Q4 & CMD 2024

Mar 24, 2025

Summary

2024 NOI reached ILS 2.3bn, up 9%, while FFO including senior housing rose 15% to ILS 1.709bn. Data centers and core property segments drove growth, alongside >ILS 3bn of investment; net profit declined on prior-year one-offs and higher costs.

Good day, and thank you for standing by. Welcome to Azrieli Group Annual 2024 Conference Call for Foreign Investors. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will 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 need to slowly press star one on your telephone. You will 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. 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. Thank you for joining the Azrieli Group earnings call to summarize the fourth quarter of 2024. Both in the fourth quarter and in all of the year 2024, we are presenting good performance and improvement in operating parameters and record figures for the NOI and FFO. The NOI is continuing to grow with 27% increase in Q4 and 9% increase in the whole year 2024. Even excluding this war relief of Q4 2023, the NOI grew in the quarter by almost 20%. The trend of improvement in the NOI is also evident compared to the previous quarter, mainly thanks to the contribution of the data centers. The FFO, excluding senior housing, increased by 30% in Q4 and by 15% in 2024. The FFO, including senior housing, increased by 21% in Q4 and by 15% in 2024 to ILS 1,709 million. The NOI and FFO at the end of 2024 are at record figures, and we see that this growth derived from all segments, and especially from our key operations in malls, offices, and the DC segment, data center segment, which was not yet fully income-producing in Q4. We are continuing to make investments, and over the year, we invested over ILS 3 billion in development improvements and investments, both in Israel and in the data center space. In terms of development and construction, the group is continuing its development and expansion in a calculated and balanced manner. We are continuing to develop medium and long-term projects alongside vigorous development of zoning plans and building rights. We are continuing to maintain high occupancy in our malls, offices, and senior housing, with an average occupancy rate of about 98% and 99% in the malls, based on a good mix, low leverage, and long-term contracts. On February 19, 2025, the company reported that due to a decision not to grant a required regulatory permit for land on which Green Mountain was considering building a 120 megawatts campus, Green Mountain is considering other alternatives for land on which to build the project. At this stage, there is no certainty that the negotiations with the technology company, the hyperscaler, will be successfully completed, and if and when they will be completed. Shopping malls. Continued growth in NOI, up 25% year-over-year, and a nice increase of 7% excluding the war relief we gave last year. We maintain a full occupancy of 99% throughout the portfolio. During 2024, we signed contracts for approximately 61,000 sq m, which accounts for 16% of the portfolio. During the quarter, we signed several large contracts, in most cases with higher rent per square meter. Traffic was up 5.3% in 2024 year-over-year. Store revenues were up 12% in 2024 year-over-year, and 40% compared to 2022, particularly from the second half of 2024. There is a high increase in store revenues in the areas of culture and leisure, cosmetics, lingerie, and fashion accessories. We have the right and accurate mix of tenants in most of the properties, and also the fact that people flew less than usual abroad, it left some spending in Israel, which gave us a boost as well. To summarize the shopping malls, positive trend, NOI growth, maintaining high occupancy of 99%. Traffic is up 5.3% in 2024 year-over-year, 12% increase in store revenues in 2024 compared to 2023, 14% increase same property compared to 2022. Well, in 2025, we obviously don't expect such growth, but we believe that it will be in line with the standard average growth. We recognize some larger ticket size in 2024 in the malls, something we've been working for the recent couple of years. Offices. NOI increased by 9% in the quarter year-over-year and 5% quarter-over-quarter. Most of the increase derives from rent increases in tenant turnover and CPI increases. Same property rose 7% in the quarter. We continue to maintain full occupancy in the group's properties, which are concentrated in high-demand areas and the best locations. Deals are being made. There are large deals and there's a deal flow. However, the uncertainty in the market is extending negotiations, although large deals are being made. There's increased interest from Israeli and international technology companies, but still not at the levels to which we have become accustomed, specifically during COVID. Tenant mix. Our tenant mix is unchanged, including mostly technology companies and liberal professions. Our exposure to high tech remains at 40%. In 2024, we signed agreements covering an area of around 142,000 sq m. We also leased close to 30% of the space that Facebook vacated in Sarona, actually is going to vacate on May 2025, and we're in various stages of negotiations regarding other spaces in very high leasing prices. To summarize, we leased 21% of the