Good day, and thank you for standing by. Welcome to Azrieli Group second quarter twenty twenty-four conference call for foreign investors. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. With us today are Mr. Eyal Henkin, CEO, and Mr. Ariel Goldstein, CFO. To ask a question during the session, you will slowly need to press star one one on your telephone. You'll then hear an automated message advising your hand is raised. This conference call will be accompanied by a slide presentation. It can be found on Azrieli's site, www.azrieligroup.com, on the Investor Relations page under Media Room Presentations, and the financial reports can be found on the website as well.
I would like to remind everyone that forward-looking statements for the respective company's business, financial condition, and results of its operations are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated. Please note that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Eyal Henkin, CEO. Please go ahead.
Good afternoon, and thank you for joining the Azrieli Group earnings call to summarize the second quarter of this year. I'll start with an update about my transition to managing the data centers company. The data center segment is growing significantly and has potential to become a business on the scale and strength of even the Azrieli Group, and even more. This industry requires massive investments on the one hand, and presents tremendous opportunities on the other hand. We are considering introducing a strategic partner or partners, and later, maybe an IPO. We built a solid structure in London, which is efficient, both with partners, finance, M&A, tax, future IPO, et cetera. Dana Azrieli and I have been talking about this since last September. We reached a joint decision that my taking the lead on this business is the correct move.
I've been working on our data center business hands-on since its inception. This activity is massive in terms of investments and capital on one hand, and incorporates huge potential on the other. It will... It's well-planned and measured strategic move, which will be implemented in a well-controlled and monitored process and in a timely manner. I would like to thank our chairlady, Dana Azrieli, for this opportunity, for her confidence in me, and for the journey we have traveled together and will continue together. We will find a suitable replacement for this position of CEO in Israel and carry out responsible and thorough handover of my responsibilities before I leave. As for the financial statements, Azrieli Group is continuing to develop and expand.
Thanks to the quality of our properties, our financial strength and meticulous management, we are meeting our targets for twenty twenty-four, such that also in the second quarter of twenty twenty-four, it seems like we will present good performance and improvement in operating parameters. In the second quarter, we are seeing some slowdown in the market growth rates. Although private consumption per capita, calculated annually, increased by 10.2% quarter over quarter, the increase is only 1.2% year over year. However, we at Azrieli are ending good three and six months periods in terms of operating parameters, with strong performance above the targets in all our area of operations. The NOI, excluding Compass, is continuing to grow, as reflected in a 5% increase year over year.
Our FFO in the quarter is a record high, with an increase of ILS 62 million, 17% year over year, and 11% growth excluding senior housing. We are continuing to invest. In the second quarter alone, we invested 934 million in development, improvements, and investments, mainly in Green Mountain and properties under construction. In total, in the first half of 2024, we invested ILS 1.8 billion. We are continuing to maintain high occupancy in our malls, offices, and senior homes, with an average occupancy rate of about 98%, based on a good mix, low leverage, and long-term contracts. On the data center space, we are continuing our plans with a very strong pipeline of substantial transactions and signing of significant lease agreements.
We shall reflect that even this year and will have a positive impact on our results as soon as the next year or two. The interest rate environment remains high. In January of this year, the Bank of Israel lowered the interest rate by 0.25 percentage points to 4.5%, and has since left the interest rate unchanged. The high interest rate obviously affects our business, too. But we keep the debt ratio low, and about 88% of the debt is linked, similarly to most of our NOI, which is linked to the CPI. In terms of development and construction, the group is continuing its development and expansion in a calculated and balanced manner.
On the one hand, we are continuing to develop the development of the projects for the medium and long term, and still we continue to vigorously advance zoning plans and building rights. While in terms of bricks and mortar, we continue developing in a prudent and cautious way, manner. Appraisals. In the second quarter, we reported appraisal profit of ILS 65 million compared to ILS 491 million year-over-year. The difference derives mainly from the CPI difference, the prices of properties in Israel and the data centers, as Ariel will detail later. In July 2024, the Bank of Israel updated its forecast, and from April 2024 and represented expectations of an increase in GDP in this year and the next year of 1.5% and 4.2%, respectively.
