Azrieli Group Q2 2024 presentation: NOI up 5%, data centers drive growth

Introduction & Market Context

Azrieli Group Ltd (TASE:AZRG), Israel’s largest real estate company, presented its second quarter 2024 results on June 30, 2024, highlighting solid financial performance despite regional challenges. The company, which has been traded on the capital market since 2010 with a 30.1% free float, maintains a diverse portfolio of income-producing properties with a total Gross Leasable Area (GLA) of approximately 1.4 million square meters.

As shown in the following comprehensive breakdown of Azrieli’s property portfolio:

The company’s assets are strategically diversified across multiple segments, with offices and malls in Israel comprising the largest portions at 32% and 30% respectively. Data centers have emerged as a significant component at 17% of the portfolio, reflecting the company’s strategic pivot toward this high-growth sector.

Quarterly Performance Highlights

Azrieli Group reported strong financial results for Q2 2024, with Same Property NOI increasing approximately 5% year-over-year. Total (EPA:TTEF) NOI for the quarter reached NIS 553 million, while FFO (Funds From Operations) totaled NIS 419 million, representing a substantial 17% increase compared to Q2 2023.

The following chart illustrates the company’s consistent NOI growth trajectory:

This growth was complemented by an even more impressive increase in FFO, as shown in the following chart:

The robust financial performance enabled Azrieli to distribute a significant dividend of NIS 1,000 million (NIS 8.25 per share) in May 2024, continuing its pattern of growing shareholder returns. The company’s retail segment performed particularly well, with mall store sales increasing by 10.0% from April-June 2023 to the same period in 2024.

Data Center Operations - A Growth Engine

One of the most compelling aspects of Azrieli’s business strategy is its expanding data center operations through Green Mountain. This segment has shown remarkable growth, with NOI increasing from NIS 27 million in Q2 2023 to NIS 43 million in Q2 2024, representing a 59% year-over-year increase.

The following chart demonstrates the significant expansion of Green Mountain since its acquisition in 2021:

Green Mountain’s capacity development is projected to continue its strong growth trajectory, as illustrated in the following forecast:

The data center segment now operates across three countries with six sites and 150 MW of capacity, up from just one country, three sites, and 24 MW at acquisition. All facilities operate on 100% renewable power, aligning with the company’s ESG commitments.

Development Pipeline and Future Growth

Azrieli Group has an extensive development pipeline that positions it for continued growth. The company invested approximately NIS 1 billion in development projects during Q2 2024 alone, following total investments of NIS 4.2 billion in 2023.

The following chart outlines the expected contribution of these development projects to future NOI and FFO:

A flagship project in the development pipeline is the Spiral Tower in Tel Aviv, which will add 150,000 square meters of GLA including hotel, retail, office, and rental housing space. Construction is currently underway with an estimated completion date of 2027 and a projected cost of NIS 2.69-2.89 billion.

Other significant projects include the SolarEdge (NASDAQ:SEDG) Campus in Ramat HaSharon, the Mount Zion Hotel in Jerusalem, and multiple mixed-use developments across Israel. These projects are expected to contribute an additional NIS 691 million to the company’s NOI upon completion.

Financial Position and Shareholder Returns

Azrieli Group maintains a strong financial position with a leverage ratio of approximately 38% and an equity to assets ratio of 44%. The company holds high credit ratings of ilAA+ from S&P Maalot and Aal.il from Midroog-Moody’s.

The following chart illustrates Azrieli’s consistent history of growing dividend distributions:

The company’s weighted average cap rate stands at approximately 6.96%, reflecting the quality of its income-producing assets. With cash, securities, and deposits of NIS 1,447 million as of Q2 2024, Azrieli maintains significant financial flexibility to pursue its development pipeline and potential acquisitions.

As of June 30, 2024, Azrieli’s gross financial debt stood at NIS 21,727 million, with a net financial debt of NIS 20,280 million. The company’s debt is well-structured with a balanced payment schedule, providing stability and predictability to its financial planning.

With its diversified portfolio, strong financial performance, and substantial development pipeline, Azrieli Group appears well-positioned to continue its growth trajectory despite regional challenges, with data centers emerging as a particularly promising growth engine for the future.

Full presentation:

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