Azrieli Reports Slower Data Center Growth and Weaker Q2 Results Amid Strong Shekel Impact

Azrieli Group experienced a slowdown in data center growth and was further impacted by the strong Israeli shekel and Facebook's departure from its offices in Azrieli Sarona Tower, which offset improvements in its mall performance and weighed on its second-quarter results. This marks the third consecutive quarter of relatively weak performance for the real estate giant compared to earlier periods. However, Azrieli anticipates renewed acceleration in its data center segment, a key growth driver until recently, due to several new agreements expected to start generating income by the end of 2026.

In Q2 2026, Azrieli's net operating income (NOI) rose slightly by 0.5% to 651 million shekels, following a 1% decline in Q1. The funds from operations (FFO) remained steady at 426 million shekels, but excluding profits from the Palace senior housing units, FFO decreased by 1% to 411 million shekels. The weakness mainly stemmed from the data center and office segments, which offset gains in malls. Data center NOI fell 10% year-over-year to 103 million shekels in Q2, though excluding currency effects, it rose by 3%. Azrieli expects this slowdown to be temporary, with growth resuming by late 2026 and accelerating in 2027.

The company signed a December 2025 agreement to build and operate 80 megawatts of data center capacity, expected to generate about 440 million shekels in annual NOI, with initial phases starting in March 2027. Its data center arm, Green Mountain, also secured contracts for 56 megawatts in Germany, projected to yield 145 million shekels annually, with operations beginning this year. Additional agreements in London and Norway will add 18.6 megawatts and approximately 125 million shekels in annual NOI starting in 2027. Azrieli is also negotiating with TikTok to expand its existing campus by 60 megawatts. Overall, the company holds contracts for 275 megawatts of data center capacity, with 147 megawatts currently operational, expected to generate nearly one billion shekels in annual NOI at full capacity.

Malls saw an 8.3% rebound in retail sales in Q2 following a 7% drop in Q1 due to the war that lasted until early April, pushing mall NOI up 9% to 261 million shekels. Office NOI declined 4% to 230 million shekels, mainly due to Meta (Facebook's parent company) vacating 33,000 square meters in Azrieli Sarona Tower in May 2025. Meta paid a 14 million shekel compensation last year for early lease termination. Excluding this, office NOI rose 2%. Azrieli has re-leased Meta's former space at higher rents but has not yet fully occupied it. In its Galilot office campus, originally planned to be fully leased to SolarEdge, Azrieli agreed last year that SolarEdge will lease 60% of the 47,000 square meters, while negotiations continue for the remainder.

Net profit dropped 52% to 155 million shekels from 320 million shekels year-over-year, affected by negative revaluations in malls due to rising construction costs, reduced leasable space in Azrieli Tel Aviv mall for nearby project connections, and higher financing expenses. Azrieli is the largest real estate company on the Tel Aviv Stock Exchange by market value, currently valued at 48.5 billion shekels. Its stock rose 21% over the past 12 months, outperforming most major real estate firms except Mega Or, which also benefits from data center growth.