Adgar Investments 2025: The balance sheet is calmer, but the value unlock still runs through Canada

Getting to Know the Company

Adgar is not a simple foreign-office landlord story. It is a 38-property portfolio with roughly 409 thousand square meters on its share, spread across Israel, Warsaw, Toronto, and Antwerp, plus a meaningful layer of development rights and embedded land upside. Anyone looking only at the 2025 net profit is missing the real picture: the current operating engine sits in Israel and Poland, while the active bottleneck is still Canada.

What is working right now is fairly clear. Israel still carries signed occupancy of about 97%, Poland delivered NOI growth of 16.5% in local currency, Brain Embassy kept expanding, and the balance sheet looks calmer than it did a year ago: equity rose to NIS 1.607 billion, cash rose to NIS 422.2 million, and net debt to CAP excluding deferred taxes fell to 62.4% from 67.2% a year earlier. Financial covenants are comfortably inside the limits.

What is still not clean? First, 2025 was not a broad operating breakout year. Rental revenue was basically flat at NIS 338.3 million, consolidated NOI slipped slightly to NIS 298.7 million, and Canada kept weakening. On top of that, the NIS 128.1 million net profit was materially supported by a NIS 66.8 million gain from an expropriated asset and NIS 12.9 million of related interest income. That matters because the market still has to decide whether it is looking at a business that has truly turned, or a business that bought more time through a non-recurring event.

That is the difference between accounting value and accessible value. The market cap at the start of April stood at roughly NIS 848 million, well below both book equity and EPRA NAV of NIS 1.884 billion. But that discount will not close just because the appraisals contain Toronto rights. For the gap to narrow, Adgar needs proof in two harder places: occupancy and NOI in Canada, and a credible path to turning development rights into realizable value rather than just appraisal value.

A compact economic map helps:

Events and Triggers

The first trigger: 2025 was as much a balance-sheet repair year as it was an operating year. The company raised roughly NIS 126.9 million net in equity and warrants, and completed two series 13 bond tap issues for total net proceeds of about NIS 381 million. That is not a technical footnote. It is what pushed cash up to NIS 422.2 million, improved equity, and moved the company away from immediate covenant or rollover pressure.

The second trigger: Canada again produced the most material event, but through compensation rather than leasing. In 2025 the company booked a NIS 66.8 million gain from an expropriated asset and NIS 12.9 million of interest income. After year-end, in January 2026, it actually received additional Fraser 7 compensation including interest, with Adgar's share amounting to about NIS 79.7 million. That clearly improves liquidity, but it also underlines that 2025 profit was not driven by rental activity alone.

The third trigger: In Canada, Adgar is in advanced negotiations to lease all vacant space at 120 Bloor, roughly 9,000 square meters on its share, equal to about 2.8% of Canadian leasable area. This matters much more than a generic claim about improving market conditions. If that lease is signed and shows up in occupancy, it can change the way 2026 is read. If not, Canada remains the drag.

The fourth trigger: In March 2026 Midroog reaffirmed the A2.il rating with a stable outlook, while the company also announced that it was considering a classified-investor tender through another series 13 expansion. The rating report states explicitly that the proceeds are meant for debt refinancing and ongoing activity. That is the point. The debt market is open, but Adgar is still using it actively to manage the next two years.

The fifth trigger: At Adgar Hub on Efal 33, the company has already completed excavation, retaining walls, and the basement foundation at a total cost of around NIS 221 million including financing costs, but it is still waiting for the permit for phase 1. In other words, this is an important option asset, not a 2026 earnings engine.

Efficiency, Profitability and Competition

Adgar's 2025 operating story is a split-geography story, not a broad portfolio trend. Operationally, Poland and Israel carried the company. Canada pulled it down. The result was a year in which consolidated NOI edged lower even though some of the main portfolio pieces improved meaningfully.

Rental revenue came in at NIS 338.3 million, basically unchanged from 2024. But under the surface the picture was more interesting. The decline in the euro and Canadian dollar reduced the line by about NIS 10.9 million, while management says that excluding FX the company actually saw an increase of roughly NIS 11.2 million. So the operating engine did not stall. It simply could not fully overcome Canada and currency translation.

In Israel, portfolio NOI rose to NIS 120.8 million, and same-property NOI rose 3.7% to NIS 120.4 million. This is a portfolio with relatively defensive tenants, an average lease term of about 4.9 years, and clear dependence on Adgar 360, which generates about 77% of Israeli NOI. That is an excellent anchor, but it is also clear concentration: if that asset moves, the whole Israeli read moves with it.

Poland was the company's strongest operating answer. NOI rose to EUR 24.6 million, up 16.5% in local currency, driven by better occupancy, indexation, and Brain Embassy growth. This is not just good growth. It is better-quality growth than what the market sees in Canada because it comes from a mix of leasing, pricing, and a more flexible product layer.

Canada, by contrast, remains hard to soften. NOI fell to CAD 26.6 million, down 11.4%, and signed occupancy stayed at 79%. The company highlights more than 300 tenants and broad sector diversification, but the point is simpler: Toronto office has not yet moved from stabilization to recovery in Adgar's actual numbers.

