Africa Israel Residences Splits Off $290 Million in Rental Properties

Africa Israel Residences announced Tuesday its board of directors approved a significant corporate restructuring: splitting off the majority of its income-generating rental properties into a new, dedicated company. The shares of this new entity will be distributed to existing shareholders as a dividend in kind, meaning shareholders will receive shares in the "sister" company. This new company will focus on rental housing and income-producing assets and is slated for trading on the Tel Aviv Stock Exchange.

The assets designated for the new company include three rental housing projects: an occupied project in Jerusalem's Arnona neighborhood, and two projects yet to begin construction in Tel Aviv's Sde Dov and Jerusalem's Mount Scopus. A commercial property in Modi'in and land rights in existing projects for commercial and employment purposes will also be transferred, along with associated liabilities. The total value of the transferred assets is estimated at approximately 1.1 billion shekels ($290 million), with about 1 billion shekels attributed to the rental housing and Modi'in properties at fair value. Net value, after accounting for liabilities, is preliminarily estimated by management at around 450 million shekels ($120 million).

The strategic rationale behind this horizontal split is to separate the company's core development and sales business from its long-term rental and income-generating operations. These two distinct business models often face different market valuations, and the separation allows each to be assessed more accurately by investors. Distributing shares as a dividend in kind avoids a direct sale of assets, transferring ownership directly to shareholders.

This move has been in development since at least January 2025, with the company previously disclosing it in its annual report. However, the process is not yet complete and requires numerous approvals from regulatory bodies, including the "Dire La'Haschkir" company, the Israel Land Authority, tax authorities for a ruling, the Israel Securities Authority for a prospectus, and the stock exchange for listing the new company's shares. The company cautions that the split's completion, or its current form, is not guaranteed.

Africa Israel Residences, controlled by Yaakov Luxenburg's Lapidot Capital, is undertaking this split after a relatively strong business period, reporting improved profits and 71 apartment sales in the second quarter. Its surplus funds of approximately 1.5 billion shekels provide ample room for distribution. The upcoming prospectus will detail the new company's capital structure, inter-company agreements, and management.