Ashtrom Properties 2025: NOI Is Rising, but 2026 Is a Funding Test, Not a Harvest Year

Introduction to the Company

At first glance, Ashtrom Properties looks like a mature income-producing real-estate platform going through another decent growth year: rental income rose, NOI rose, fair-value gains came back, and management is already guiding to NOI of NIS 395 million to NIS 405 million in 2026. That is only a partial read. In practice, this is now less a question of whether the company has a portfolio, and more a question of how asset value turns into financial flexibility at a public company whose market-facing layer is debt, not equity.

What is working now? In 2025, rental income rose to NIS 295.4 million, company-share NOI rose to NIS 232.4 million from NIS 205.9 million in 2024, same-property NOI rose to NIS 205.0 million, and FFO recovered to NIS 93.0 million. The management presentation also shows a broader portfolio that now stands at 53 income-producing assets, roughly 556 thousand square meters, and average occupancy of about 91.4%.

What is still not clean? The bridge between property economics and company-level economics remains thin. Against net profit of NIS 231.4 million, operating cash flow was only NIS 14.7 million. Against management NOI of NIS 362 million on a proportionate basis, reported FFO was NIS 93.0 million. At the same time, the company finished the year with a consolidated working-capital deficit of NIS 1.049 billion, even though management highlights NIS 549 million of liquidity and NIS 225 million of available credit lines.

That is why 2026 does not look like a harvest year. It looks like a bridge year between a real operating improvement and the need to prove that this improvement can translate into cash, smooth refinancing, and successful integration of the overseas growth leg. That matters even more because the public layer here is the bond layer. The local market is not buying an equity rerating story. It is mainly reading asset quality through the lens of funding, covenants, and the debt maturity schedule.

Four points to keep in mind from the start

• The operating improvement is real. Same-property NOI rose 7.4%, company-share NOI rose 12.9%, and FFO rose 8.0%.
• The bottom line is still not clean. Net profit also benefited from NIS 124.3 million of fair-value gains and NIS 24 million of deferred-tax income tied to German tax changes.
• Management presents a broader property story than the public layer actually receives. The NIS 362 million NOI figure is a management, proportionate-consolidation number, while FFO and operating cash flow reflect what remains after the holding structure and financing costs.
• The next growth leg is increasingly overseas, especially in the UK. That adds real yield, but also more friction through lower occupancy, higher cap rates, and higher leverage.

A quick economic map

Ashtrom Properties employs 101 people, 67 in Israel, 17 in Germany, and 17 in the UK. But this is not a labor story. It is an asset, occupancy, lease, and financing story. The quick map looks like this:

These two charts together sharpen the starting point: the asset engine improved, but the existing income-producing portfolio is already heavily tilted abroad. That means the next growth leg will be judged not only on the quality of the Israeli assets, but also on how the UK and Germany translate into financing, lease-up, and cash-flow stability.

Events and Triggers

The external warning signal: In April 2025, S&P Maalot affirmed the company at ilA with a negative outlook. This is not an immediate distress event, but it does remind readers that the market reads the company through financial flexibility, not just asset values.

The Cologne acquisition: In July 2025, the company completed the acquisition of an office building in Cologne for EUR 26.4 million including transaction costs. The asset covers about 8,500 sqm, is about 96% occupied, and generates annual net rent of about EUR 1.9 million. That is real growth, but it also adds another foreign-funded layer to the portfolio.

The Manchester acquisition: In October 2025, the company signed the acquisition of an office building in Manchester for about GBP 22.4 million. The building spans about 5,600 sqm, is 88% occupied, and generates representative annual rent of about GBP 1.6 million. This strengthens the UK presence, but it also underlines that the next growth leg depends on the British office market, not just on Israeli malls and business parks.

