Ashtrom Properties: How Durable Are the 2025 Fair-Value Gains

The main article already argued that 2026 is a funding-and-execution test, not a harvest year. This follow-up isolates the line that created much of the gap between net profit and cash: NIS 124.3 million of fair-value gains on investment property. The question here is not whether the appraisals were "right" on signing day. The question is how much of the 2025 uplift sits on rent, occupancy, and NOI that are already working, and how much sits on lower cap rates, lease-up that still has to happen, or development rights that do not yet produce cash.

The short answer is that the 2025 revaluation looks more durable than the net-profit headline alone implies, but less clean than the same headline implies. At the full-report level, NIS 94.5 million of the uplift came from overseas and only NIS 29.8 million from Israel. At the income-producing-property level on company share, Israel generated NIS 49.8 million of fair-value gains in 2025, almost unchanged from NIS 49.4 million in 2024. Germany contributed NIS 32.4 million after NIS 36.4 million a year earlier. The geography that really changed the story was the UK, which moved from a NIS 22.4 million valuation loss in 2024 to a NIS 41.9 million gain in 2025.

There is one more layer to add. Weighted cap rates declined in all three geographies: to 7.09% in Israel from 7.3%, to 4.96% in Germany from 5.22%, and to 8.53% in the UK from 9.0%. In other words, 2025 benefited from friendlier appraisal conditions across the portfolio. The real durability test is therefore not whether a valuation gain was booked, but where there is enough occupancy, rent, and NOI to hold value even without another round of cap-rate relief.

• The jump in the consolidated result did not come from Israel. In the income-producing portfolio, Israel barely changed its valuation contribution between 2024 and 2025, while the UK created the main reversal.
• Rates helped everyone. Cap-rate compression supported the picture in every geography, so it is wrong to read 2025 as if all of the improvement was operational.
• Within Israel, there is a sharp split between assets that have already proven NOI and assets where the appraisal is still waiting for operations to catch up. Bat Yam and Hutzot HaMifratz look better supported. Hod Hasharon still depends more on future lease-up.
• What made 2025 look exceptional sits mainly in the UK. Average occupancy there was still 84%, and one major asset was only 68% occupied, so part of the gain still needs execution proof.

Where the Revaluation Jump Really Came From

If one looks only at the aggregate number, the portfolio can appear to have moved in one direction. In practice, the picture is much less even. In the fair-value split of the income-producing portfolio on company share, Israel stood at NIS 49.8 million in 2025 versus NIS 49.4 million in 2024. Germany slipped modestly to NIS 32.4 million from NIS 36.4 million. The UK is what made the full turn, from a NIS 22.4 million loss to a NIS 41.9 million gain.

The use split says something similar. Industrial buildings generated NIS 59.7 million of fair-value gains on company share, office and employment buildings generated NIS 68.6 million, while malls and shopping centers actually recorded a NIS 4.2 million valuation loss. That matters because it means 2025 was not a simple "retail recovered" story. Much of the gain came from the layers that are more sensitive both to cap rates and to lease-up.

This chart sharpens the core thesis. Israel was stable. Germany remained supportive. Most of the change between 2024 and 2025 came from the UK. So anyone trying to judge how durable the 2025 fair-value gains are should ask less "is Ashtrom conservative or aggressive" and more "which part of the portfolio is already stabilized, and which part still needs lease-up or a favorable discount rate."

Israel: Bat Yam and Hutzot HaMifratz Look Better Supported, Hod Hasharon Still Does Not

Israel is where the picture looks more durable than the headline suggests. The comparable transactions in the valuation appendix show shopping-center and neighborhood-retail deals at roughly 6.45% to 6.87% yields depending on occupancy and asset stage, while an asset that was only about 60% leased reflected around an 8.0% yield. Against that backdrop, a 6.6% cap rate for Bat Yam Mall and 7.09% for Hutzot HaMifratz do not look detached from the market. Just as importantly, those yields do not sit in a vacuum. Both assets carry high occupancy, higher rent, and NOI that already exists.

To put the three main Israeli anchor assets on the same scale, the comparison below is presented on a 100% asset basis using the disclosed ownership percentages:

This chart separates two kinds of valuation gain. At Bat Yam and Hutzot HaMifratz, the 2025 gain was larger than the downside from a 0.25% cap-rate increase. That does not prove immunity, but it does show that value there is supported not only by rates, but by NOI, occupancy, and rent that are already in place.

Bat Yam Mall is the cleaner case. It ended 2025 at 98% average occupancy, 98% representative occupancy, representative base rent of NIS 156 per sqm, and a 6.6% cap rate versus 6.85% a year earlier. Rent on leases signed during the period jumped to NIS 246 per sqm. This means the 2025 uplift there rests on a near-full asset after a broad renovation program that was completed during the year, not only on a friendlier discount rate.

