Yohananof Completes Real Estate Spin-Off Valued at $1.1 Billion

Israeli supermarket chain Yohananof has finalized the separation of its real estate assets into a wholly-owned subsidiary, M.G.L. Kochav Modi'in. The deal involves the transfer of 14 properties, with a fair value of approximately 1.1 billion shekels (about $300 million), encompassing most of the chain's owned and leased supermarket locations.

This strategic move, initially announced in the summer, aims to unlock the value of the real estate holdings, which are expected to be financed more efficiently as a separate entity. The transaction was structured for tax efficiency, involving the allocation of subsidiary shares to Yohananof, qualifying for tax exemptions. Importantly, the properties were transferred without any of the parent company's existing debts or loans, providing the new subsidiary with a clean balance sheet for future leverage.

To ensure continued operations, Yohananof has entered into master lease agreements for four key branches, including its locations in Rehovot, Kiryat Ekron, Karmey Modi'in, and Mishor Adumim. These leases are set for extended terms at market rates. Additionally, a service agreement will see Yohananof provide management, legal, financial, and property management services to the subsidiary for a nominal monthly fee.

The separation is widely seen as a precursor to a potential future Initial Public Offering (IPO) for the real estate arm or the introduction of a strategic partner. Investors typically value retail chains and income-generating real estate differently, and separating the assets allows for clearer valuation and potentially cheaper debt financing for the real estate portfolio.

The stock market reacted calmly to the news, as the initial announcement had already been absorbed. Yohananof's share price remained stable, reflecting its market capitalization of approximately 4.8 billion shekels. The transferred real estate represents over a fifth of this valuation. The company reported third-quarter results will not be significantly altered by this transaction, with revenues for the previous quarter standing at around 1.3 billion shekels.