It also revised the inflation rate for these years of 3% and 2.8%, respectively. We expect the Bank of Israel interest rate to be about 4.25% in the second quarter of 2025. About the segment, shopping malls. We continue growth in NOI to ILS 249 million, up ILS 5 million year-over-year, and ILS 9 million quarter-over-quarter. We maintain full occupancy of 99% throughout the portfolio. During the quarter, we signed contracts of approximately 30,000 square meters, which are around 8% of the installed base. During the quarter, we signed several large contracts, in most cases with higher rent per square meter, especially in Eilat and in Rishon LeZion. We are starting to see beginnings of renewed interest on the part of foreign chains to open branches in Israel.
In terms of store revenues, we are 10% up in the second quarter, and we're seeing July with an increase of 14%. There is a high increase in store revenues in the areas of culture and leisure, cosmetics, lingerie, and fashion accessories. Just to summarize the shopping mall part. Positive trend, we have an NOI in growth, maintaining high occupancy of 99.3%, 10% increase in store revenues in the quarter, and 14% in July alone compared to July last year. Larger ticket size, an increase in store revenues due to an increase in overall travels in Israel. Regarding offices, I'll start with the fact that targets are being met. NOI increased by ILS 7 million in quarter, year-over-year, and ILS 11 million in the half year-over-year.
Most of the increase derives from rent increases in tenant turnover and CPI increases. Same property also rose 3% in the quarter. We continue to maintain full occupancy in the group's properties, which are concentrated in high-demand areas. There is a deal flow, although not as at previously seen levels. At the same time, the uncertainty in the market is still creating long negotiations. There are large deals, though. In terms of customer mix, our customer mix is unchanged, namely technology companies and liberal professions, where technology companies remain 40%. During the quarter, we signed agreements covering an area of about 34,000 square meters, which is about around 5%. In Lot 21 in Modi'in, already at the end of the first quarter, we began populating the commercial floors and office towers in Lot 21.
In May, we began populating the rental apartments in Modi'in. To remind you, the lot covers an area of 5.3 thousand square meters, of which a GLA of 31 thousand square meters, multi-use of offices, retail, a hotel, and rental housing. For the offices, we are at 50% occupancy and are in advanced negotiations for another 3,100 square meters, such that the total occupancy of these negotiations will be finalized, will reach 75%. On the retail, we have occupancy of 82% in this new assets. Regarding the SolarEdge Campus, there is no change in plans. We are monitoring the company regularly. There may be some adjustments to the project, but nothing substantial, while both parties are fully committed for the project. We see this asset as an excellent one in a prime location with high-end design.
To summarize offices, 7 million ILS increase in NOI in the quarter year-over-year, maintaining high occupancy of 98%, diverse customer mix and long-term contracts, bridging the current environment of uncertainty. Although to a certain extent is a challenging situation, there is still a healthy deal flow. Lot 21, launched on end of Q1, good lease-up rate. Regarding senior housing, NOI in the quarter amounted to 22 million ILS, compared with 18 million ILS year-over-year, an increase of 22%. We have significant improvement in the operating performance, though the leasing time continues to be longer than usual in view of the difficulty in sales on the secondhand apartment market, we're still growing occupancy, where we grew to 97%.
We are nearing exhaustion of our inventory in the leasing in the existing houses, and are working on construction of the home in Rishon LeZion, expected to open in late 2025, and continue to look for development opportunities elsewhere. The Palace Lehavim, which is the recent one we occupied, including the second stage, we are now at 91% occupancy rate. Data centers. AI and cloud continue to develop and are a significant trigger for the surge in demand for storage and processing capacity for servers and consumption of infrastructures as a service, IaaS. These factors have a positive effect on the industry, leading to massive growth and boosting the demand for data centers. Added to this is the trend of substantial power shortage in the FLAP-D hubs, that is only getting worse and challenging as demand rises and data centers are built.
Keep in mind that in London, there is already a move from West London to the east, where the Romford site is located. And in Mainz, Germany, near Frankfurt, environmental regulation is eliminating future data centers that were marketed on paper, but do not comply with the regulations. The electricity shortage only underlines our advantage in operating in the Nordic market. In general, in the Norwegian market in particular, in addition to the other advantages that we talked about extensively, green electricity, cheaper electricity prices than in Europe, low operating costs, a wider range of land properties, an uncomplicated statutory process, and little sensitivity by AI to latency.