Hutzot HaMifratz looks even stronger at the NOI layer. The asset reached NIS 48.6 million of NOI on company share, 96% average occupancy, NIS 92.1 million of representative NOI on a 100% basis, and a 7.09% cap rate versus 7.27% in 2024. That is a relatively solid base for a NIS 97.9 million gain on a 100% basis. But there is an important footnote here: Hutzot HaMifratz still includes about 122.1 dunams of unused development rights, and the company and its partner are evaluating ways to realize them. So part of the value there is already an option layer, not just current NOI.

Hod Hasharon tells a very different story. At first glance it looks like a strong asset: rental income rose to NIS 70.1 million on a 100% basis, NOI rose to NIS 63.3 million, and average retail rent per sqm rose to NIS 119. But the appraisal gave that very little credit through profit and loss. The fair-value gain was only NIS 0.69 million, the cap rate edged up to 7.08%, and representative occupancy in the appraisal fell to 86% from 91% a year earlier even though average actual occupancy stood at 92%. That matters a lot. Hod Hasharon is not the evidence of an aggressive appraisal. It is actually evidence that the valuer did not pull forward the potential. Its durability therefore depends less on what was already booked in 2025 and more on what still has to be proven operationally.

Overseas: Germany Looks More Reasonable, the UK Still Needs Lease-Up Proof

Germany looks like the more durable overseas geography today. The platform there stands at 154 thousand sqm, 91% occupancy, 39% LTV, 3.2% average interest cost, and EUR 18 million of NOI in 2025. At the main-asset level the dispersion is manageable: DUS Fritz at 96% occupancy and a 4.9% cap rate, Leonberg at 89% and 5.0%, Essen at 83% and 4.75%, and Leipzig at 98% occupancy excluding space under renovation and a 4.75% cap rate, with representative NOI of EUR 6.5 million. That makes the NIS 32.4 million valuation gain on company share look more supported by a portfolio that is already closer to operational stability.

But Germany was not free of rate help either. The weighted cap rate fell to 4.96% from 5.22%. So part of the gain still came from yield normalization, not only from rent and occupancy. That matters because it prevents a simplistic read in which everything outside Israel is either "more real" or "less real." Germany looks sturdier than the UK, but it still enjoyed a market tailwind.

The UK is a different story. The company ended 2025 with 79 thousand income-producing sqm there, 84% occupancy, 54% LTV, 3.9% average interest cost, and GBP 17 million of representative NOI. This is no longer a side market. But it is not a stabilized one either. Add the move from a NIS 22.4 million valuation loss in 2024 to a NIS 41.9 million gain in 2025, and the core point becomes clear: the UK delivered a sharp reversal, but it still rested both on lower cap rates and on occupancy gaps that have not yet closed.

This is the core UK friction. Liverpool sits at 68% occupancy and a 9.3% cap rate, Leeds at 95% and 9.2%, and Manchester at 100% and 7.3%. In other words, the British platform is not "the UK market." It is a portfolio of assets with very different stability profiles. That is why the 2025 uplift there looks less like value that has already reached cash and more like value that becomes durable only if leasing and contract execution in the weaker assets really progress.

What Has to Happen in 2026 for This to Become High-Quality Earnings

This is where the argument reconnects to the main article. The issue is not whether 2025 was "real" or "accounting." The issue is which parts of 2025 can hold even without another helping hand from interest rates.

The first trigger is the UK. For the 2025 reversal to be read as durable, representative NOI of GBP 17 million has to move closer to NOI that actually reaches the income statement, and assets like Liverpool have to move materially away from the 68% occupancy zone.

The second trigger is that the stronger Israeli assets need to keep producing NOI, not just appraisals. Bat Yam and Hutzot HaMifratz already have a good enough operating base to support value. If 2026 brings weaker renewals or pressure on rent there, the market will start re-testing the 2025 gains as well.

The third trigger is Hod Hasharon. Precisely because it barely contributed to 2025 valuation profit, any real leasing progress there would be higher quality for future years. Without that progress, Hod Hasharon remains a reminder that not all of the future NOI is already in the number.

The fourth trigger is the simplest one: 2026 does not need another fall in cap rates to validate the 2025 uplift. The opposite is true. If the company can show better NOI and better FFO even with stable cap rates, that would be the strongest proof that a large part of the 2025 gain was genuinely durable.

Conclusion

Ashtrom Properties' 2025 fair-value gains are not hollow, but they are not equal in quality. The Israeli core, especially Bat Yam and Hutzot HaMifratz, looks relatively supported by occupancy, rent, and cap rates that do not look detached from market transactions. Germany looks more reasonable than the UK because it sits on higher occupancy, lower leverage, and a calmer asset mix.

What made 2025 stronger than usual came mainly from the UK reversal and from cap-rate relief. So the sharper conclusion is not that the revaluation is "unreal." It is that it splits into two types: one part already supported by working assets, and one part that still needs lease-up, actual NOI, and funding stability before it becomes full earnings quality in 2026 as well.