Asset sales in Israel: During 2025, the company completed the sale of four industrial plots in Barkan, in addition to one plot sold in 2024, for total consideration of about NIS 203 million. That produced roughly NIS 20 million of fair-value gain. In addition, on the last day of the year the company completed the sale of the Atidut mall in Arad for NIS 40 million, with the balance received on January 1, 2026. This is the right kind of portfolio optimization, but it also means the company needs to replace NOI from assets it is selling.

Debt expansions: In June 2025, Series 11 and 12 were expanded for gross proceeds of NIS 79.3 million and NIS 78.7 million, respectively. In November 2025, Series 14 was expanded for gross proceeds of NIS 240 million. On one hand, that proves the company still has access to the domestic bond market. On the other hand, it also acknowledges that the next growth phase needs an open debt market.

The Series 13 amendment: At the end of December 2025, holders approved an amendment to the Series 13 deed. The company was not at the edge of its covenants, but it still chose to redefine net financial debt and NOI, raise the coupon from 0.9% to 1.3%, and recognize the full financial-liability change in the amount of NIS 6.5 million. That point matters. When a company amends a bond deed while it still has comfortable covenant headroom, that is usually not a rescue move. It is a move to buy flexibility ahead of more growth and more volatility.

Newcastle after the balance sheet: In February 2026, the company signed the acquisition of a commercial property in Newcastle for about GBP 105 million including acquisition costs. The property includes about 36 thousand sqm, about 1,061 parking spaces, 97% occupancy, and about 31 tenants. The acquisition was financed 65% with bank debt. This adds scale and occupancy, but it also shifts even more of the group toward the UK.

This chart matters because it explains why 2026 and 2027 look like funding years, not just growth years. There is no single debt wall, but there is a maturity sequence that requires constant discipline rather than a one-time fix.

Efficiency, Profitability and Competition

The core 2025 story is that the operating improvement is real, but earnings quality is still uneven. On one side, rental income rose 8.6%, company-share NOI rose 12.9%, and same-property NOI rose 7.4%. On the other side, the bottom line also leaned on NIS 124.3 million of fair-value gains, NIS 93.1 million of equity-method profit, and tax income related to Germany.

What really drove 2025

On the operating side, the company benefited from higher real and inflation-linked rents, from including UK assets acquired in 2024 and 2025, and from continued improvement in parts of the Israeli portfolio. That also shows up in the organic layer: same-property NOI rose from NIS 190.9 million to NIS 205.0 million. So 2025 was not only about acquisitions and appraisals. It was also a year of real improvement in the existing assets.

But that is not the whole story. Operating profit of NIS 367.3 million includes fair-value gains, and net profit of NIS 231.4 million includes NIS 24 million of deferred-tax income tied to German tax legislation, which lowered the expected federal tax rate from 15% to 10% starting in 2028 and ending in 2032. That is not recurring operating economics. Anyone reading only the net-profit line gets a cleaner year than the cash actually shows.

The bridge that must be made: from property NOI to FFO and cash

The figure management pushes forward is NIS 362 million of NOI for 2025. That is a legitimate number, but it is a property-economics number on a management, proportionate basis that includes associates. It is not the same thing as NIS 232.4 million of company-share NOI in the annual report, and it is certainly not the same thing as NIS 93.0 million of FFO or NIS 14.7 million of operating cash flow.

This is the heart of the story. Ashtrom Properties created a lot of property value in 2025, but not all of that value becomes accessible in the same form or at the same speed. Some of it stays at associate level. Some of it is absorbed by financing costs. Some of it reaches FFO. Some of it is purely accounting. For a bond-only public company, this is not a semantic argument. It is exactly the question of whether growth creates a margin of safety, or mostly paints one.

The UK is already an NOI engine, but a more expensive one

The UK now generates NIS 77 million of NOI on management basis, versus NIS 70 million in Germany and NIS 215 million in Israel. So this is no longer a side market. It is a real growth engine. But that engine comes with a price tag: average occupancy in the UK stands at 84%, local LTV stands at 54%, and average debt cost is 3.9%.