If you've heard the the recent Nvidia earnings calls, you will identify that the biggest challenge of Nvidia today is neither R&D, nor CapEx, nor development, nor market demands, nor manufacturing. It's solely data centers and power, which reflects how what's the demand and what's the supply in this space. Reflecting on this, several sources predict by 2030, almost 40% of all the growth in the data center industry will go to the Nordic market in Europe. I remind you that as of Q3, we stopped including the results of Compass, which were in the second quarter of last year, more than 32 million ILS, which was. The Compass was sold very successfully in October 2023.
NOI, excluding campus, increased by 60% to 43 million ILS in this quarter, and by 34% compared to the previous quarter. TikTok. The site is already connected to the central power grid. We handed over to TikTok Building One earlier this quarter, and are at final stages in the construction and handover of the other two buildings. We experienced very hard growth in the deals that will yield income in the short term, long-term contracts, high capacities, good returns, and significant hyperscalers. From here on out, we are moving ahead with the development and expansion of the East London data center campus, and are beginning construction of the first phase of the project in Frankfurt, under the JV of Green Mountain and KMW.
The negotiations for the 120 megawatt we reported on are moving along very well, and we are negotiating with several more companies, as we reported in July of this year. Expanding the data center business is very capital intensive, and we are working and exploring various options for collaborating with additional investors and various alternatives to fund the business. According to the growth rate, and I believe that by the end of the year or first quarter of next year, we'll have more to report on this front. Summer is the data center experience, an industry with very high growth potential, strong demand, continuing to strengthen and develop. We focus on developing Green Mountain as a European platform in the existing markets and sites, namely Nordics, then Northern Europe, then the whole continent.
NOI is growing according to the targets. Advanced negotiations with several hyperscalers, and we're exploring various options for collaboration with additional investors and other alternatives to fund the business due to the high growth rate. We are proceeding through the horizon with caution, and are managing the investments with close attention, and the project schedule in a balanced manner according to demand. I will now give the floor to Ariel for the financial review.
Thank you very much, Eyal. Let's go over the key financial parameters from the financial statement. The quarter, the same property NOI is ILS 505.53 million, reflecting an increase of 5% year over year, excluding ILS 32 million recorded in the same quarter last year from the company's share in results of Compass, whose sale was closed in October 2023. The increase in the NOI of ILS 26 million, excluding the results of Compass, is mainly from the increase in the DC segment through Green Mountain, in the amount of about ILS 16 million. Mainly due to the completion and handover of projects totaling 16 megawatts to two international customers in Norway. Next quarter, we will record a full impact of the increase following the gradual addition of 10 megawatts in this quarter, plus another handover of 2.4 megawatts made in August.
The office sector contributed about 7 million ILS to the increase, and about 5 million ILS of the increase is from the malls and commercial space sector. In both sectors, the increase is from an increase in rental income. The improvement in the operating profitability and the high occupancy rate in the senior housing sector contributed about 4 million ILS to the increase. The increase in NOI is offset by decrease in the results of operations in the U.S. office sector in Texas, of 6 million ILS. After the end of the quarter, the company handed over the first TikTok building, 30 megawatts. By the end of the year, we expect that the company will gradually complete the handover of TikTok of the two additional buildings of 60 megawatts. The completion of TikTok campus will significantly increase the company's current NOI. In the FFO parameter, the company presents significant growth.
The FFO, including senior housing, total about ILS 419 million, an increase of 17%. The company's FFO, excluding senior housing, total, 379 million, up 11% year over year. The increase in FFO, including senior housing, in the amount of ILS 62 million, is from increase in the company NOI, excluding senior housing and excluding Compass, of ILS 26 million. An increase in the FFO over the senior housing sector of ILS 25 million, a decrease in net financing expenses of ILS 2 million, mainly due to an increase in financing income from company's financial reserve and exclusion of the FFO from Compass following its sale last year, which presenting a negative figure in the same quarter last year of about ILS 13 million, offset an increase in expenses of about ILS 4 million. Let's move on to the balance sheet data.