portfolio this year, and prices are on, I would say, slight to medium increase. Lot 21 Modi'in West. We recently officially launched the project, and we will see its growing contribution throughout the year. To remind you, Lot 21 covers an area of 5.3 thousand square meters, of which a GLA of 31,000 square meters is for multi-use lease of offices, retail, a hotel, and rental housing. In rental housing, in total, we have signed contracts for over 70 apartments out of 80 apartments, most of which have already been occupied. Offices. Just recently, we have finished occupancy of the entire building, signing 99.4% occupancy with high-quality tenants. Retail is at 85% occupancy, and for the hotel, we have leased the entire hotel area, some 85 rooms, to a third party, which will operate the hotel starting June. To summarize offices, the NOI substantially increased in the quarter year-over-year and quarter-over-quarter. We are maintaining high occupancy of 98%. We currently feel an increase in deal flow, but there are still longer negotiation times compared to the past. Senior housing. We had a very, very successful year this year. NOI in the quarter increased year-over-year and quarter-over-quarter, some 20%. We are continuing to develop the segment in view of the success of our existing projects. Occupancy rates are up to 98%, and in the medical segment, we have improvement in occupancy and NOI. We are nearing exhaustion of our inventory in the existing homes and are working on the construction of the home in Rishon LeZion, expected to open fourth quarter of 2025. We are also continuing to look for development opportunities elsewhere. In that regard, we recently won the tender for construction of a project with 350 apartments in Tel Aviv. Occupancy is up at Lehavim, and there is some improvement in the occupancy in Tel Aviv, the existing facility, quarter-over-quarter. To summarize, we leased 161 apartments this year. Data centers. There has been a lot in the media about this recently, whether it is DeepSeek, Microsoft reducing its investments in data centers, still $80 billion. Meta has increased its investments. The U.S. government is launching a half a trillion dollar project. French government, EUR 109 billion investments in AI, and more. I know that there are some more uncertainty in this area, but the common notion is that the cloud and AI are the future. They are here to stay and grow. We continue to witness the ongoing development of AI in the cloud, which are a significant trigger for the surge in demand for storage and processing capacity of servers and consumption of Infrastructure as a Service, what we call IaaS. These factors have a positive effect on the industry, leading to growth and continuing to boost the demand for data centers. Added to this is the trend of substantial power shortage in the FLAP-D and secondary hubs, which is only getting worse as demand rises and data centers are built. The NOI in the sector is beginning to grow rapidly in view of the occupancy of our facilities. The NOI is up 50% quarter-over-quarter. Excluding the results of Compass, it is up 123% year-over-year. This quarter has not yet included the full contribution of recent occupancies, which occurred late this quarter. To summarize, the data centers, an industry with very high growth potential, strong demand, we are continuing to strengthen the develop of the DC business as one of Azrieli's key pillars. We focus on developing Green Mountain as a European platform in the existing markets and sites. NOI growing according to targets, and negotiations with several companies are at various stages. Last but not least, Tzemach Hammerman. At the beginning of November, we announced that the company has submitted an offer to the board of Tzemach Hammerman to negotiate a reverse triangular merger and purchase of its minority holdings. We are advancing in the process and will continue to report on the process as it develops. I will now give the floor to Ariel Goldstein, our CFO, for the financial review. Thank you very much, Eyal. We will go over the key financial parameters from the financial statements. The results of the fourth quarter show continued growth in the group various operating segments. This quarter's NOI is ILS 630 million, reflecting an increase of 28% year-over-year. Excluding the impact of the war relief, the increase is 19%. The increase in the NOI of ILS 166 million derives primarily from the data center segment, which contributed ILS 72 million to the increase, mainly due to the completion and handover of projects totaling 20 MW, mainly to two international customers in Norway, as well as recording of income from TikTok project in this quarter. Around ILS 52 million derived from the increase in the malls and commercial space sector, mainly due to the war relief given in the same quarter last year and due to the increase in rent. Around ILS 18 million derived from the increase in the office sector, increase in rent, occupancy at Modi'in West project, and recognition of income from leasing the Gazit Building. In U.S. offices, the NOI decreased by around ILS 10 million due to downsizing of space and the lower rent in the renewal of agreements. The NOI in 2024 was ILS 2.3 billion, which was up 9% year-over-year. Excluding the impact of the war