Within the UK itself, the picture is mixed. Central Square in Leeds is 95% occupied with a 9.2% weighted cap rate. Manchester is 100% occupied with a 7.3% cap rate. By contrast, Exchange Flags in Liverpool is only 68% occupied and sits on a 9.3% cap rate. Those are not just numbers. They mean the company is buying higher yield because it is carrying higher friction.

Germany looks different today. There, average occupancy is 91%, LTV is 39%, and average interest cost is 3.2%. In other words, Germany is the calmer arena, while the UK is the place where the company is trying to lift the next layer of NOI through assets with higher yields but also more operating and financing work.

What is actually interesting is that the UK improvement is real, but still far from uniform. That is why 2026 will be judged less on whether the UK is "good" or "bad", and more on whether the company can lift occupancy there while keeping funding costs under control.

Fair value was up, but FX erased part of the visibility

Another point that is easy to miss: the increase in fair value of investment property was NIS 124.3 million, of which NIS 94.5 million came from overseas and only NIS 29.8 million from Israel. So a large part of the accounting uplift came דווקא from foreign assets. But in parallel, the company says that the investment-property line also reflected a roughly NIS 108 million reduction because the euro and pound weakened against the shekel, and the equity layer recorded around NIS 50 million of other comprehensive loss from translation differences.

That is a good example of the difference between value created and value visible to the listed layer. The overseas properties improved operationally and appraisally, but part of that improvement was diluted when translated into shekels. Anyone reading only the fair-value-gain line misses the currency layer.

Cash Flow, Debt and Capital Structure

To read Ashtrom Properties correctly, the cash framing has to be explicit. Here the thesis is about funding flexibility, not just NOI generation. That makes all-in cash flexibility the right lens: how much cash remains after actual operating, investing, and financing uses.

Cash flow: much less dramatic than profit

In 2025, operating cash flow was only NIS 14.7 million. That number forces a pause. Against net profit of NIS 231.4 million, it means a large share of the improvement was not cash, or at least did not reach the cash layer in the same year. The income statement confirms this: NIS 124.3 million came from fair-value gains and NIS 93.1 million came from associates.

The full-year picture says the same thing. Investing cash flow was negative NIS 292.4 million, mainly because the company invested about NIS 455 million in investment property, of which about NIS 194 million went to acquisitions in the UK and Germany. It funded that through positive financing cash flow of NIS 302.2 million, including net bank borrowing and bond issuance. By year-end, cash was up by only NIS 23.7 million.

This chart shows why 2025 is still not a harvest year. The business generates NOI, but the next growth leg consumes almost everything that comes in.

Negative working capital does not mean distress, but it does mean calendar dependence

The company ended the year with a consolidated working-capital deficit of NIS 1.049 billion and a solo deficit of NIS 372 million. The board explicitly says it does not see a liquidity problem and bases that view on NIS 549 million of cash, cash equivalents, and short-term investments, on NIS 225 million of available bank lines, and on the fact that there are no special restrictions on moving cash from subsidiaries to the parent.

That wording matters. It says that unlike some holdco structures, the value is not legally trapped at subsidiary level. But it also says something else: the solution does not come from passive excess cash. It comes from active source-and-use management. In other words, the problem is not blocked upstreaming. The problem is that the growth rate requires precise timing.

Covenants: the headroom is comfortable, which is why the Series 13 amendment was not a distress move

For covenant purposes on Series 9, 10, 13, and 14, the company reports net financial debt of NIS 4.355 billion, equity-to-balance-sheet of 33.7%, net financial debt to CAP of 62.8%, and net financial debt to NOI of 12.11. Against a minimum 19% equity-to-balance-sheet threshold and a maximum 16.5 net-debt-to-NOI threshold, that is wide headroom.

