Earnings call transcript: Azrieli Group Q2 2025 sees strong profit growth

Azrieli Group, a prominent player in the Real Estate Management & Development industry with a market capitalization of $12.2 billion, reported robust financial results for the second quarter of 2025, with significant year-over-year growth in net profit and net operating income. The company’s stock saw a decline of 1.43% following the earnings announcement, despite showing strong momentum with a 37.6% return over the past year. The market reaction was perhaps influenced by the company’s ongoing investments and geopolitical factors affecting the Israeli real estate market.

InvestingPro analysis indicates the stock is trading slightly above its Fair Value, with 10+ additional exclusive insights available to subscribers.

Key Takeaways

• Net profit increased to 320 million shekels, more than doubling from the previous year.
• Net operating income rose by 17% year-over-year.
• The company’s data center operations now account for 80% of its net operating income.
• Azrieli Group continues to invest heavily in real estate and data center expansions.

Company Performance

Azrieli Group demonstrated strong financial performance in Q2 2025, with net profit reaching 320 million shekels, a substantial increase from 156 million shekels in the same quarter last year. The company’s net operating income also showed a healthy rise of 17% year-over-year, reflecting its strategic focus on high-growth areas like data centers and senior housing.

Financial Highlights

• Net Operating Income: 648 million shekels, up 17% YoY
• Net Profit: 320 million shekels, compared to 156 million shekels last year
• Gross Financial Debt: 26.8 billion shekels
• Net Financial Debt: 21.9 billion shekels, 37% of total assets

Earnings vs. Forecast

Azrieli Group’s earnings per share (EPS) and revenue figures were not explicitly detailed in the forecast, but the company’s significant net profit growth suggests a positive deviation from expectations.

Market Reaction

Despite the strong earnings report, Azrieli Group’s stock price fell by 1.43%, closing at 34,380 shekels. This decline may reflect investor concerns about the broader market conditions and geopolitical tensions affecting the Israeli real estate market. The stock remains closer to its 52-week high of 34,910 shekels, indicating overall positive sentiment in the long term.

Outlook & Guidance

Looking forward, Azrieli Group expects to fully lease the Sirona Tower by the end of the year and anticipates consistent store sales for 2025. The company is also advancing its data center projects, which are expected to generate €25.5 million upon reaching full capacity.

Executive Commentary

CEO Ron Avedan expressed confidence in the company’s strategic direction, stating, "We are continuing developing, growing and diversifying our business operations on a thoughtful and balanced basis." He also highlighted the complexity and importance of the company’s data center operations, emphasizing their role in the group’s future growth.

Risks and Challenges

• Geopolitical tensions in Israel could impact real estate market stability.
• Rising construction costs may affect profitability.
• The integration of new ventures and acquisitions poses execution risks.

Q&A

During the earnings call, analysts inquired about the leasing progress of the Sirona Tower and the impact of construction cost inflation. The management addressed these concerns, reaffirming their commitment to optimizing the property mix and managing costs effectively.

Full transcript - Azrieli Group (AZRG) Q2 2025:

Conference Moderator: Good day, and thank you for standing by. Welcome to Azraeli Group’s Second Quarter twenty twenty five Conference Call for Global Investors. At this time, all participants are in listen only mode. After the speakers’ presentation, there will be a question and answer session. With us today are Mr.

Ron Avedan, CEO and Mr. Ariel Goldstein, CFO. To ask a question during the session, you need to slowly press star one and one on your telephone keypad. This conference call will be accompanied by a slide presentation. It can be found on Azraeli site, www.azraeligroup.com, on the Investor Relations page and the 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 call is being recorded. I would now like to hand the conference over to your speaker today, mister Ron Abidhan, CEO. Sir, please go ahead.

Ron Avedan, CEO, Azraeli Group: Good morning and good afternoon to everyone. Thank you for joining the Azeri Group quarter two two thousand twenty five earnings conference call. Firstly, further to the immediate report we released last night, I would like to inform you too that I have given notice to the group’s chairwoman and board of directors of my wish to step down as CEO of the company for personal reasons. I would like to thank missus Dana Azrieli and the board for their understanding and support for my decision. I will remain in office in the near future, pending approval by the shareholders meeting for Dana’s appointment as interim CEO for a period of six months.

