Azrieli Group published its second-quarter report. One line in it is the reverse of what we saw at two other income-producing property companies yesterday, and that is exactly what makes it interesting.
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The Quarter
| NIS millions | The quarter | Share of revenue |
|---|---|---|
| Revenue | 1,138 | |
| Gross profit | 665 | 58.4% |
| Operating profit | 549 | 48.2% |
| Pre-tax profit | 141 | 12.4% |
| Net profit | 155 | 13.6% |
| Basic earnings per share | NIS 1.25 | |
| Balance sheet total | 65,878 | |
| Shareholders' equity | 25,816 |
The Reversal Against Big and Mivne
Yesterday two income-producing property companies filed, and in both operating profit was higher than gross profit:
| Q2 2026 | Gross profit | Operating profit | The difference |
|---|---|---|---|
| Big | 524.8 | 853.8 | +329.1 |
| Mivne | 247.0 | 293.5 | +46.6 |
| Azrieli | 665 | 549 | -116 |
And why this matters.
Investment property is measured at fair value, and an increase in value is recorded above the operating line. So when operating profit exceeds gross profit, the difference is usually a positive revaluation.
At Azrieli the direction is reversed - operating profit is NIS 116 million below gross profit.
This can stem from two things: administrative and selling expenses larger than the revaluation, or a negative revaluation in the quarter. The structured filing does not separate them, so I will not assert which.
And what can be said: Azrieli's quarter does not rest on an accounting increase in value. What appears in its operating line is far closer to the result of operating the assets than at the other two.
And Financing: 74% of Operating Profit
From NIS 549 million of operating profit, NIS 141 million was left before tax.
NIS 408 million was taken out - that is, 74.3% of operating profit.
This is the largest share we have seen this week in the sector:
| Financing as a share of operating profit | |
|---|---|
| Big | 39.6% |
| Mivne | 51.8% |
| Azrieli | 74.3% |
And what deserves to be held alongside that figure.
Azrieli's balance-sheet leverage is in fact the lowest of the three - 2.6 to one, against 2.9 at Big and 2.4 at Mivne. That is, the ratio of debt to equity is not unusual.
And yet financing takes a far larger share of operating profit. The explanation lies not in the balance sheet but in the numerator: operating profit itself is relatively low this quarter, because it does not include a significant positive revaluation.
And that is precisely the point: at Big, the NIS 329 million revaluation is what made the financing ratio look comfortable. Without it, the picture there would have looked different too.
The practical conclusion: a coverage ratio calculated on operating profit that includes revaluation is not a real coverage ratio - because a revaluation does not pay interest.
The Tax
Pre-tax profit of NIS 141 million and net profit of NIS 155 - that is, the tax line contributed about NIS 14 million, rather than subtracting.
At an income-producing property company this is possible: part of the changes in value is not a tax event until an actual sale, and movement in deferred taxes can come out positive in a single quarter.
The Balance Sheet
| Balance sheet total | NIS 65,878 million |
| Shareholders' equity | NIS 25,816 million |
| Leverage ratio | 2.6 to one |
NIS 65.9 billion - the largest among the property companies that filed this week. For comparison, Big stands at NIS 45.2 billion and Mivne at NIS 21.0 billion.
הזווית שלי
דעה אישית של אילן אברמוב - לא ייעוץ ולא המלצה
Azrieli is the example that completes this week's picture in income-producing property.
Three companies, the same sector, and three different answers to the same question: how much of operating profit is operation and how much is valuation.
At Big the revaluation added NIS 329 million. At Mivne, 47. At Azrieli it added nothing - its operating profit is below its gross profit.
And I read that as a datum, not a flaw. A quarter without a positive revaluation is not a bad quarter; it is a quarter in which the numbers say what they say without an accounting addition.
And what does trouble me in this report is the 74%. When financing takes three quarters of operating profit, the margin for error is small. A moderate rise in the cost of debt, or a weaker operating quarter, would be enough to bring the pre-tax line close to zero.
So the number I will follow at Azrieli is not net profit - it is the ratio between gross profit and financing expenses. 665 against 408 is 1.6 to one. That is enough, and it is not a lot.
(It is important to stress: this is my personal opinion only, and nothing herein constitutes a recommendation to take any action.)