That also explains how the Series 13 amendment should be read. The company did not amend the deed because it was already at the edge. It amended it because management wanted to widen the room for maneuver before overseas growth and refinancing make the next stage noisier. That is very different from a rescue move. But it also means management itself sees the next few years as more demanding.

The debt itself: manageable, but tight enough to remain central

According to management's presentation, net financial debt stands at NIS 4.376 billion, leverage at 62.4%, weighted bond duration at 3.30 years, and weighted indexed bond cost at 2.29%. These numbers allow the company to operate, but they are not the numbers of a relaxed platform.

That is especially true when one remembers that short-term liabilities rose to NIS 1.708 billion from NIS 1.063 billion a year earlier, and that part of the increase comes from classifying overseas loans as short term based on maturity timing. So even if there is no immediate covenant problem, there is clearly a calendar problem. The debt market will judge the next two years not only through ratios, but also through execution.

Outlook and What Comes Next

Five points to hold before reading the 2026 outlook

• The 2026 outlook is framed in management NOI. The company is targeting NIS 395 million to NIS 405 million, versus NIS 362 million in 2025. That implies growth of about 9% to 12%, but it is still not the same as FFO.
• Most of the visible growth does not come from projects that will finish tomorrow. A large part of the future pipeline is expected to mature only between 2027 and 2032.
• 2026 assumes a relatively stable operating backdrop. Management is relying on signed leases, renewals, occupancy gains, 1.8% CPI, and no material deterioration in Israel's security situation.
• Israel provides the stability base, but the UK provides the leverage angle. That means a UK miss could matter more than a small positive surprise in Israel.
• The real test is not whether paper growth exists, but whether 2026 shows that this growth is also reaching the debt layer.

Management's 2026 operating outlook rests on five engines: signed lease contracts and expected renewals, higher occupancy and leasing of vacant space, asset sales and portfolio optimization, 1.8% annual CPI growth, and the assumption that there will be no material change in Israel's security situation.

At first glance, that sounds reasonable. On a second glance, it means 2026 is a year where almost every component of the outlook requires execution. To reach NIS 395 million to NIS 405 million of NOI, the company cannot simply let the portfolio sit. It has to lease, renew, recycle, refinance, and integrate recent acquisitions without damaging the funding layer.

What needs to happen in the existing portfolio

In Israel, the core still looks relatively stable. The main assets, Hutzot HaMifratz, Bat Yam Mall, and Hod Hasharon, continued to produce NOI. Hutzot HaMifratz rose to NIS 48.6 million of NOI on company share, Bat Yam Mall to NIS 25.6 million, and Hod Hasharon to NIS 63.3 million on a 100% basis. These assets hold up the near year.

But the growth above the core already requires more work. In the UK, average office occupancy is 86% for the year and 84% at period end. So to meet the outlook, the company will have to show that the gap between value, representative NOI, and actual NOI is starting to close across the British office portfolio, especially in the assets where occupancy is still not full.

What is already in the pipeline, and what is still far away

In the presentation, management shows expected NOI of NIS 177 million from five central projects in planning and execution: Colmore in Birmingham, LYFE C in Bnei Brak, Phase A of Yavne High-Tech Park, the RISHO project in the Elef Complex, and the Hod Hasharon expansion. That is a large number. But the dates are not near: Colmore is aimed for 2027, LYFE C and RISHO for 2031, Yavne for 2030, and the Hod Hasharon expansion for 2032.

In other words, the 2026 discussion should stay focused on the existing portfolio and the recently acquired assets, not on the longer-dated pipeline.

This chart makes the timing gap very clear. Ashtrom Properties has a meaningful future NOI pipeline, but most of it still does not belong to 2026.

So what kind of year is this, really

If 2026 needs a name, it is a funding-and-execution test year. It is not a reset year, because the company is no longer at the starting line. It is not a clean breakout year, because the cash layer still does not look like that of a relaxed platform. And it is not a stabilization year, because there is still too much portfolio, overseas, and financing motion.

