Azrieli Group Q1 2026 Results Show Resilience Amid Market Headwinds

Azrieli Group Ltd. reported a mixed but resilient first quarter of 2026, with net income rising year over year even as operating performance was pressured by the war, temporary mall construction disruption, higher financing costs, and currency effects in its overseas data center business.

The Israeli real estate group said net income reached approximately NIS 540 million in Q1 2026, compared with about NIS 457 million in Q1 2025. The increase was supported mainly by revaluation gains, especially in the data center segment.

NOI Slightly Declines, But Core Assets Remain Strong

Net operating income, or NOI, totaled around NIS 638 million in the quarter, down about 1% from roughly NIS 646 million a year earlier. Azrieli said the decline was mainly linked to the impact of the war on mall activity, lower retail space at Azrieli Tel Aviv Mall during construction work, and currency translation effects in data centers.

The company noted that excluding the war’s estimated impact, NOI was broadly unchanged. This suggests that the underlying property portfolio remained stable despite a difficult operating environment.

FFO Falls Due to Higher Costs and Data Center Expansion

Funds from operations excluding senior housing totaled about NIS 395 million, compared with approximately NIS 435 million in Q1 2025. Total FFO including senior housing was around NIS 399 million, down from roughly NIS 452 million a year earlier.

The decline reflected lower NOI, higher financing expenses, and costs connected to the continued expansion of the data center business. While this weighed on short-term earnings quality, management framed the spending as part of a long-term growth strategy.

Data Centers Remain a Major Growth Driver

Azrieli continued to highlight data centers as one of its most important future engines. The group said contracted transactions, including deals not yet producing income, represent annual NOI potential of about NIS 1 billion.

This is important because Azrieli is no longer only a traditional owner of malls, offices, senior housing, and mixed-use properties. Its overseas data center activity, mainly in Norway, gives the company exposure to digital infrastructure demand, cloud computing growth, and enterprise technology needs.

Malls Affected by War and Tel Aviv Construction Work

The mall segment faced two clear pressures during the quarter. First, the war reduced tenant sales, which fell by around 7.1% year over year. Second, construction work at Azrieli Tel Aviv Mall reduced available retail space while the company works to connect the mall to the Spiral Tower project.

Azrieli said the long-term plan is expected to upgrade the mall and add about 14,000 square meters of retail space. In other words, the short-term disruption may support a stronger asset base later.

Occupancy Levels Stay High

Despite the challenges, Azrieli’s occupancy rates remained strong. Occupancy was about 98% in malls, 97% in Israeli offices, and 99% in senior housing, excluding properties under lease-up.

These figures show that tenant demand for the group’s core properties remains solid. For a real estate company, high occupancy is a key sign of asset quality, pricing power, and income stability.

Balance Sheet Strengthened by Equity Offering

In March 2026, Azrieli completed a share offering that raised approximately NIS 1.415 billion at NIS 443.4 per share. Demand for the offering reached about NIS 2 billion, according to the company.

The capital raise strengthened the group’s financial position during a period of heavy investment. As of March 31, 2026, Azrieli reported cash, deposits, and short-term investments of about NIS 4.0 billion. Together with Bank Leumi shares, this amounted to around NIS 5.8 billion.

Debt and Asset Base Remain Large

Azrieli reported net debt of approximately NIS 22.8 billion. Investment property and investment property under construction totaled about NIS 52 billion. The company also reported an equity-to-assets ratio of around 40% and a net debt-to-assets ratio of about 35%.

Unencumbered assets stood at approximately NIS 39 billion, giving the group financial flexibility as it continues to invest in development projects and data centers.

Management Signals Long-Term Confidence

Management emphasized that Azrieli remains committed to expanding and improving its portfolio in Israel while also investing in data centers overseas. The company described its financial policy as responsible and conservative, pointing to the equity offering as evidence of balance-sheet discipline.

While Q1 2026 was not free from pressure, the results show a company still generating strong income, holding high-quality assets, and investing in future growth. The main challenge for investors is that near-term FFO has softened, while the full benefit of data center contracts and major development projects has not yet fully appeared in reported results.

Outlook

Azrieli’s near-term performance will likely depend on several factors: recovery in mall traffic and tenant sales, the pace of construction at Azrieli Tel Aviv Mall, financing cost trends, currency movements, and the timing of income generation from data center contracts.

For now, the company’s Q1 2026 update points to resilience rather than rapid short-term acceleration. Net income improved, occupancy stayed high, and the balance sheet received fresh capital. However, FFO declined, and operational pressure remains visible. The biggest long-term story is still the same: Azrieli is using its strong real estate foundation to build a broader platform that includes malls, offices, senior housing, mixed-use projects, and digital infrastructure.

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