Good day, and thank you for standing by. Welcome to Azrieli Group annual 2023 conference call for foreign investors. [Operator Instructions] With us today are Mr. Eyal Henkin, CEO; and Mr. Ariel Goldstein, CFO.
[Operator Instructions] This call will be accompanied by a slide presentation. This can be found on Azrieli's site www.azrieligroup.com on the Investor Relations page under Media Room, Presentations. And the financial reports can be found on the website as well.
I would like to remind everyone that forward-looking statements for the respected company's business, financial conditions and results of its operations are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated.
Please note that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Eyal Henkin, CEO. Please go ahead.
Thank you, and good afternoon, and thank you for joining the Azrieli Group earnings call summarizing 2023. We're ending the year which was a special year from interest rates to local markets and geopolitical challenges. With all the ongoing occurrences and events, the local Israeli economy demonstrates high resilience backed by strong fundamentals, which are evident with the rapid rise and positive trend of recovery in most traffic turnover and deal flow in the various segments. We see that this trajectory of recovery starting in December will be expressed in the first quarter of 2024.
With Azrieli's strength, its caliber and diversity of properties and its financial robustness, we've been enabled to manage our businesses especially in these challenging times while maintaining our leading position and our capabilities to further expand. We have just ended another good quarter and a good year full of activity with continued growth in terms of our operating parameters. The conflict-related relief given to our mall tenants had relatively moderate impact on the fourth quarter results. And on the whole, we are ending 2023 with good results despite the Q4 relief that was granted to the mall tenants.
For the first time, the Azrieli Group passed the ILS 2 billion mark and we ended 2023 with a high NOI rate of ILS 2.113 billion even without including Compass' operating results for the second half of the year. In addition, our cash balance increased to some ILS 4.9 billion, excluding other cash equivalent of more than ILS 1 billion, mainly due to the proceeds from the bond raise and the sale of Compass. While our leverage totaled only 33% LTV. On October, we sold our holdings in Compass for a net cash flow of ILS 2.7 billion and accounting profit of almost ILS 1 billion. Concurrently, in Green Mountain, we are continuing with a very strong pipeline of material transactions and signing of significant lease agreements, which will be expressed in the coming 2 years.
We have high occupancy rates in our malls, offices and senior houses with an average occupancy rate of 98%, and we have a good mix of -- in the long-term contracts. Throughout the year, we continued to invest in the development and construction of new properties and the expansion of existing ones for a total amount of ILS 1.3 billion. The interest rate environment obviously impacts the industry, but keep in mind that Azrieli's debt ratio is low and that approximately 90% of it is linked, similar to most of the NOI which is linked to the index.
In 2023, the group carried out 2 bond issuances. The first was in July with an expansion of some ILS 850 million of Series B bonds with a short average duration of 1.5 years; and a second, which was very successful, which was issued in December with the expansion of the long-duration Series G and H bonds. In the issuance, demand was approximately ILS 3.4 billion bills which were recorded, of which we raised ILS 2.2 billion. We are maintaining a long average duration of around 5.5 years and a low average interest rate of 2.1%.
In terms of development and construction, Azrieli is continuing to develop and expand in a carefully informed and balanced manner. On the one hand, we are continuing developing medium and long-term projects, particularly projects with strong pre-let tenants like the largest medical institute HMO Clalit, which, by the way, is the second largest in the world in terms of members, with which we signed long-term contracts. Having said that, we are continuing to vigorously promote zoning plans and building rights. But in terms of concrete and steel, we've been more selective, I would say.
On the macro level, in 2023, the GDP increased by 2% and the personal consumption expenditures decreased by 0.7% compared with an increase of 6% in the GDP and 7.5% in consumption in 2022. In January 2024, the Bank of Israel put together an updated forecast in view of the recent events and updated expectations for GDP growth in 2024, 2025 to 2% and 5%, respectively, and the inflation rate in such years -- in these years is expected to be 2.4% and 2%, respectively. The monetary interest is expected to be in the range of 3.75% to 4%. We're seeing various impacts of the situation on our business segments and are continuing to act accordingly.
When we talk about offices, we are meeting the annual targets. The NOI increased by 7% in 2023 compared with 2022, mainly from the increase in rent revenues. The same property was up 8% in 2023 compared with 2022. During the year, we signed long-term agreements with strong tenants. I'll discuss it later. The tenants mix includes technology companies and liberal professions, where today with something like 40% of our portfolio are very strong technology companies from Samsung to IBM to Amazon to others. And as I said before, we signed some significant contracts in 2023, starting from Clalit HMO. We signed with one of the largest accounting firms in Israel for 10,000 square meters in the Azrieli Center. We signed with one of the largest law firms in Israel for 14,000 square meters in the Azrieli Center in Tel Aviv. The Sarona building, we signed a very large contract with a technology company for very high prices, ILS 190 per square meter, and some other very significant deals.
