Direct Finance Expands Real Estate Operations by Acquiring Sigma City

Direct Finance is broadening its real estate activities by entering the business of financing property developers. The company's subsidiary, Direct Finance Real Estate and Mortgages, has agreed to purchase 85% of Sigma City Real Estate Finance for approximately NIS 34 million, valuing the acquired company at NIS 40 million. In addition to the share purchase, Direct Finance will provide NIS 29 million in owner loans to Sigma City, bringing the total capital and credit commitment to about NIS 63 million. The NIS 34 million is for the shares, while the NIS 29 million will be injected as a loan to support Sigma City's credit operations.

Uri Dayan and Natan Tuviana will retain the remaining 15% of Sigma City and continue managing its operations. Dayan has a background in mortgage financing and insurance, while Tuviana is an economist and appraiser with experience in credit deals. The transaction is contingent upon regulatory approvals, including a control permit from the Capital Markets Authority and consent from Sigma City's financing banks.

Sigma City, established in 2015, specializes in providing financing to real estate developers, primarily for residential and urban renewal projects. It focuses on supplementing the equity developers need to secure bank or other financial institution loans. The company operates in areas like Tama 38, "Pinui-Binui" (evacuation-reconstruction), and combination deals, offering equity top-ups starting from NIS 3 million. This differs from Direct Finance's existing mortgage business, where it lends to homebuyers against property collateral.

Financing developers involves providing capital that acts as part of the equity layer for a project. This credit is typically subordinate to bank loans, often secured by a second lien, and thus carries higher interest rates and greater credit risk if a project encounters difficulties. Sigma City is recognized by banks and insurance companies as an equity-supplementing entity that allows for second lien registration.

As of the end of June, Sigma City's loan portfolio, including accrued interest, stood at approximately NIS 153 million. For Direct Finance, this acquisition allows it to enter the developer financing market with an existing portfolio and operational infrastructure, rather than building from scratch. The initial commitment represents about 4.4% of Direct Finance's equity and 0.6% of its assets, indicating a limited initial impact on the group's balance sheet but opening a new credit avenue.

This move comes as Direct Finance's real estate and mortgage activities are increasingly contributing to its financial results. In the second quarter, the group reported a net profit of NIS 74.3 million, a significant increase from NIS 17.5 million in the same period last year. The mortgage sector contributed about NIS 37 million to the net profit, comparable to the NIS 37.4 million from car loans, though some of the mortgage profit stemmed from a securitization deal.