This will guarantee continuity and stability for the implementation of the group’s work plans. I would like to thank each and every one of my colleagues at Israeli Group for the fruitful work period we shared and wish them and the group continued success and prosperity. We shall now proceed to reviewing the second quarter’s results. In the second quarter, we delivered strong results with another record NOI, presenting an impressive double digit increase of 17% year over year. This growth is driven by two key operating segments, offices, where we’re seeing increasing demand for the office space in Central Tel Aviv in general and space located at Sirona in particular, mainly from high-tech companies and data centers where new projects completed over the past year have been occupied.

We had another quarter of extensive activity in all segments of the group’s operations. However, it’s hard to say that this was a normal quarter for us. Like the rest of Israel, we too were impacted by operation Rising Lion. Naturally, our retail operations were impacted like everyone else’s. The improvement in the NOI was indeed partially offset by the impact on our mall operations during Operation Rising Line.

We estimate the impact of the war on the results of the mall segment at around 13,000,000. There was a 7% growth in the FFO, excluding senior housing operations and almost no change, including senior housing. The increase in the FFO was partially offset mainly by expenses related to our growing data center operations, including costs in connection with the establishment of Green Mountain Global, which will consolidate all of our data center operations. The group has strong confidence in this operating segment, and its establishment naturally entails relatively high expenses. In addition, the sale of apartments in the senior homes was characterized by a certain slowdown in the quarter, which was affected by a decrease in the inventory of the apartments for sale, the impact of the war and the general uncertainty in the market similar to the entire housing market in Israel.

It’s important to understand that this segment has very similar characteristics to Israel’s residential market. Therefore, when there’s a certain slowdown in the general residential market, the senior housing sector is also impacted. We are continuing to invest in and improve our asset portfolio with investments totaling 1,200,000,000 in the second quarter and NIS 1,800,000,000.0 in the 2025. This total includes the purchase of land instead of for a senior home project, investments made in the development projects under construction and the continued upgrade and development of our income producing properties, including in Hulon, Herceliya, Beersheba and other sites. In every investment and projects, we uphold the standard of planning, construction and quality that defined Azreal Group with the aim of ensuring top tier properties maintained to the highest standards and retaining their long term appeal.

Now let’s take a look at our key operating segments. Offices. The strong results have persisted with a 13% increase in the same property NOI. The quarter’s results include a onetime compensation by a large tenant, which left Sarona, net of the lost revenues due to its departure in the sum of around 14,000,000. As I mentioned before, we are continuing to see a rising interest in office space in Central Tel Aviv in general and in this vacated space in Sirona in particular, mainly from high-tech companies.

Although negotiations take longer, reflecting the current environment, we are making excellent progress both in contract extensions and with contracts with new tenants. We’ve already leased around 60% of the space that was vacated in Sirona at higher prices. As for the remaining available space, we’re in the various phases of negotiations with a number of potential tenants, and we believe that the positive trend in leases will continue. Regarding SolarEdge, I remind you that earlier this year, we announced the understanding we reached with them for a one year postponement in the project delivery time line. On-site work is progressing at full speed, and anyone passing through the area can already see our beautiful project taking shape.

As a reminder, they are staying on as our tenants in Azerbaijan, Erzalea. Malls. Occupancy rates remain extremely high, though we experienced a 4% decrease in same properties this quarter, mainly due to the war in June. The entire retail market in Israel was impacted following the closure of shopping centers. The company estimates the impact of Rising Lion on the mall and shopping center segment at around 13,000,000.

From the beginning of the year until May, we saw a slight drop in store sales similar to the first quarter. This is a natural drop following the strong performance in 2024. The Israeli market is strong. And when malls reopened, we immediately saw a massive return of shoppers with July shaping up to be a strong month. We anticipate that excluding the days of operation Rising Lion, store sales for 2025 will be consistent with the market standard average.

We continue to enhance and optimize the store mix in all our properties while renewing contracts with our tenants and strengthening our relationships with them. Senior housing. In a currently operating home, available inventory is running low. And similar to the previous quarter, this is reflected in the FFO, which has declined compared to the previous quarters when a significant number of new residents moved in. In addition, in this quarter, in view of the weakening of the residential market in Israel, there was a certain slowdown in sales of the remaining inventory, a phenomenon which is typical of times of general uncertainty in the market as a whole and in the housing market in particular.

