Summit Real Estate Faces New York Rent Freeze but Gains from Factory Purchase
Summit Real Estate, controlled by Zohar Levy, is seeing operational growth in its New York portfolio despite challenges from a strengthening shekel and new rent regulations. In late June, three months after acquiring 5,150 rental apartments in New York for $451 million, the city announced a one-year rent freeze on new and renewed leases for rent-stabilized apartments starting in October. This move is part of Mayor Zoran Mamdani's broader policy to increase rent control, raise property taxes, and expand municipal involvement in the housing market. Summit warned these measures could erode landlords' real income and increase sector risks.
Summit's second-quarter net operating income (NOI) rose 12% to 140 million shekels, driven by acquisitions, though NOI from identical properties fell 12% to 109 million shekels due to the shekel's appreciation against the dollar. The company now holds 8,300 apartments in New York, two hotels, an office tower, and 26 U.S. shopping centers. U.S. NOI increased 42% in dollar terms to $25 million but only 18% to 75 million shekels after currency translation. In Germany, 30 income-generating properties yielded a 7% NOI increase to 5.9 million euros, but currency effects caused an 8% decline to 20 million shekels. In Israel, Summit's 35 properties with 95% occupancy generated a 14% NOI rise to 46 million shekels, aided by operational improvements and new acquisitions.
Summit's local operations will benefit from its May purchase of the Tepogen factory in Sha'ar HaNegev for 130 million shekels, leased back to the seller for 15 years with initial annual rent of 8.8 million shekels. Despite NOI growth, the quarterly funds from operations (FFO), a key profitability metric, fell 10% to 71 million shekels due to currency impacts, a missing dividend compared to last year, and higher interest expenses. Financing costs surged 84% to 59 million shekels, and the company lost a 21 million shekel gain from selling its Paz holdings recorded last year. Consequently, net profit dropped 61% to 29 million shekels.
