Azrieli Group Ltd. Announces Third Quarter 2014 Results

- NOI in Third Quarter of 2014 Totaled NIS 285 Million, Up 3% versus Same Quarter in 2013.

- FFO from the Real Estate Business[1] Totaled NIS 195 Million, Up 2% compared with NIS 192 Million in Same Quarter Last Year.

TEL AVIV, Israel, Nov. 19, 2014 /PRNewswire/ --

Highlights for third quarter 2014

• NOI increased by 3% and totaled NIS 285 million, compared with NIS 277 million in the same quarter last year.
• Same-property NOI increased by 3% and totaled NIS 284 million, compared with NIS 276 million in the same quarter last year, an increase of 2.4% in same properties in Israel and an increase of 8.3% in same properties in the U.S.
• FFO attributed to the real estate business totaled NIS 195 million, compared with NIS 192 million in the same quarter last year, an increase of 2%.
• The equity attributed to shareholders totaled NIS 13.1 billion compared with NIS 12.1 billion on September 30, 2013.
• During the quarter, the Group invested NIS 484 million in investment property, the construction of properties under development, the improvement of existing properties and purchases. Since the beginning of 2014 such investments totaled NIS 922 million.
• Net profit for shareholders totaled NIS 170 million, compared with NIS 55 million in the same quarter in 2013, primarily thanks to the growth in the NOI and the decrease in the financing expenses and in the tax expenses.
• Comprehensive income for shareholders totaled NIS 303 million, compared with NIS 96 million in the same quarter in 2013, mainly thanks to the growth in the net profit, the devaluation of the U.S. dollar and the strengthening of Bank Leumi's stock in this quarter.

"The Azrieli Group continues to display good performance also in the current challenging business and security environment, including during Operation Protective Edge in this quarter. Our performance reflects continued growth and improvement in NOI, FFO and all operating metrics," stated Yuval Bronstein, CEO of Azrieli Group (TASE: AZRG IT). "The Group's growth strategy, which focuses on improving our income-producing properties and expanding our portfolio through acquisitions and development, is reflected in our investment of about NIS 922 million since the beginning of the year and in significant progress on the development pipeline, which will begin to contribute to NOI in 2015: The Azrieli Holon Center Phase B, the Azrieli Ramla Mall, and construction of the second floor at the Ayalon Mall and in 2017 the Azrieli Sarona Center. At the same time, the Group continues to work on reducing its costs, including the financing costs, by taking advantage of the favorable interest environment in the Israeli market to refinance existing loans and raise financing for the Group's development momentum."

Data Summary for Q3 and 1-9/2014:

Core Business:
Israel
Retail Centers and Malls Segment

• NOI in the quarter totaled NIS 178 million compared with NIS 176 million in the same quarter last year, 1.1% growth.
• Same property NOI in the quarter totaled NIS 178 million compared with NIS 176 million in the same quarter last year.
• Occupancy rate in this segment was 98% at the end of the quarter.

The increase in NOI and in same property NOI mainly derives from a rise in the index, an actual increase in rent and operational streamlining at the management companies, which was partially offset mainly by a decline in the NOI of the Be'er Sheva Mall and by cost-increasing regulation in the cleaning sector.

Office and Other Space in Israel Segment

• NOI in the quarter totaled NIS 80 million, compared with NIS 76 million in the same quarter last year, an increase of 5%.
• Same property NOI in the quarter increased by 5.3%, compared with the same quarter last year.
• Occupancy rate in this segment approximated 99% at the end of the quarter.

The increase in NOI and in same property NOI mainly derives from a rise in the index, an actual increase in rent, population of areas in the Azrieli Holon Center and operational streamlining at the management companies, and despite cost-increasing regulation in the cleaning sector.

U.S.
Income-Producing Property segment

• NOI in the quarter totaled NIS 27 million, compared with NIS 25 million in the same quarter last year, 8% growth.
• Same property NOI in the quarter totaled NIS 26 million, an increase of 8% compared with the same quarter last year.
• Occupancy rate in this segment was 94% at the end of the quarter.