At the same time, we’ve seen improvement in NOI as a result of the higher occupancy rates. We are making progress with the construction of the new home in the Rocaport neighborhood in Richel Nessieon. This project will include roughly two seventy four apartments, a medical unit and 3,000 square meters of retail space. We expect it to be completed towards the end of this year. We believe in this sector and continue to seek opportunities to develop new homes as we recently did when we won the Israel Land Authority tender to build a three fifty apartment project in Zethos.

Data centers. Similar to last quarter, our data center operations have made a significant contribution to our results and already comprised 80% of the group’s operations in terms of NOI. I’m very impressed by the performance and growth of the operations, especially after my visit to our main sites in Norway. We have developed deep expertise. Every data center facility is not only a complex operation that runs twenty four seven, three hundred and sixty five days a year.

In each of the facilities, there are dozens of kilometers of electrical cables and dozens more of kilometers communications cable. It’s truly an operation that requires meticulous technical planning, advanced control tools, complex operating skills, daily management down to the level of each and every table, constant monitoring of the temperatures, loads, security and regular regulatory compliance. This is a true strength and key growth engine that will provide the group with an ongoing competitive advantage. Since the purchase of Green Mountain in 2021, we have grown from three six sites, and we have increased our capacity sevenfold from 24 to 170 megawatts. This month, we announced that the venture in which we are partnering equal shares with KMW, a German company that supplies electricity and energy, engaged with an international customer for the provision of data center services with a capacity of 36 megawatts.

As I mentioned, our share in this venture is 50%, meaning 18 megawatts. The customer was given the option to increase the capacity by an additional 18 megawatts for a total of 54 megawatts. The project is expected to begin to produce income during the 2026. And upon reaching full capacity without the option, it will produce around €51,000,000 in total with our share being around €25,500,000 This important deal is another step in realizing our strategy in this sector and is another component in transforming our new subsidiary, Green Mountain Global, into a significant player in this growing arena. In London, we are making progress with the development and expansion of the data center campus.

And in June, we announced a project financing agreement of around £100,000,000. Regarding our merger with Zama Hammermann, the company’s shareholders meeting recently approved the merger agreement. Concurrently, we also received the approval of the Competition Commissioner for the performance of the merger. We are continuing to advance towards the completion of the process and expect to close the transaction by the end of the third quarter this year. To recap, this was a solid second quarter that demonstrated ongoing improvement across most operating parameters.

There were a number of specific impact events, but our business diversification and ongoing development once again demonstrates our strength. We are continuing developing, growing and diversifying our business operations on a thoughtful and balanced basis while remaining attentive to the

Ariel Goldstein, CFO, Azraeli Group: broader environment. I will now hand it over to Ariel Goldstein, who will review the financial parameters in more detail. Thank you, Ron. We will now review the key financial parameters of the financial statements. The results of the second quarter indicate continued growth in the group’s various operating segments.

NOI totaled 648,000,000 shekels this quarter, up 17% from the same quarter last year, including the impact of operation raising lion on the retail segment. The increase in NOI totaled 95,000,000 shekels. Of this figure, the data center segment contribution was 72,000,000 shekels, resulting from the recording in this quarter of the entire income from the project in Norway completed in 2024 and the recording of the entire income from the TikTok project, 90 megawatts. $9,029,000,000 shekels derived from the increase in the office segment, mainly resulting from the raise in rent. In this quarter, we’re recording onetime compensation from the tenants who vacated offices in Sirona at the May with an eight net impact of some million shekels, which included deduction of one month lost revenues this quarter and net of revenues from the new tenants who already occupied space that was vacated by the tenant, the occupancy of Modane West project and the recognition of income from the lease of Gavit Building to Switcher.

Senior housing and rent down housing each contributed ILS 3,000,000 to this increase, net of decline of ILS 10,000,000 in the mall segment and retail spaces. The decline is mostly due to the impact of operation raising Lyon in June, estimated by the company to total 13,000,000, net of occupancy of the projects in Modine West and Checkpoints in Haifa and an increase in rent. Same property NOI in the first quarter totaled $576,000,000, up 4% year over year. Same property NOI excludes a sum of around ILS 72,000,000, which include the results of the Gazit building, the Czech project in Haifa and the TikTok project. The increase in the company’s same property NOI results mainly from 27,000,000 shekels increasing NOI in the office segment, an increase of 3,000,000 shekels in the data center, and an increase in senior housing and rental housing of 3,000,000 each, net of a decrease of some 11,000,000 shekels in the malls and retail space segment and some 2,000,000 shekels in The US real estate operations.