relief, the increase was 7%. The ILS 189 million increase in the NOI is mainly derived from the increase in the data center segment, which contributed an increase of ILS 127 million, excluding revenues of ILS 51 million in the previous year from Compass, which was mainly due to the completion and handover of project totaling 20 MW, mainly to international customers in Norway, the recording of a full year of data center operations in England, and a recording of revenues from the TikTok project. Around ILS 68 million derived from the increase in the malls and commercial space, mainly due to the war-related relief given in the previous year and the increase in rent. Around ILS 44 million derived from the increase in the office segment, increase in rent, occupancy of Modi'in West project, and recognition of income from the leasing of Gazit Building. The senior housing segment increased by around ILS 15 million, mainly due to the continuing operational improvement in various homes. In the U.S. offices segment, the NOI decreased by around ILS 18 million, mainly due to downsizing of space and a lower rent in the renewal of agreements. Same property NOI in the fourth quarter was ILS 571 million, up 15% from the same quarter. In the same property NOI, we exclude the results of Gazit Building, the occupancy of Modi'in West, retail offices and residents, the Check Post project in Haifa, and the handover of TikTok project. The increase in the company's same property NOI results mainly from an increase in NOI of ILS 64 million in the retail and office segment, mainly due to increase in rent revenues and an increase in data center revenues of ILS 19 million without TikTok, net of a decrease in NOI in the United States of ILS 10 million. Same property NOI in 2024 was ILS 2.2 billion, which was up 80% compared to 2023. In the same property NOI, we excluded the results of Gazit Building, the occupancy of Modi'in West, the Check Post project in Haifa, occupancy of TikTok project, the results of operations of the data center company that was purchased in England, and the result of Compass, whose sale was completed in the fourth quarter of 2023. The company's same property NOI increase mainly derived from the ILS 105 million increase in the NOI of the retail and offices segment, mainly due to the increase in revenues from rent, an increase of ILS 15 million in the senior housing segment, a ILS 61 million increase in the revenues in the data center segment, excluding TikTok, and offset by decrease of around ILS 18 million in the U.S. The FFO in the quarter, excluding senior housing, totaled ILS 407 million, up 30% from the same quarter. The FFO including senior housing is ILS 431 million, up 21%. The increase in the FFO, including senior housings, resulted from an increase in the company's NOI of ILS 134 million, net of decrease in senior housing deposits of ILS 18 million, net of an increase in financing expenses of ILS 27 million, and net of ILS 14 million results from an increase in G&A expenses. The company FFO in 2024, excluding senior housing, totaled ILS 1.59 billion, up 15% compared with 2023. The FFO including senior housing totaled around ILS 1.7 billion, up 15%. The increase in FFO, including senior houses, derived from the increase in the company's NOI, excluding Compass and senior houses, of ILS 225 million, an increase in the FFO of the senior housing sector of ILS 60 million, a sum of ILS 40 million mainly derived from the exclusion of Compass and others, offset by ILS 11 million deriving from an increase in financing expenses, and ILS 42 million deriving from increase in G&A expenses. Let's move on the balance sheet data. As of the end of the year, the investment properties and investment properties under construction totaled around ILS 48 billion, up around ILS 3.4 billion in the report period. The increase is due to continuing investment in existing income-producing properties and properties under construction, totaled around ILS 1.16 billion, which includes an investment of ILS 851 million in properties under construction, mainly the Spiral Tower, the SolarEdge Campus, completion of construction of the multi-use project Modi'in West, the Check Post project in Haifa, and continuing construction of Palace Rakafot Senior Home in Rishon LeZion. A total of ILS 360 million in continuing investment in the company's existing income-producing properties. An investment of around ILS 1.97 billion in the data center sector, primarily through Green Mountain, mainly in the completion of construction of 90 megawatt TikTok project, as well as completion in 2024 of around 20 megawatt, mainly for international customers. In addition to continuing construction of around 7 megawatt, which will be completed in 2025. Revaluations of ILS 930 million during the report period, which include revaluations in Israel of ILS 469 million in the retail, offices, and housing segment, which mainly derived from the increase in rent and change in CPI. A ILS 7 million revaluation in the U.S., ILS 127 million in the senior housing segment, and a total of around ILS 310 million in the data center segment, deriving mainly from the completion of the TikTok project in Norway and the decrease of a cap rate in the data center sector. The weighted rate of return of the income-producing