Midroog Warns Vitania Over Nes Ziona Deal's Debt Impact

Rating agency Midroog has placed real estate company Vitania's A2 issuer rating, three bond series, and commercial paper under review for negative implications. The review stems from Vitania's intention to acquire its partner's 50% stake in the Nes Ziona project, a move expected to significantly increase the company's debt at a time when its leverage ratios are already weakening.

The acquisition involves Vitania assuming approximately NIS 247 million in bank debt from its partner and waiving a NIS 50 million debt owed to it. Additional costs include NIS 18 million for acquisition tax and a NIS 50 million accounting loss. Midroog estimates the deal could raise Vitania's net debt to net CAP ratio to around 65%, up from 58%-62%, and its net financial debt to FFO ratio to 45-55 years by 2026-2027, compared to 38-45 years previously.

While the deal promises higher future income from the Nes Ziona property, it front-loads the debt burden before the full income contribution, expected in 2027. This increased leverage and higher financing costs come as Vitania faces challenges, including a major tenant vacating 26,500 sqm at its La Guardia tower in Tel Aviv, representing about 21% of its rental income. This departure necessitates costly marketing and property adjustments.

Vitania, controlled by the Ungar family's Telcar (63.6%) with Harel holding 12.5%, has a market cap of NIS 766 million against equity of NIS 1.03 billion, trading at a roughly 26% discount. The stock has fallen 31% year-to-date. The company reported a NIS 98 million loss in 2025 and a NIS 14.9 million loss in the second quarter of this year, with financing expenses rising.

Despite these concerns, the Nes Ziona project secured a significant lease agreement with Elbit for approximately 40,000 sqm, providing long-term income. Additionally, Vitania's partner in the Nes Ziona project received an offer valuing the entire property at NIS 1.125 billion, potentially offering Vitania an opportunity to realize value if it exercises its right of first refusal.