Israeli income-producing real estate company Azrieli Group Ltd. (TASE: AZRG) today reported a positive trend in its results for the first quarter of 2019, with higher revenue and improvement in the main regular indicators, including a 42% increase to NIS 369 million. The sale of Azrieli Group's stake in Leumicard, completed in February, also contributed to improving the group's profit.
Azrieli, the largest real estate company listed on the Tel Aviv Stock Exchange (TASE), with a NIS 26 billion market cap, has seen its share price climb over 20% this year. The share price is now close to the record set last month.
Azrieli, which has a total of 1.2 billion square meters of rental space, has activity in four main segments, mostly in Israel: 17 shopping malls and centers, 14 office projects, three sheltered housing projects, and eight income-producing real estate projects in the US, mostly in Texas.
Net operating income (NOI) increased 8% to NIS 399 million in the first quarter, and profit from identical properties rose 6% to NIS 393 million.
Occupancy of Sarona boosted profit
Dividing Azrieli's profit by sector shows that profit from offices jumped 19% to NIS 144 million in the first quarter, and revenue in this subsector rose 19% to NIS 174 million. Azrieli attributes this positive trend mostly to continued occupying of the office tower in Sarona in central Tel Aviv opposite the Azrieli Towers, and in the Rishonim Center in Rishon Lezion.
Azrieli said that all of the office space in Sarona had been fully occupied. The company believes that when the property is fully occupied in toto, it will generate NIS 200-210 million in NOI annually.
Azrieli's operating profit in the shopping malls sector remained largely unchanged at NIS 206 million in the quarter, while revenue was up 2% to NIS 258 million. Azrieli said that results in this subsector were affected by "changes in rent resulting from the changing mix and sizes of stores, intermediate periods of changing tenants, and changes in operating expenses."
In its presentation to investors, Azrieli stated that shopping malls accounted for 39% of its activity in the first quarter of 2019, 2.5% less than the proportion in the preceding year. It appears that the group's strategy is to focus on enlarging its other subsectors of activity, given the challenges in the fashion sector and the possible effects of Amazon's entry into Israel. A similar trend appeared in the reports by Melisron, controlled by Liora Ofer.
Because of Passover, a third, not a quarter
Like Melisron, its competitor, Azrieli chose to publish the proceeds from its shopping malls the period of January-April, not for the first quarter, in order to neutralize the effect of the timing of the Passover holiday, which fell later in the year. The total increase in Azrieli Group's proceeds from identical properties in January-April was 3%. Azrieli thereby presented a positive picture of the shopping malls sector, which according to figures from the RIS company suffered a 5% drop in proceeds in the first four months of the year.
Azrieli's funds from operations (FFO) was up 27% to NIS 339 million in the first quarter, among other things because the corresponding quarter last year was affected by a decrease in the value of properties and by an increase in revenue from financing and in deposits from tenants in sheltered housing in the first quarter of this year.
In addition to its main activities, Azrieli also holds Granit Hacarmel, which deals in energy substitutes, water and sewage treatment, and chemicals. Azrieli also holds 3% of Bank Leumi's shares, after selling its 20% holding in Leumi Card during the first quarter of this year.
Published by Globes, Israel business news - en.globes.co.il - on May 22, 2019
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