What could strengthen the thesis? A visible rise in NOI and FFO without a matching rise in funding tension, better occupancy in the UK, and continued easy access to the bond and bank markets. What could weaken it? Another need to amend debt terms, new acquisitions that require materially more expensive financing, or a year in which NOI rises but FFO and cash remain largely flat.

Risks

The central risk at Ashtrom Properties is not one anchor tenant or one single asset. The central risk is that the company is building its next growth layer faster than cash absorption and the debt market can comfortably support.

Open FX exposure

The company reports excess euro-denominated assets of NIS 1.062 billion and excess pound-denominated assets of NIS 602 million. Its own sensitivity table shows that a 10% change in the euro against the shekel is worth about NIS 106.2 million, and a 10% change in the pound is worth about NIS 60.2 million. On top of that, the company explicitly says that it currently does not hedge its euro exposure. That is a material exposure, not a footnote.

CPI and interest rates

The surplus of CPI-linked liabilities over CPI-linked assets stands at NIS 2.391 billion. The company's sensitivity table shows that a 10% move in CPI would hurt by about NIS 239.1 million. Beyond that, even if lower rates abroad supported 2025 appraisals and transaction activity, rates can still pressure both asset values and funding costs later on.

The UK

The UK already produces attractive NOI, but it is also where the highest friction sits. Average occupancy is 84%, cap rates are higher, some assets are still in renovation or lease-up mode, and the Newcastle acquisition was funded 65% with bank debt. If 2026 brings lease-up, that can be a positive driver. If not, the UK remains a high-yield arena for the less pleasant reason.

Refinancing and working capital

Even if the board is right that there is no immediate liquidity problem, a working-capital deficit of more than NIS 1 billion is not a figure that can be ignored. It simply means the company depends on its ability to refinance, extend, recycle, or access capital on a regular basis.

The market layer itself

Because this is a bond-only public company, the market's warning signal comes through rating, coupon, and funding access, not through equity discount or short interest. That makes the debt market part of the thesis itself.

Conclusions

Ashtrom Properties ends 2025 as a stronger operating company than it was a year earlier. NOI is up, FFO is up, and the overseas portfolio has moved from a repair story to a real growth engine. The main bottleneck is no longer asset quality. It is the ability to translate that growth into cash, into FFO, and into smooth funding for the next stage. That is also what will determine how the market reads the company over the short and medium term.

Current thesis in one line: Ashtrom Properties built better asset economics in 2025, but 2026 will test whether those are also better debt and cash economics.

What changed in the read of the company: It used to be easy to think of Ashtrom Properties mainly as an Israeli real-estate platform with a supplementary overseas arm. On the 2025 evidence, it is now clear that the next growth leg, and a meaningful part of the valuation uplift, will come from overseas, especially the UK. That shifts the key question from the portfolio itself to the funding discipline around it.

The strongest counter-thesis: One can argue that the caution is overstated because the company still has wide covenant headroom, meaningful liquidity, a quality asset base, and visible organic growth. On that reading, the Series 13 amendment was simply balance-sheet housekeeping ahead of more growth, not a warning signal.

What could change the market's interpretation over the short to medium term: Smooth refinancing, better UK occupancy, and proof that 2026 delivers not just higher management NOI, but also higher FFO and operating cash flow. On the other side, more growth funded too aggressively, or further debt-term adjustments, would weigh on the read very quickly.

Why this matters: In a bond-only public company, value that does not reach the funding layer at the right time is limited value. Ashtrom Properties has already moved past the question of whether it owns good assets. It is now entering the stage where the real question is whether those assets create flexibility.

What must happen over the next 2 to 4 quarters for the thesis to strengthen: NOI and FFO need to rise together, UK occupancy has to keep improving, and the company needs to keep refinancing and closing transactions without losing its covenant comfort. What would weaken the thesis? Another layer of accounting value without parallel progress in cash and funding.