As of the end of the quarter, the investment properties and investment properties under construction total about 46.7 billion ILS, up about 2 billion ILS in the report period. The increase is due to continued investment in income-producing properties and properties under construction, total about 406 million ILS in Israel. This includes the Spiral Tower, the SolarEdge Campus, completion of construction of multi-use project in Lot 21 in Modi'in, and continuing construction of the Palace Rishon LeZion senior home in Rishon LeZion. An investment of about 1.3 billion ILS in the DC sector through Green Mountain, mainly in the continuing construction of 90-megawatt TikTok project, as well as a continuing construction of about 7 megawatt, mainly for international customers, of which we completed 2.4 megawatt in August.
Revaluations during the report period of ILS 380 million, mainly in the DC sector, is mainly from the continuing progress made in the TikTok project in Norway, as well as revaluation of properties in Ireland, mainly from change in the CPI. The weighted yield of the income-producing properties, excluding data center, senior houses, and rental houses, is about 6.96%. The weighted yield of the income-producing data centers is 6.75%. The company has a low leverage rate. The gross financial debt is about ILS 22 billion. The company's net financial debt is about ILS 20 billion, which is only 38% of the total assets of the company. The decrease of about ILS 1 billion shekels in the gross financial debt from the end of 2023, is mainly from the repayment of-...
Shekel facilities of about ILS 4.7 billion, a bond repayment of about ILS 1 billion, a net of CPI linkage of the linked liabilities of about ILS 4.3 billion, and a new borrowing of ILS 4.4 billion. The company link debt accounts for about 88% of the total debt of the company. In July, after the report period, the company raised, for the first time, commercial paper that were listed on Tel Aviv Stock Exchange in amount of about ILS 638 million, at Bank of Israel interest, plus a margin of 0.12% only. The principal and the interest will be repaid in July 2025. The company made a hedge transaction to substitute the shekel interest for CPI link interest of 1.59% only.
The company also raised a new bond, Series I, for a total of about ILS 990 million, with an effective interest rate of 3.77%. The series has a long duration of about 12.2 years, the second longest corporate bond in Israel, which enables the company to better spread out the current bond maturities and make further expansion of the series in the future. As part of this debt financing, the company also expanded in Series G, by about ILS 250 million, with an effective interest rate of 3.3%. The average effective interest rate of the company during the report period is 2.4%, with a duration of 5.4 years, while the average interest rate in Israel during the period is about 1.9% only.
The company's average interest rate in the quarter has risen year-over-year, mainly as a result of the company's financing rounds, which are closing at higher interest rates that reflect the market conditions. Let's conclude with a summary of the financial results. The net profit for the quarter amounted to ILS 156 million, compared with ILS 490 million year-over-year. The decrease in the net profit of about 263 million is from a decrease of 426 million in revaluation profits year-over-year.
The decrease is from a lower GM revaluations of about 360 million, mainly from exchange rate differences and decrease in revaluations in Israel, totaling about 111 million, including due to an adjustment made in the value of Sarona project in Tel Aviv, view of a notice of departure of significant tenant, Facebook, covering an area of 31,000 square meters. Another reason is an increase in the net financing expenses of about 46 million, mainly due to an increase in the linkage differences year-over-year, 16% this quarter, compared to only 1.36% in the same quarter last year, and an increase in the G&A and other expenses of 8 million. These effects were offset by increasing NOI of 26 million, excluding Compass.
Exclusion of the Azrieli.com results had a net impact of the gross profit of about ILS 6 million, the excluding of the results of Compass, due to its sale in the same quarter last year. This business recorded a loss of ILS 37 million, and a decrease in tax expenses of ILS 148 million, mainly due to the decrease in total revaluation profit. The comprehensive profit amounted to ILS 430 million in this quarter, compared with ILS 512 million year-over-year. We will now proceed to Q&A session.
Thank you. As a reminder, to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. We will now take our first question. Please stand by. And the first question comes from the line of Charles Boissier from UBS. Go ahead, your line is now open.
Yes, good afternoon. Thank you for taking my questions, and congratulations, Eyal, for your new position. So three questions from my side. First, on data center, I think you mentioned at the start of the call the idea is to introduce new partner or partners and then an IPO. So I was wondering how do you think about the pros and cons of going with partners first, and then, I guess, sharing some of the potential profits, and then later an IPO, which potentially would have the benefit of being a larger IPO than if you go early.