Most of the increase in NOI derives from the purchase of a new property, a rise in the occupancy rate that was partially offset against a sale of a property in Houston and the strengthening of the Shekel against the Dollar (strengthened by 4% in this quarter versus the same quarter).

Property Acquisitions, Enterprise and Development and Improvement

• During the quarter, the Group invested a total of NIS 484 million in investment property, in improvement of existing properties, acquisition of new properties and advancement of construction of properties under development, and since the beginning of 2014, it has invested NIS 922 million.
• The Company has 8 development projects and land spanning 442,500 sqm, with a total estimated investment of approximately NIS 5.3-5.6 billion, with a book value of NIS 2.1 billion (excluding capitalizations and tenant investment budget) and a cost of completion amounting to approximately NIS 3.2-3.5 billion.
• Scope of lease contracts at the Azrieli Holon Center - scope of signed contracts is 63,000 sqm, mainly with companies in the technology industry: 58,000 sqm of offices (about 90% of the areas in Stage A and around 15% of the areas in Stage B) and 5,000 sqm of retail space (about 65% of the areas). All of the contracts were signed over the past year and were made for terms of 5-15 years, plus options for 5-10 additional years.

It is emphasized that the lease-up pace is satisfactory and even exceeds the Company's earlier forecasts.

In light of the success in marketing, the Company has pushed forward the construction of Phase B and has pushed forward its scheduled completion to 2015.

• Purchase of an office building in Houston, Texas:
  • Average NOI throughout the period - $5.3 million.
  • Cost of the property (including transaction expenses) – approx. $76 million.
  • Average annual rate of return (cap rate) – approx. 7%.
  • 2 high-quality tenants for 99% of the space, long-term contracts (November 2023 and June 2025), with no exit right.
  • Financing through a non-recourse loan of $49.2 million (LTV of 65%) for a period of 5 years at interest of 3.16%.
  • Margin of approx. 4% between the yield from the property and the cost of the financing.

Balance Sheet (on an extended standalone basis) as of September 30, 2014

• The Group has cash and financial assets held for trade in the amount of NIS 144 million.
• The Group has financial investments (mainly Bank Leumi and Leumi Card), with a fair value of NIS 1.7 billion.
• Net debt totaled NIS 5.1 billion.
• The value of income-producing property and property under construction owned by the Group totaled NIS 18.2 billion, compared with NIS 16.6 billion on September 30, 2013.
• The equity attributed to shareholders totaled NIS 13.1 billion, compared with NIS 12.1 billion on September 30, 2013.
• The equity per share is NIS 107.9, compared with NIS 100 on September 30, 2013.
• The equity to assets ratio is 61% and the net debt to assets ratio is 24%.
• Unpledged assets in the amount of NIS 14.6 billion, compared with unpledged assets in the amount of NIS 13.7 billion on September 30, 2013.
• EPRA NAV per share was NIS 130 compared with NIS 121 on September 30, 2013.

Non-Core Business
Granite Hacarmel (holding of 100%) – In Q3/2014, Granite recorded a net profit of NIS 9 million, compared with NIS 40 million in the same quarter last year. The decrease is mainly attributed to the sale of Tambour (in Q2/2014) and as a result of losses from GES's business in Central America.
In the first three quarters of 2014, it recorded a net profit of NIS 138 million, compared with a net profit of NIS 108 million in the same period in 2013. In the Report Period, Granite declared a 280 million Shekel dividend.

Financial Holdings
Bank Leumi (holding of 4.8%) – In Q3/2014, the share price on TASE rose by 11%, a rise of NIS 80 million in the value of the holding in the bank, after tax.
The value of the Group's holding in the bank, as of September 30, 2014, is NIS 1,054 million.
Leumi Card (holding of 20%) – During the period, the Group received a dividend of NIS 10 million from Leumi Card. The book value of the holding as of 30.09.2014 was NIS 588 million, according to an external appraiser.
The cost of the investment on the Group's books (dividend-adjusted) is NIS 334 million.

