

I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.


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