FFO, excluding senior housing, totaled ILS $417,000,000 this quarter, up 7% year over year. FFO, including senior housing, totaled ILS $425,000,000, down 1%. The decrease in FFO in the first quarter, including senior housing, derived from an increase of 47,000,000 shekels in the financing expenses, mostly due to an increase in interest expenses, a 28,000,000 increase in the G and A expenses, driving also from the expansion of the company’s DC operations and a 32,000,000 decrease in the senior housing deposits, which was impacted by a decrease in the inventory of apartments available for sale and by the wall. Net of NIS 92,000,000 increase in the company’s NOI and a decrease of around NIS 9,000,000 in other expenses, mainly tax. Moving on to the balance sheet.

As of quarter one, investment property and investment property under the construction totaled 500,000,000.0 shekels, up nearly 2,400,000,000.0 shekels in the report period. This decrease comes from investments, revaluations and exchange rate impact. On the investment side, to date this year, we have invested $479,000,000 income producing properties under construction in Israel, mostly in the Spiral Building, Solar Rich Campus, Modi’in 10 lot and the continued construction of Palace Lac Courte Senior Home in Rishon LeTeon, which is expected to be open this year. We continue improving our existing income producing properties, investing 198,000,000 shekels. We completed the purchase of land in Tel Aviv, Zedo, for around $630,000,000 shekels for development of senior home project to include around three fifty apartments and retail space.

In the data center segment, we invested some $590,000,000 through Green Mountain Global, mostly in the continued expansion of the Roanford project in England, adding 14 megawatts to the seven megawatts that are producing income and the continued construction of some seven megawatts in Norway, of which around five megawatts are currently being completed. I would like to note that the investment in the data center project in Frankfurt is structured as a joint venture. The company’s share is 50%, in which the investment is registered under the item of loans and receivables in the balance sheet and not under the item of investment property under construction. In the 2025, we invested around 148,000,000 in this project. The appreciation of the Norwegian krone and the euro in the 2025 resulted in an increase of 200,000,000.0 shekels in investment property and investment property under construction.

In the report period, we recorded revaluation of 45,000,000 shekels, resulting mostly from the exchange in the CPI and the decrease in the cap rate in view of the completion and full operation of the TikTok project in Norway. The weighted IRR of the retail and office income producing properties is 6.99%. The weighted IRR of the income producing data centers is about 7.35%. The gross financial debt is 26,800,000,000.0. The company’s net financial debt is 21,900,000,000.0, comprising about 37% of the total assets.

The billion increase in the gross financial debt compared with the 2024 results from the closing of a nonrecourse loan in February of around €371,000,000 around 1,400,000,000.0 against the TikTok project in Norway. The receipt of $267,000,000 loan for development and expansion of the data center campus in England and the impact of the increase in the CPI leakage on the linked debt. This growth was offset mainly by the repayment of bonds and loans in the sum of 1,100,000,000.0 in the period. The company’s average effective interest rate in the default period is 2.9% with an average duration of five point eight years. The average interest rate on the debt in Israel in the period is 2%.

To conclude, we will briefly review the financial statement results. Net profit in the quarter is $320,000,000 versus ILS 156,000,000 year over year. The increase in the net profit in the report period is mainly due to an increase in the company’s NOI, an increase in the fair value adjustments over the company’s properties and an increase in the other revenues, net of the increase in the G and A expenses and financing expenses. The increase in the G and A expenses this quarter include onetime payment of around 28,000,000 to employees of Green Mountain due to restructuring and the establishment of Green Mountain Global. Comprehensive profit totaled $258,000,000 this quarter versus ILS $413,000,000 in the same quarter last year.

Comprehensive profit this quarter was impacted by profit net of tax deriving from the holding of bank loan shares in the sum of $346,000,000 shekels and a loss from translation differences of some $02,000,000 shekels, resulting mostly from the appreciation of shekel against the Norwegian krone in a period by 5% and strengthening of the shekel against the dollar by 9.3%. Now we will hold a q and a session.