Belgium will not change the thesis on its own, but it does help the stability profile. NOI rose 4.2% to EUR 4.185 million, with 90% occupancy.

The really interesting operating layer is Brain Embassy. By the end of 2025 Adgar had about 41 thousand square meters under the brand, after adding roughly 3,000 square meters during the year. In Poland that activity already accounts for about 23% of NOI, and in Israel about 5% of NOI. It is not a substitute for long-term leases, but it is a way to improve occupancy, lift revenue per square meter, and capture smaller tenants without being trapped in an old office model. The other side is that this income is structurally shorter duration.

One more point the market should not move past too quickly is the gap between FFO definitions. On the company's preferred basis, real FFO was NIS 119.9 million in 2025, comfortably inside guidance. Under the Israeli Securities Authority definition, FFO was only NIS 62.2 million. The NIS 57.7 million gap comes from adjustments for share-based compensation, CPI linkage, and FX. This is not just a technical dispute. It means management wants investors focused on a softer performance measure while the stricter one looks much thinner.

Cash Flow, Debt and Capital Structure

This is where the cash framing needs to be explicit. In Adgar's case the relevant lens is all-in cash flexibility, because the heart of the 2025 thesis is financing flexibility, not just recurring cash generation from the asset base. Through that lens the picture is better, but also more revealing.

Cash flow from operating activities was NIS 137.3 million, almost unchanged from the year before. That is respectable, but it does not tell the full story. Investing activities generated positive cash flow of NIS 32.3 million, not because the company stopped investing, but because about NIS 108 million of property investment was offset by NIS 47 million from the Ofakim asset sale, roughly NIS 79.7 million from hedge settlements, and about NIS 25 million from repayment of a loan to a Canadian asset buyer. In other words, the line mixes recurring operations, monetization, and balance-sheet management.

Financing activities added another NIS 80.6 million. Again, the source is clear: roughly NIS 381 million net from two series 13 tap issues, plus NIS 126.9 million net from equity and warrants, against debt repayments of about NIS 429.7 million. So the jump in cash from NIS 175.3 million to NIS 422.2 million did not come from internal operating improvement alone. It also came from active capital work by management.

That is exactly what the company needed to do. But it also means that the statement "the balance sheet is calmer" is true only if one remembers what sits underneath it: new equity, new debt, and ongoing refinancing. That is why the NIS 209 million negative working capital position does not disappear from the story. The board says there is no liquidity problem, partly because of NIS 728 million of unused credit lines and NIS 312 million of long-term loans that are intended for rollover, most of them at LTVs below 57%. That is a reasonable claim, but it is still the claim of a company living with an open debt market.

The covenants themselves are much more comfortable than a quick glance at the debt might suggest. Equity stood at NIS 1.607 billion versus minimum thresholds ranging from NIS 920 million to NIS 1.07 billion across the bond series. Equity to balance sheet excluding cash and deposits stood at 30.8% versus a 23% requirement in series 11 through 13. Net debt to adjusted NOI stood at 9.7 versus a ceiling of 15. This is not a company sitting on a covenant edge.

But it is not frictionless either. At year-end the company had NIS 2.2185 billion of bond principal outstanding, and the maturity profile is still closer to what a leveraged real estate company must actively manage than to what a relaxed asset owner can ignore. Bond maturities alone amount to NIS 380 million in 2026 and another NIS 380 million in 2027. This is exactly where the stable rating, unused credit lines, and repeated market access matter.

There is also the public-shareholder layer. In the presentation, management shows corporate debt net of cash of roughly NIS 1.779 billion against EPRA NAV of NIS 1.884 billion, or about NIS 10 per share. That looks attractive against a stock trading around NIS 4.5, but it is not a free arbitrage. Part of the value sits in development rights, part in appraisals, and part in markets that still have not fully recovered.

Outlook and What Comes Next

Finding one: 2026 looks like a bridge year, not a breakout year. Updated guidance calls for NOI of NIS 290 million to NIS 300 million versus NIS 298.7 million in 2025, and real FFO of NIS 110 million to NIS 120 million versus NIS 119.9 million in 2025. That is not the profile of a company signaling a step change. It is the profile of a company telling the market: we cleaned up the balance sheet, now we need to prove the operating side holds.

Finding two: Canada will keep setting the tone. As long as occupancy stays around 79% and Canadian NOI keeps falling, the market will keep reading Adgar as a company with good assets but one active weak link. If 120 Bloor gets leased and becomes the first visible sign of a broader Toronto turn, the interpretation can change fairly quickly.

Finding three: The Toronto upside is real, but still largely illiquid. Liberty Village now reflects assumptions that allow roughly 196 thousand square meters of rights, with Adgar's share at about 121 thousand square meters, including around 74 thousand square meters for residential. The presentation values Liberty rights at roughly NIS 325 million based on the 31 December 2025 appraisal. At 120 Bloor the company is promoting a plan for 63.7 thousand to 106.6 thousand square meters on its share, and at 350 Burnhamthorpe the residential rights opportunity is around 53 thousand square meters. But until detailed planning, permits, and monetization arrive, this remains paper value.

