Release Date: August 19, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Azrieli Group Ltd (XTAE:AZRG, Financial) reported a record high FFO for the quarter, with an increase of ILS62 million, or 17% year-over-year.
- The company maintained high occupancy rates across its properties, averaging around 98%.
- The data center segment is experiencing significant growth, with strong demand and a robust pipeline of transactions.
- Azrieli Group Ltd (XTAE:AZRG) continues to invest heavily in development, with ILS934 million invested in the second quarter alone.
- The shopping mall segment showed positive trends, with a 10% increase in store revenues for the quarter and 14% in July compared to the previous year.
Negative Points
- There is a noted slowdown in market growth rate, with private consumption per capita increasing only 1.2% year-over-year.
- The high interest rate environment remains a challenge, affecting the company's business operations.
- The company reported a decrease in net profit for the quarter, amounting to ILS156 million compared to ILS419 million year-over-year.
- The office sector is experiencing long negotiations and uncertainty in the market, although there is still a healthy deal flow.
- The senior housing segment is facing longer leasing times due to difficulties in the second-hand apartment market.
Q & A Highlights
Q: Can you discuss the pros and cons of introducing new partners for the data center business before an IPO, and the potential timing for these events?
A: Eyal Henkin, CEO: Introducing a minority partner (15-30%) helps manage liquidity, debt, and equity injection needs while maintaining a conservative LTV. This approach can reduce peak LTV from 47% to below 40% by 2027. The potential IPO could occur in 3.5 to 5 years, depending on market conditions.
Q: What has driven the increase in CapEx for the Spiral Tower project?
A: Eyal Henkin, CEO: The CapEx increased by ILS120 million due to rising costs of aluminum and glass, which are significant components of the project.
Q: Will the new CEO be an internal or external candidate, and what is the status of the search process?
A: Eyal Henkin, CEO: The search process for the new CEO has just begun, and no decisions have been made regarding whether the candidate will be internal or external.
Q: Can you provide more details on the financial performance and future outlook for the data center segment?
A: Eyal Henkin, CEO: The data center segment shows high growth potential with strong demand. We are focusing on developing Green Mountain as a European platform and are in advanced negotiations for significant contracts. We are also exploring various options for collaboration and funding due to the capital-intensive nature of the business.
Q: How is the performance of the shopping malls segment, and what trends are you observing?
A: Eyal Henkin, CEO: The shopping malls segment shows positive trends with a 10% increase in store revenues in Q2 and 14% in July. We maintain high occupancy rates of 99.3% and are seeing renewed interest from foreign chains.
Q: What are the key financial highlights for the second quarter of 2024?
A: Ariel Goldstein, CFO: NOI increased by 5% year-over-year, excluding Compass. FFO reached a record high with a 17% year-over-year increase. We invested ILS934 million in development and improvements, maintaining high occupancy rates across our properties.
Q: How is the senior housing segment performing?
A: Eyal Henkin, CEO: The senior housing segment saw a 22% increase in NOI year-over-year, with occupancy growing to 97%. We are nearing full occupancy in existing houses and are working on new developments, including a project in Rishon LeZion expected to open in late 2025.
Q: What is the impact of the current interest rate environment on Azrieli Group's business?
A: Eyal Henkin, CEO: The high interest rate environment affects our business, but we maintain a low debt ratio with 88% of our debt linked to the CPI. We continue to manage our investments and development cautiously.
Q: Can you provide an update on the TikTok data center project?
A: Ariel Goldstein, CFO: The first TikTok building (30 megawatts) was handed over, and we expect to complete the handover of two additional buildings (60 megawatts) by the end of the year. This will significantly increase our current NOI.
Q: What are the key strategic moves for Azrieli Group in the coming years?
A: Eyal Henkin, CEO: We are focusing on expanding our core business in Israel and developing the data center segment in Europe. We aim to maintain high occupancy rates, a healthy customer mix, and strong financial performance while exploring collaboration and funding options for growth.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