I just was wondering if you could discuss at all, maybe it's a bit difficult at this stage, but what you're thinking about the sequence of events and also potential timing for it. Second question was on the Spiral Tower. I think the CapEx has increased slightly, so I was wondering what has driven it between your last reporting and now Q2 presentation? The third is on the new CEO, will he or she be internal or external candidate, and where is the company in that process? Thank you.
Okay. I hope you are good. I'll start with your consent on the Spiral. The Spiral is up-
... ILS 120 million, you're right. Main price difference or cost difference is the fact that aluminum is going up. Today, it's already almost ILS 400 million in this huge project, and glass as well. These are the two major factors. So unfortunately, yes, you're right. Budgets went up on this. The data center and minority partner, look, the potential of this industry has some, I would say, some challenges or risks which are incorporated. Mainly, you need, you want growth, you need liquidity. You want liquidity, you take debt. You take debt, and you need to inject equity. What's going on with your balance sheet and covenants?
Because this triangle, specifically with a company like Azrieli, where we keep our conservative approach regarding LTV, et cetera, one would say that it's... Although the projects, you know, the IRR is very high, and fifteen years project, you don't cost 12-13%, you know, the Google, Microsoft, Oracle, whatever of the world. At the end of the day, it's a steep curve, slope, that in order to de-risk, we find ourselves that in order to keep the same rating, et cetera, for this, we think that it's more appropriate to have a minority partner at the beginning. When I say minority partner, it's between 15% to 30% a minority partner.
According to our models, just to give you a sense, if we have a minority partner, instead of reaching a peak in 2027 of 47% LTV or whatever, we reach 2027 with less than 40% LTV. So this is just to give you the spread of what does it mean, partner. And if you look at the flip side on the, let's say, on the evaluation of such a company, if we manage, and again, we need to prove it to the market, we need to prove it to you, our shareholders.
If we manage to sign these large deals, namely, let's say, this 120 megawatts deal, which we are quite close to this, even though, you know, anything can happen, one would say that with something like 135 to 140 million EUR annually NOI, you pick the multiplier. Today, the public companies are at 21 to 23. Usually the private markets is higher. CapEx is around EUR 1 billion. You would see that the value is very high.
If you even inject to get 20% of such a company after the investment, one should invest between EUR 500-700 million, which means additional investments of around EUR 2.5 billion, because it's 30% equity, 70% debt. What I'm trying to say is that once we have a partner, and most of the companies, most of the investment is primary, not secondary, one would find that at the end of the day, Azrieli doesn't need the partner once he injects the capital. None of these stakeholders or the shareholders should inject capital for the coming 2-3 years in a company with exponential growth.
So this is why we're looking for a minority partner, and we think that once we get the right size in terms of the company, this would be the point on the right size to go to, maybe to evaluate an IPO. Whether it's good or bad, we'll see then. If you're asking about timing, again, just, you know, it's not, I don't- do not sign on this, but it should be take between three and a half to five years from today. You know, it depends on the markets, et cetera. So this is about that. The last thing I would say, that the new CEO, we just announced it today. We didn't do anything up until now, and we start working on this. So no news at this stage.
Thank you. Thank you.
Thank you.
Thank you. As a reminder, to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. As there are no further questions, I would like to hand back to Eyal Henkin, CEO, for any closing remarks.
Thank you, and as an overall, we present improvement in the operating parameters in this quarter and continued with our investments in development cautiously, and in the consideration of the global circumstances. We continue to present good results against the backdrop of the challenging year. We are proceeding according to our plans, while exercising discretion, and maintain a strong and stable portfolio, whether it's offices, malls, and senior homes. We maintain very high occupancy rates, a healthy mix, lively customer traffic, and good store revenues in the malls. We are keeping the NOI and FFO on the rise, maintaining a low leverage ratio, which is now at the peak with the handover of the TikTok project. Continuing to develop our core business in Israel energetically, though carefully and responsibly. On the data center sector, we have a lot of faith in this industry.
There is evidence of high growth potential and strong demand. We have the advantage of knowledge, connections, location, execution. At the moment, we are concentrating on the European platform, London, Frankfurt, and of course, Norway. We're in various negotiations for the significant contracts, and working to explore various avenues for collaboration in the business. Finally, about the Israeli group, we work in high focus and determination, though carefully and responsibly. I will conclude with our hope for the safe and speedy return of all the hostages. Thank you very much for listening, and see you at the conclusion of Q3 this year.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.