We are launching the Lot 21, what we call Site A in Modi'in in April. The site is going to be 51,000 square meters, which is a very, I would say, classic mixed-use site, having offices, expansion of the mall, residential apartments and a hotel. Modi'in is developing, it's going to be one of the major cities in Israel, and we highly believe in this area. We are going to launch another project in the North. It's going to be 11,000 square meters. We have already pre-let tenant for 25 years and it's going to be in the second quarter of the year.
To summarize, the office tenant mix and long-term contracts, occupancy rate is 98%. We see a trend of recovery which is evident since December 2023. We are managing to maintain high occupancy and achieve renewals and new agreements.
Regarding the malls, we ended the year with operational improvements in the mall segment, too. In the entire year of 2023, the NOI in the mall segment totaled approximately ILS 941 million, up 7.5% compared with 2022. In the fourth quarter, the NOI was ILS 207 million compared with ILS 238 million year-over-year, a decrease of ILS 31 million. This decrease mainly derived from the relief we gave to our tenants due to the conflict in the South. Net of the relief given to the tenants, the NOI was up 11% year-over-year 2023 compared to 2022. We have an occupancy rate of more than 99% and we signed new contracts and mainly extensions of contracts.
In terms of footfall, footfall increased by 4.1% in 2023 year-over-year. On the other hand, the trend in terms of footfall and in terms of revenues for the malls or revenues for the stores increased double digit since the beginning of this year, and the trend is very positive. During the war, we decided to reopen our malls as early as 3 days after this crisis happened. In October, there was of course a decrease in footfall and turnover as a result. But in November, there was a certain improvement. There was a dramatic recovery in December, as expressed in a single-digit increase in footfall and store revenues. During Q4, we gave a relief package to tenants, which had a total monetary impact on the NOI of ILS 35 million. As I stated, the trend, I would say, is surprisingly positive. And in the first quarter of 2024, we see very good results in terms of traffic, in terms of store revenues, et cetera. And we hope this will sustain.
Regarding senior housing, NOI in the fourth quarter was up 33% year-over-year and up 20% in 2023 compared to 2022. We have occupancy rate of 97%. We're approaching the point where we are in full occupancy in existing homes. We are continuing to build a senior house in Rishon LeZion and continuing to look for development opportunities in other locations. All in all, we have seen significant operational improvement in our senior homes and increasing the home price list, which is also expressed in positive valuations.
Regarding the data center segment, we see this segment as a significant growth engine for the group. The major factors or generators for this segment are AI and cloud. The growing need for AI and cloud generates massive growth of the data center industry with huge demand from stronger players like Microsoft, Google, Oracle, Amazon, HP and others. And with the spread of demand and supply, one can see double-digit yield on cost, and in the current interest rate environment, significant projects with strong customers and long-term contracts.
We sold Compass beginning of Q3 2023. This transaction improved our liquidity with the gross consideration from the transaction of ILS 3.2 billion, a net cash flow of ILS 2.7 billion and accounting profit of almost ILS 1 billion. These figures reflect a gross return of 2.5x within an average duration of 2.3 years and a gross IRR of 40%. We think it's a good and an excellent transaction and we think it reflects the potential in the market.
Regarding Green Mountain, since the day we acquired the company in July 2021, the contracted NOI has grown sixfold to an NOI of approximately ILS 0.5 billion by the end of -- or by the beginning of 2025. We have 6 sites rather than 3 sites. We have contracted 150 megawatts compared to 24 megawatts when we bought the company. We experienced a massive demand with a pipeline which will generate income within a short time, long-term contracts and with good volumes and returns and with significant hyperscaler customers which are the strongest in the world.
In December 2023, we reported a Green Mountain negotiation with a leading technology company to provide 120 megawatts of data center services. We are also considering various options for collaboration with investors and various alternatives for financing operations in this segment in accordance with the rate of growth of this business. In our presentation, we released more information about the segment and the expense -- expected contribution totaling around ILS 506 million in NOI per year, excluding new contracts, which I believe will come in during the period.