For further details:
Moran Goder
Head of Investor Relations, Azrieli Group
Office: +972-3-6081310
Mobile: +972-54-5608151
morango@azrieli.com

About Azrieli Group
Azrieli Group Ltd. owns and operates one of Israel's largest groups of malls, retail centers and office properties in Israel. The Company is traded on the Tel Aviv Stock Exchange under the symbol AZRG IT and is included in the TA-25, TA-100 and TA Real Estate 15 indices. It is the only Israeli stock included in the EPRA Index, which is the European index of the world's largest income-producing property companies. As of September 30, 2014, the Company has a market value of approx. $4.1 billion. The Company operates mainly in Israel, and owns and manages properties with a gross leasable area of 807,000 sqm; the Company holds 14 retail centers comprising 267,000 sqm of leasable space across Israel, 11 office properties comprising 353,000 sqm of leasable space across Israel and 6 properties overseas (mainly in Houston, Texas) comprising 187,000 sqm of leasable space. In addition, the Company has 8 projects under development comprising 442,500 sqm of leasable space in Israel. 90% of the fair value of the investment property and the property under development relate to properties in Israel. Over the past 30 years, the Group has been specializing in the development, acquisition, and management of retail centers and office spaces. For further information, please visit the Company's website at www.azrieli.com.

Disclaimer

• This document was prepared by Azrieli Group Ltd. (the "Company"), and is intended only for provision of information to institutional investors alone, and does not constitute an offer or invitation to purchase securities of the Company. The information in this document is presented for convenience purposes only, and is not a recommendation or an opinion, nor does it substitute the investor's discretion.
• The information in this document is a summary only, and is no substitute for inspection of the periodic report for 2013, the quarterly statements as of September 30, 2014 and the current reports of the Company, as reported to the Israel Securities Authority via the MAGNA distribution website. The Company is not responsible for the completeness or accuracy of the information, and will bear no liability for any loss and/or damage which may be caused as a result of use of the information.
• Various issues presented in this document, including forecasts, objectives, assessments, estimates and other information pertaining to future matters and/or events, the materialization of which is uncertain and not under the Company's control, are forward-looking information, as defined in the Securities Law, 5728-1968, including in connection with revenues forecast, the value of the Group's holdings, projects' costs and profit, their development and construction, modification of a zoning plan, receipt of permits and the underlying concept of the projects. Forward-looking information is merely based on the Company's subjective assessment, based on facts and figures with respect to the present state of the Company's business and macroeconomic figures and facts, all as are known to the Company on the date of preparation of this document. The Company does not undertake to update and/or modify any such forecast and/or assessment in order for such to reflect events and/or circumstances to occur after the date of preparation of this document. The materialization or non-materialization of the forward-looking information will be affected, inter alia, by risk factors characteristic of the Company's business, as well as by developments in the general environment and in external factors which affect the Company's business, such as representations of third parties which do not materialize, delay in the receipt of permits, termination of contracts, a decline in the value of shares on the stock exchange, which cannot be preestimated and which are not under the Company's control. The Company's business results may materially differ from the results estimated or implied by the aforesaid, inter alia due to a change in any one of the aforementioned factors.
• The terms "FFO attributed to the real estate business" and "weighted average cap rate" – refer to the Group's income-producing property business only. Any person reading the document should read these figures in conjunction with the explanations of the Board of Directors in the Board of Directors' Report as of September 30, 2014, Sections 1.1.5 and 1.1.6, including the calculation methods and the assumptions underlying the same.
• The financial figures in this document are attributed to the extended standalone statement (annexed to the Board of Directors' Report), unless otherwise stated, and are unaudited. This report presents a summary of the data in the Company's statements according to IFRS, with the exception of the Company's investment in Granite Hacarmel which is presented based on the carrying value method in lieu of consolidation of the figures thereof into the Company's statements.

[1] For details see Section 1.1.6 of the Board of Directors' Report as of September 30, 2014.

Related Links

http://www.azrieli.com