Finding four: Israel is the anchor, but also the concentration point. Adgar 360 was valued at NIS 1.505 billion at year-end 2025 versus NIS 1.484 billion a year earlier. The appraisal sensitivity table shows that a 0.5% move in the capitalization rate changes the asset value to NIS 1.3875 billion on the downside or NIS 1.6439 billion on the upside. This is an asset that supports a large part of the Israeli story, part of the financing base, and a large part of the market's trust in book value.

That also shapes the right read of 2026. Israel should remain the stable base. Poland should keep delivering operating improvement through occupancy and Brain Embassy. Canada needs to stop deteriorating and preferably start improving. Belgium should keep adding modest stability. Adgar Hub, by contrast, is not the rescue engine for the next year. Phase 1 includes a 16 megawatt data center, roughly 10,000 square meters of office space, and 350 parking spaces, with shell-level construction cost estimated at about NIS 120 million, but all of that still depends on permits and a market-based investment decision.

There is also a capital-allocation tension here. On one side, after year-end the board approved a NIS 20 million dividend, and the company's presentation already frames a 2026 dividend policy based on 50% of real FFO. On the other side, in the same month the company considered another series 13 expansion for refinancing and ongoing operations. That means 2026 may become the year when management has to prove not only that it can keep the balance sheet calm, but also that it can choose correctly between distributions, development, and continued deleveraging.

This is also where the market may misread the report on first glance. 2025 profit looks strong. Equity looks much better. The rating is stable. But 2026 guidance is almost flat. So the real test is not whether Adgar "created value" in 2025. It is whether over the next 2 to 4 quarters it can convert balance-sheet improvement into operating improvement that actually shows up.

Risks

The first risk is Canada, and not only because of occupancy. Signed occupancy there is 79%, NOI fell 11.4%, and about 32% of Canadian asset value is concentrated in Liberty Village. That means the zone where a large share of the appraisal upside sits is also the zone where monetization depends on planning, market conditions, and an office market that has not fully healed.

The second risk is that refinancing remains a base condition rather than a bonus. Yes, net debt to adjusted NOI is well inside covenant limits, and the company has NIS 728 million of unused credit lines. But it also has NIS 380 million of bond maturities in 2026 and another NIS 380 million in 2027, and management is still using the debt market actively. As long as that works, it stabilizes the story. If pricing or access worsens, the same mechanism comes back into focus.

The third risk is FX. As of 31 December 2025, Adgar had surplus net assets of EUR 228 million and CAD 354 million, alongside a large hedge book. The company does hedge a meaningful part of that exposure with forwards and cylinders, but it does not eliminate it. The report itself shows how much currency can distort the picture: it hit rental revenue, equity translation, and asset values.

The fourth risk is Efal 33. This is not just a permit that has not been received yet. It is also a project where NIS 221 million including financing costs has already been spent, and where the company faces a legal dispute with a NIS 22 million claim and a third-party notice plus counterclaim. A project like that can become a value engine, but in the meantime it consumes capital, management attention, and execution bandwidth.

The fifth risk is concentration inside the safety layer. Adgar 360 is the asset investors lean on most heavily, which also means any pricing error, leasing softness, or yield move there would have an outsized impact on the comfort level behind the whole thesis.

Conclusions

Adgar is entering 2026 as a calmer balance-sheet company, with a strong Israeli anchor and Poland working in its favor. But this is still not a clean thesis, because Canada remains both the operating weak spot and the center of appraisal upside. That is why short-to-medium-term market interpretation will be driven less by 2025 profit and more by whether Canada finally begins to show a numerical turn rather than just a narrative turn.

Current thesis: Adgar's balance sheet has improved in a real way, but the discount will narrow only if Canada stops being an NOI hole and Toronto development rights begin to look monetizable.

What changed: The debate has shifted from blunt balance-sheet pressure to the quality of the value unlock. In 2024 the discussion was first about financial stabilization. In 2025 that stabilization is visible. The next test is whether it translates into operating progress rather than just breathing room.

Counter-thesis: The market may be fully justified. Canada may keep drifting, development rights may stay on paper for years, and every balance-sheet improvement may simply be recycled into more refinancing and development rather than reaching shareholders, leaving the discount to equity and NAV justified.

What could change the market read: A signed 120 Bloor deal, continued occupancy improvement in Poland without weaker quality, another smooth debt-market access point, and real planning progress in Liberty Village. On the other hand, weak 2026 execution or another year of Canadian stagnation would quickly bring the skepticism back.

Why it matters: Adgar is no longer being tested only as a leveraged office landlord. It is being tested on whether it can turn appraisals, rights, and balance-sheet repair into value that actually touches shareholders.

What has to happen over the next 2 to 4 quarters is fairly simple: Canada needs to stop deteriorating, Poland needs to keep improving, and management needs to show that capital discipline remains strong even after balance-sheet pressure has eased. If one of those three breaks, the gap between market value and book value will remain mostly a paper exercise.