property, including the U.S., excluding data centers, senior housing, and rental housing, is around 6.99%. The weighted rate of return of the income-producing data center is 7.19%, impact mainly by the start of income generation from the TikTok project. The company has a low leverage rate. The gross financial debt is around ILS 25.9 billion. The company net financial debt is around ILS 19.7 billion, which is around 34% of the total assets. The increase of around ILS 3.2 billion in the gross financial debt since the end of 2023 derives mainly from the raising of bonds in July in the new Series I and its expansion in December in the sum of ILS 3.4 billion. The average effective interest rate of the company during the report period is 2.4%, compared with 2.1% year-over-year, with a duration of 6.1 years, 5.5 years in the previous year. The average interest rate in financing in Israel in the period is around 1.8%. The company's average interest rate in 2024 has risen year-over-year, mainly as a result of company's financing rounds, which reflect the market condition. We will conclude with a summary of financial results. The net profit for the year totaled ILS 1.48 billion, compared with ILS 2.22 billion year-over-year. The decrease in the net profit in the report period, around ILS 736 million, was affected by ILS 1.15 billion decrease in the other revenue net, mainly due to the recording profit from the sale of Compass in the previous year, increase of ILS 102 billion in financing expenses, mainly due to increase in the linkage effect on the debt, and an increase of around ILS 22 billion in the G&A expenses. Those effects were offset by an increase in the NOI, excluding the Compass, in the report period of around ILS 240 million, a decrease of ILS 133 million in tax expenses, mainly due to the taxes on profit from the sale of Compass, which were recorded last year, a loss of ILS 72 million from Compass operations, which was recorded in the previous year, and a current loss, which was recorded in the previous year, with respect to azrieli.com in the sum of around ILS 30 million. The comprehensive income amounted to ILS 1.26 billion in 2024, compared with ILS 2.16 billion in 2023. The comprehensive income in 2024 was affected by a profit, net of tax, from holding of Bank Leumi shares in the sum of around ILS 377 million, and from a ILS 610 million loss in translation differences, which mainly derives from weakening of the Norwegian krone in the period against the dollar, and accordingly, also against the shekel. Since the end of the report period, the Norwegian krone has gained more than 6%. We will now proceed to the Q&A session. Thank you. As a reminder, to ask a question, you will need to press star 11 on your telephone keypad and wait for your name to be announced. To withdraw your question, please press star 11 again. Once again, to ask a question, please press star 11 on your telephone keypad and wait for your name to be announced. To withdraw your question, please press star 11 again. As there are no further questions on the phone line, I would now like to hand back to the room for any closing remarks. Thank you. To conclude this discussion, strong improvement in operating parameters, maintaining low leverage, and continuing with our investments and development operations while exercising caution and taking current conditions into consideration. This was the year. We continue to present strong results against the backdrop of the challenging year and the ongoing war. We are proceeding according to our plans while exercising discretion, and we maintain a strong and stable portfolio, including offices, malls, and senior homes. We maintain very high occupancy rates, a healthy mix, lively customer traffic, and good store revenues in our malls. We are continuing to develop our core business in Israel vigorously, carefully, and responsibly. Data centers, we have a lot of faith in this industry. It's true that there has recently been more noise than usual in the industry, but growth and strong demand are still projected. We have the advantage of knowledge, product, connections, and location. At the moment, we are concentrating on the European platform, London, Germany, and Norway. Yet, we always keep in mind the environment around us, war, uncertainty, and high interest rates, and we work accordingly, carefully and responsibly. This is my last call as the Group's CEO. It is a special and powerful group, the Azrieli Group, and tremendous opportunities are ahead of it. We have here a very strong group of people, action-oriented and success-oriented. We will continue to lead, to advance, and to achieve every target and conquer every peak together as a single, strong, united, and leading entity. I would like to thank you, the investors, and the controlling shareholder in the Group, Danna Azrieli, for your great trust over the years, and I wish my replacement, Ron Avidan, tremendous success. As here in Israel and for the Jewish people, Passover approaches, and Easter for the rest of the world, I would also like to wish you and your families a very happy holiday, and our hope for the safe and speedy return of all the 59 hostages from Gaza. Thank you very much for listening. This concludes today's conference call. Thank you for participating. You may now disconnect.