Regarding development, which is the R&D of the group. As I said, Lot 1, we're launching early Q2. Check Post, the Northern project, we are launching Q2 2024. We're continuing with the Rakafot senior housing to be completed by September 2025. We are continuing with the SolarEdge Campus which will be in place by the end of 2025. We're continuing with Town E zoning plan for a third tower, which has more than 90,000 square meters for lease. We are now finalizing zoning and going for occupancy permits. And of course, we're continuing full thrust with the Spiral Tower, which is growing and turning -- growing out of the ground. Strictly controlling investments, managing project time lines in a careful and considered manner and in accordance with demand and expanding our portfolio cautiously, but I would say strongly.
I will summarize by saying that we are pleased but we are moving ahead with caution. I will now hand over to Ariel for a review of the financial parameters.
Thank you, Eyal. We will now review the key financial items from the financial statements. The NOI for all 2023 was ILS 2.1 billion compared to ILS 1.95 billion in 2022, up 8%. Net of onetime expenses for the war-related relief given tenants, the NOI was ILS 2.15 billion, up 10%. The increase of ILS 160 million is comprised of ILS 65 million increase in the malls segment, deriving from the rent increase in the properties and the results Mall Hayam in Eilat for an entire year and net of ILS 35 million of war-related relief that was given.
The increase of ILS 52 million in the office segment is mainly from the increase in rent. The ILS 11 million increase in the rental housing segment is due to occupancy of the town project in Tel Aviv. The ILS 12 million increase in the senior housing segment is due to the continuing occupancy of the Lehavim home and due to improved operational results in the various homes. The increase of ILS 21 million in the data center segment is mainly from the inclusion of a company acquired in England which is engaged in the data center industry.
In the data center segment, we see annual NOI revenues of around ILS 128 million and expect to reach annual revenues of around ILS 500 million based on signed contracts by the end of 2024. In 2023, the same-property NOI was ILS 1.94 billion, up 5% compared with 2022. The company increased in same property NOI mainly from an ILS 82 million increase in rent revenues in retail and offices, an increase of ILS 12 million in the NOI of senior housing segment and ILS 7 million decrease in the data center segment, mainly due to increased electricity costs.
In the same property NOI, we exclude the results of Mall Hayam in Eilat, which was acquired in 2022; the rental housing revenues in Azrieli Town project in Tel Aviv, which was opened in 2022; the result of operations of a company acquired in England which operates in data center industry as a result of Compass, whose sale was closed in the fourth quarter of 2023. The company's FFO in 2023 excluding senior housing totaled ILS 1.36 billion, up 7% compared with 2022. The FFO including senior housing totaled ILS 1.46 billion, up 7%.
The annual rate is today up plus/minus ILS 1.6 billion per year, the ILS 101 million increase in the FFO including senior housing from ILS 150 million increase in the company's NOI and ILS 27 million decrease in tax expenses, ILS 8 million is the decrease of the FFO effect of Compass following its sale and net of increase in G&A expenses and net financial expenses of ILS 84 million.
We will now review the balance sheet figures. As of the end of the year, investment property and investment property under construction totaled ILS 44.6 billion, an increase of about ILS 5.2 billion in the report period. The increase derives from continued investment in income-producing properties and properties under construction in the sum of ILS 1.1 billion. For example, the Spiral building, the SolarEdge Campus, completion of construction of mixed-use projects in Lot 21 in Modi'in and others, the acquisition of Glil Yam rental housing project in Herzliya in the sum of ILS 0.1 billion and acquisition of a company in data center sector in England and continuing investment in that company of ILS 0.6 billion, investment of ILS 2.5 billion in the data center segment through Green Mountain in Norway, mainly in promotion of TikTok project that is expected to start generating income this year.
Also, revaluations in the report period of ILS 0.9 billion. Out of those revaluations, a total of ILS 725 million of the total revaluation derived from operations in the data center segment in Green Mountain, mainly due to the continuing progress in the execution of the TikTok project and signing of additional significantly contracts. ILS 427 million of the total revaluations are attributed to retail centers and malls, offices, rental houses and senior housing in Israel.
Properties in the U.S. continued to demonstrate weak performance, and impairment was recorded accordingly of some ILS 240 million. The weighted yield rate of the income-producing properties excluding data centers is 6.97%. The weighted yield rate of income-producing data center properties is 6.75%.
Financial debt gross is ILS 22.7 billion. The company net debt is ILS 17.8 billion, comprising only 33% of the total balance sheet, similar to the figure at the end of 2022. The company average effective interest rate in the report is 2.1% indexed with a duration of 5.5 years, while the average interest rate for financing in Israel in the period is 1.66%. It is noted that the gap between the company's weighted cap rate, 6.97, and average cost of interest, 2.1%, [ bear in mind ], considerable at about 4.9%.
