Electra Real Estate published its second-quarter report. The first line in it is negative, and that requires explanation before anything else.
Errors or inaccuracies are possible. Spotted something that looks wrong? Write to me and I will correct it.
A note before the figures: the company reports in dollars, not shekels. All amounts here are denominated in dollars.
The Quarter
| $ millions | The quarter |
|---|---|
| Revenue line | -3.8 |
| Operating loss | -6.6 |
| Pre-tax loss | -20.4 |
| Net loss | -16.5 |
| Attributable to shareholders | -16.5 |
| Basic loss per share | -$0.26 |
| Balance sheet total | 876.6 |
| Shareholders' equity | 247.9 |
The gross profit line does not appear in the structured filing, and is therefore not presented here.
Negative Revenue - What Is That
Minus $3.8 million on the revenue line.
And that is a figure that does not exist in an ordinary business, so it is worth understanding where it comes from.
A company selling a product or a service cannot record negative revenue. At worst it records zero.
But in investment property, the revenue line is not necessarily "sales". Under the measurement rules, assets are carried at fair value, and the change in that value is taken to the income statement - sometimes within the revenue line itself and sometimes separately.
And when the revaluation is negative and larger than the rental income recorded in the same period, the net figure comes out negative.
So this figure does not say the company collected no rent. It says the write-down recorded in the quarter exceeded the current income recorded in it.
And that is precisely the mirror image of what we saw today at Rani Zim, where a positive revaluation of NIS 26.6 million pushed operating profit above gross profit - and at G City, where it added NIS 14 million.
Exactly the same mechanism, with the opposite sign.
And the Lines Beneath
From an operating loss of $6.6 million, the pre-tax loss grew to $20.4 million.
A further $13.8 million was taken out - financing costs on a balance sheet of $876.6 million backed by equity of $247.9 million, a ratio of 3.5 to one.
And then the tax line reduced the loss by $3.9 million, to $16.5 million net.
Almost all of it is attributable to shareholders - the minority share is negligible.
הזווית שלי
דעה אישית של אילן אברמוב - לא ייעוץ ולא המלצה
What I take from this report is how misleading the word "revenue" is in property.
Over the course of the day I read five property companies that filed, and in each of them the revaluation entered the result in a different place and with a different sign. At Rani Zim it pushed operating profit to 95.6% of revenue. At Azrieli yesterday it was negative and pulled operating profit below gross. And here it turned the revenue line itself negative.
And what that means in practice: you cannot compare "revenue" across property companies, and you cannot compare "operating margin" across them either. Both figures blend operating cash flow with valuation, and each company does so in a different proportion and at a different point in the accounts.
What is comparable is actual rental income and financing expenses - and neither is in the structured filing.
So this report mostly teaches me what I do not know from it: whether the quarter was operationally weak, or whether assets were written down while rent was collected as usual. Those are two entirely different situations, and the reported figure does not distinguish between them.
(It is important to stress: this is my personal opinion only, and nothing herein constitutes a recommendation to take any action.)
