What did the CEO of the real estate company that reached the stock exchange say after distributing an average bonus of 50,000 shekels per employee?

New at Globes: To the Tidhar investor call

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Public companies, and especially bankers, are usually not perceived as synonymous with unusual generosity towards employees. But Uri Levin, CEO of the real estate company Tidhar, which reached the stock exchange last June, and until a few years ago served as CEO of Discount Bank, actually boasted of a generous and unusual step that the management led. The second quarter reports published by Tidhar on Monday revealed unusual and huge IPO expenses of 75 million shekels, which the notes in the reports show that most of them included a one-time unusual bonus for completing the IPO.

The accountants noted in the reports in the first note that "in connection with the IPO and the business combination carried out during the IPO, the company recognized expenses totaling 75.2 million shekels, including grants and bonuses to company employees and former employees in the amount of about 54 million shekels, bonuses to controlling shareholders and directors in the amount of about 8.2 million shekels, and also purchase taxes in the amount of about 13 million shekels, as part of the business combination carried out during the IPO".

Tidhar, headed by one of the founders Gil Geva, employed 1,153 employees on the eve of the IPO, most of them - 840 employees - are apparently workers or "execution employees" as they are defined in the prospectus published by the company. Another 160 employees serve in the company's headquarters, 127 employees in the development field and 15 in the income-producing assets field. The company's management consists of 11 members. If you divide the bonus among the company's employees, you get an average bonus of 49 thousand shekels, which one must assume was not divided equally. Apparently, it started with a few thousand shekels for the junior employees, and the headquarters employees and the more senior ones in the company enjoyed a much higher one-time bonus.

Still, in the investor call held by CEO Levin and CFO Yoni Tsabari, Levin summarized the results of the quarter and the first half of the year and addressed the bonus. "The results of the quarter and the half were affected by the IPO expenses," said Levin, "in accordance with the expenses we reported at the time of the IPO and their main part is a one-time bonus to employees. I must say that we are proud to be a company that shares its successes with its employees."

CEO Levin: "We believe in our relative advantage"

One of the issues that particularly occupies investors is the housing market. Tidhar, as mentioned, initiates and builds apartments, and during the first half Tidhar sold 294 housing units in a total volume of about 433 million shekels, an increase of 81% compared to the corresponding period last year (in financial volume). The average price per apartment sold decreased by 900 thousand shekels to 3.1 million shekels.

Levin addressed the real estate industry in the investor call and expressed optimism for the long term. "In Israel, there is great demand that is growing both because of population growth and because something in Israeli culture requires buying an apartment and I don't see that changing," he said.

But he did admit that the weakness currently existing in the industry is continuing and is in fact one of the longest in the country's history. "The short term we are in is limited, because apartments are not a product that disappears. If I buy a cottage today, if I don't buy a cottage today, then I have no problem, it doesn't affect what I will do tomorrow. But in the end, if you didn't buy apartments today, sometime I need to buy. And couples in this country get married, and they have children, they also get divorced, and all these people need more apartments, and this thing will sometime come out and bloom and grow," explained Levin.

He added that "in the short term (also) it is impossible to ignore that this is a challenging period for the real estate market. It is first of all challenging in the apartment sales market, that is clear, the demand today is lower than it was in the past for a long time, longer than we were used to in the past, here I have no new news. I do think that in the recent period we see how the weakness in the apartment market is starting to affect a bit also the execution field, we see developers who are more cautious in starting projects, so there is some slowness in the execution field. And the office market is still a market that is weak in areas that are not prime (locations not in the center, H.S.), it is stable in these areas, it is not very weak, and in prime areas we see recovery. And all these things are the current situation."

In the short term, Levin emphasized that in his opinion "the main question is not what the situation is, but who will win in this period. Because they continue to sell apartments, the question is who will increase market share and succeed in selling apartments with nice profitability in this period. And in the execution field, even if we see the beginning of weakness compared to a field that is growing, the question is who will succeed in winning execution tenders and also execute them with correct profitability". He explained that despite everything, this is a fragmented market. Tidhar's share, "about 3% in the execution field and a percent in the development field, which means that in order to grow and to continue our plan, we need to increase our market shares a bit in a field of very many players".

The more important thing, says Levin, is "that we very much believe in our relative advantage, and believe that it is expressed today and will continue to be expressed. We have a backlog with higher profitability. We control both development and execution, and today to do development properly, it is critical to hold also the execution. And especially our business model of partnerships, of combination and urban renewal, the method and our full control over the value chain, they allow us flexibility and ability to improve profitability of existing projects. So we have a very good feeling going forward, despite the complexity in the market."

The bonus from the IPO cut the net profit

And indeed, the unusual step had consequences for the financial reports. Tidhar's revenues stood in the second quarter at about 754 million shekels - an increase of about 4% compared to the corresponding quarter last year. In the summary of the first half, the company presented revenues of about 1.5 billion shekels, an increase of 4.5% compared to the corresponding period last year. This is thanks to the recognition of revenues from projects in execution and the sale of new apartments.

Bottom line, the real estate developer presented a quarterly net profit of only about 5 million shekels, a drop of over 90% compared to the profit of 68 million shekels in the corresponding quarter last year. In the summary of the half, the net profit stood at about 70.3 million shekels, a decrease of about 20% compared to the corresponding period. The main reason for the unusual drop in net profit is, as mentioned, the bonus to employees for the company's IPO.

Excluding one-time expenses, the company recorded in the second quarter an adjusted net profit of about 144 million shekels, a growth of about 36% compared to the corresponding quarter and in the summary of the half the adjusted profit stood at about 73 million shekels, a decrease of about 5% compared to the corresponding period last year.

Investors were not at all excited by the move - that is, they did not send the stock to a drop following the decrease in net profit. At the end of the trading day after the publication of the results, the stock fell by less than 1%, and on the following Tuesday it recovered by a similar rate. Tidhar's market value currently stands at 7 billion shekels, which places it immediately after the residential construction companies Shikun & Binui (which also has infrastructure and energy activity), and Damri (builds for housing) which are traded at a market value of 9.6 and 8.4 billion shekels. Since the IPO, the stock price has fallen by about 11%.