The company has high financial flexibility, significant unmortgaged assets of ILS 34 billion, cash and cash equivalent balance of ILS 4.9 billion and unused credit facilities of ILS 800 million. This is in addition to the holding of Bank Leumi stock in the sum of ILS 1 billion. In July, we expanded the Series B bonds for a net consideration of ILS 850 million at an effective interest rate of about 3.1%. In December, we expanded Series G bonds in the sum of ILS 639 million at effective interest rate of 2.9% as well as the Series H bonds in the sum of ILS 1.6 billion at an effective interest rate of 3.2%. Overall, in 2023, the company raised, through the expansion of existing bond series, the sum of ILS 3.1 billion.
We will conclude by presenting a summary of the financial statement results. The company closed transaction for the sale of its share in the data center company, Compass, on October 3, 2023. The company recorded a pretax profit of ILS 1.2 billion under other income, and the tax provision in respect to the transaction was recorded under taxes on income. The accounting profit after tax is ILS 960 million. It is noted that the company further recorded profits throughout the holding period of Compass about ILS 480 million. Net cash flow from the transaction is ILS 2.7 billion.
The net profit in 2023 totaled ILS 2.2 billion compared with ILS 1.8 billion in 2022, an increase of ILS 400 million. The increase in the net profit derived from the increase of ILS 160 million in the NOI, a decrease of ILS 179 million in financial expenses, mostly due to decreased in leakage, a difference compared to 2022 and the profit recorded as a result of the closing of Compass transaction in a sum of ILS 960 million net of tax. This increase was offset by a decrease in adjustments to fair value in the sum of ILS 569 million and onetime profit last year of ILS 205 million for an increase in the holding rate in Compass.
We will now answer any questions you may have.
[Operator Instructions] The first question comes from the line of Charles Boissier from UBS.
I have two questions. The first one is on the relief that you had granted to retailers. It seems that operations in Azrieli's malls have performed very well since then and really normalized. I just was wondering, do you expect that as it stands right now, you no longer have to provide relief going forward?
And the second question is looking at the dividend. So I understand there is a portion that is exceptional due to the Compass disposal. And my question is to what extent you needed to pay that dividend versus retaining for future investments in other projects.
Right. Charles, thank you for the questions. Regarding the first question, the relief we gave was for -- was 30% for October, 15%, 1-5, for November with some -- this was, I would say, 90% of the relief in that period. There was another, I would say, 10% to 15% relief to special occasions or geography, which is -- which stopped, say, by mid-December. So this is -- and right now, as I said, turnover is high. Traffic is high. And the occupancy is even -- or it's in the same very high level that we started the conflict, so -- regarding this. So we stopped any relief. And we don't feel that there's any need for additional relief.
Regarding the dividend, there's no -- the decision regarding the dividend was -- since it's [ more than ] expectation, where the company FFO, plus the chunk of the high profit from the Compass deal, we thought it was the right time for a special dividend. There was no obligation or none of these issues that maybe you're referring to. It was -- we only thought it was the right time to issue such a dividend or it was part of the dividend which is special. So this is -- it was not an obligatory or something.
[Operator Instructions] As there are no further questions, I would now like to hand back to your speaker, Mr. Eyal Henkin, CEO, for closing remarks.
Okay. Thank you, all. I would summarize that we are pleased with the group's results and position at the end of this year. We're ending a year in the quarter with good results for the group in a challenging and demanding year for the Israeli economy. We had strong progress in all of the parameters with a strong and stable portfolio, whether it's offices, malls, senior houses and others. We're maintaining very high occupancy rate, a healthy mix, dynamic footfall and good store revenues in the malls. We have a good and positive trend in NOI and FFO. And this year, we highly increased our cash position while maintaining low leverage of 33%.
Going forward, we're continuing to develop our core businesses in Israel with a healthier pipeline. We believe in the local economy, its resilience and its potential. In parallel, we continue to develop the data center as a third growth engine or leg for the group, where within the near future we are considering having a minority partner. The segment potential was shown with the sale of Compass this year at very high profit and over and above expectations. Finally, within the current times, in an environment of uncertainty, we act cautiously.
Thank you for listening, and we'll see you at the summary of the first quarter of 2024.
This concludes today's conference call. Thank you for participating. You may now disconnect.