Conference Moderator: Thank you. Dear yes. Participant Yes. Dear participants, as a reminder, if you wish to ask a question, please press 11 on your telephone keypad and wait for your name to be announced. To withdraw your question, please press 11 again.

Once again, if you would like to ask a question, please press 11 on the telephone keypad. Please standby while we can power the Q and A. So this will take a few moments. And now we’re going to take our first question. And it comes from the line of Charles from UBS.

Your line is open. Please ask your question.

Charles, Analyst, UBS: Yes. Hi. Thank you for taking my question. I hope you can hear me well. I just have the two questions.

The first one is on Saona Tower where you mentioned that you are close to 60% we let. And I just was wondering what the new rent versus the expiring rent in that in that space and what the incentive measure as well you’re going to the to the incoming tenants. And related to that, for the remaining 40%, what timeline would you anticipate to to take to release the rest of it? And maybe I I I will give you my second question after. Thank you.

Ron Avedan, CEO, Azraeli Group: Well, regarding the spaces in Azureli, Corona, we now lease these these spaces at the rate of between 165 shekels to 180 shekels per square meter per month. And regarding the 40 percent that we haven’t yet leased, well, our project our projections are that by the end of the year, we expect the total area that was evacuated to be released. I hope this answers your question.

Charles, Analyst, UBS: Yes. Thank you very much. And my second question is on the slight cost inflation on two projects. So one of them is the Moon Zion Hotel. I think also due for opening 09/2028.

And the second project, more sizable is the expansion of Israeli Tel Aviv center, the split scale tower, and they are the cost seem to have increased a little bit also Q1. So just was wondering what’s driving that cost inflation on those two particular projects. Well,

Ron Avedan, CEO, Azraeli Group: I would say in general that today in Israel, for the last, I would say, two years, we’ve experienced continuous increase in construction costs mainly due to the war, lack of employees. As you know, we no longer work with with employees that come from the the Gaza Strip. And moreover, the materials are now more expensive. It started, by the way, with the Russia Ukraine war reflecting in problems that had to do with aluminum and steel and went on when we had to change our roots for delivering materials from outside Israel into Israel, which are now longer and more expensive. All that reflected in, I would say, increase in aluminum costs, labor costs and others.

And as you noticed, it has its reflection on our ongoing project.

Charles, Analyst, UBS: Okay. That’s very clear. Thank you very much.

Ariel Goldstein, CFO, Azraeli Group: Thank you.

Conference Moderator: Thank you. Dear participants, as a reminder, if you wish to ask a question, please press star one one on your telephone keypad. And now we’re gonna take our next question. And it comes to the line of Nadeer Rahman from UBS. Your line is open.

Please ask your question.

Nadeer Rahman, Analyst, UBS: Thanks for taking my question. Just a quick one for me on the evaluation. So I see that the Israeli stock market generally has rallied quite strongly over the past eighteen to twenty four months. And it’s really also riding quite strongly through that period and had very strong performance, and we’re now trading at quite a strong premium for now. So I just wonder how much further you think this has to run or whether capitals are reversing out of the Israeli market into other regions and whether there’s some downside risk for the share price from here?

Thank you.

Ron Avedan, CEO, Azraeli Group: Well, we can’t give any any anticipation regarding the price of the stock. You you correctly mentioned that that the the stock market here is strong and that it has it has increased substantially during the last few months due to optimism, due to a certain decrease in the risk factor of the geopolitical conditions, but we can’t anticipate anything regarding the the value of the stock of of Israeli.

Nadeer Rahman, Analyst, UBS: Okay. That’s very clear. Thank you.

Ron Avedan, CEO, Azraeli Group: You’re welcome.

Conference Moderator: Thank you. Dear participants, once again, if you would like to ask a question, please press star one one on your cell phone keypad. Dear speakers, we’ll just give a moment for our participants if they would like to ask a question. Dear speakers, there are no further questions for today. I would now like to hand the conference over to the management team for any closing remarks.

Ron Avedan, CEO, Azraeli Group: So just for the closing, I would say that we’ve experienced a stronger quarter. We are very pleased with the results. We’re also very pleased with our continuous progress of our different fields of operations. And we hope that this will go on furthermore to the year. And we thank you all for participating and taking the time to listen to us.

Thank you.

Conference Moderator: This concludes today’s conference call. Thank you for participating. You may now all disconnect. Have a nice day.

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