Living Stone: Rents Are Rising, But Parent-Level Cash Generation Is Still Thin

Getting To Know The Company

At first glance, Living Stone looks like a straightforward German income-property story: 38 residential buildings, 852 housing units, about 92% residential occupancy, a focused NRW footprint, and consistent rent growth. That is only part of the picture. The company has no listed equity line, only a public bond layer, so the key question is not just how much the assets are worth. It is how much of that value is already reaching the parent company as cash, covenant room, and real financial flexibility.

There is also quite a bit that is working right now. Rental income rose to EUR 6.06 million in 2025, new-letting rent rose to EUR 8.59 per square meter per month, and like-for-like rent growth stayed positive even after slowing to 4.18%. The company runs an internal property-management, operations, and accounting platform with 12 employees, and the assets are all concentrated in the same operating region. That matters, because in a platform like this the moat does not sit in technology or brand. It sits in the ability to renew leases, lift rents, manage maintenance, and source local deals without losing control of execution.

But 2025 also sharpens the bottleneck. Net profit was EUR 1.38 million, consolidated cash was EUR 14.76 million, and equity attributable to shareholders was EUR 47.14 million. That sounds comfortable. In practice, FFO under the ISA method dropped to only EUR 234 thousand, management FFO was EUR 832 thousand, and the company itself says that at this stage of its life FFO is still not a sufficiently appropriate performance indicator. Parent-company cash flow from operations was only EUR 474 thousand. In other words, the business is producing NOI, but the shareholder layer still does not look like a platform that cleanly funds itself.

That is exactly the point that changes the read of 2025. The October 2025 bond IPO cleaned up the expensive Arbel loan and allowed the company to buy back the conversion option, but it also replaced a costly private bridge with unrated, unsecured public debt. From there on, the report has to be read as a residential platform still in proof mode: it can raise rents, it can buy assets, and it can hold decent occupancy, but the question of whether all of that already creates a clean cash layer at the parent remains open.

There is also one detail that is easy to miss if you only look at the residential headline. The company is indeed focused on residential, but it still owns 3 office buildings and 4 bank branches, and the commercial portfolio is worth about EUR 17.4 million, roughly 15% of total investment property. That is not the main story, but it is enough to weigh on the tone if one problematic commercial asset keeps deteriorating. So this is not yet a fully clean residential-only platform. It is a platform trying over time to become one.

The Fast Economic Map

This chart says a lot about 2025 in one sentence. Revenue kept rising, but profit from rental activity barely moved, and operating profit before fair-value changes declined. The rental engine still works, but it is not fully flowing through yet.

This matters too. The rent engine did not break, but it is gradually moving from a period of rapid acceleration into one of ongoing work. Still positive, but less dramatic than the 2023 and 2024 numbers could suggest.

Events And Triggers

The shift from expensive private debt to public debt

The first trigger: In October 2025, the company completed its first public bond issuance in Israel, with gross proceeds of NIS 100 million, a 7.18% annual coupon, no rating, and no dedicated collateral. The proceeds were used, among other things, to fully repay the Arbel loan and buy back the conversion option, for a combined EUR 15.2 million. That is a real improvement, because the Arbel facility was an expensive bridge carrying floating interest based on Euribor plus 8%.

But the move is not one-directional. It improved the funding structure in the near term, while at the same time turning the company into a public story that is now read through an unrated bond. The market is no longer asking only whether the properties are occupied. It is also asking whether the parent keeps enough room above the equity covenant and the net debt-to-CAP covenant.

The November equity injection was not cosmetic

The second trigger: In November 2025, the company completed an investment in the company, including a loan and a share issuance, for a total of EUR 10 million. This is not a technical footnote. Equity increased sharply, the balance sheet looked stronger, and control also changed. The bottom line is simple: 2025 was not a year in which the company merely harvested the existing platform. It was also a year in which it received additional oxygen from above.

Growth did not stop, and it also did not become easier

The third trigger: During 2025 the company acquired the Velbert asset with 66 apartments and 14 parking spaces. In December 2025 it signed a notarial purchase agreement for an asset in Monchengladbach with 34 apartments and 5 commercial units. In January 2026 it signed another agreement in Mulheim for an asset with 16 apartments and 3 commercial units. Then, in March 2026, the company reported that it was negotiating to buy another asset in the Mettmann district near Wuppertal, with 284 housing units, about 18,000 sqm, estimated annual rent of about EUR 1.7 million, and expected consideration of about EUR 30 million, including roughly EUR 20 million of bank debt if the deal closes.

That can clearly improve scale. But it also brings back the exact same test: how much of this growth is financed by the existing business, and how much by outside capital. Every new deal strengthens the NOI potential, while also re-testing discipline at the funding layer.

Condo-conversion optionality stays outside the near-term thesis

The fourth trigger: The company continues to discuss potential upside from selling apartments to end users, but management also writes that it does not intend to start that activity over the next three years, other than parcelation work. That matters, because it would be easy to turn condo conversion into a theoretical value story. At this stage it is an option, not a driver for 2026 to 2027.

The message of this chart is simple. Living Stone is already mostly residential, but it still cannot afford to ignore the commercial tail. In a company like this, even 15% of asset value can change the mood around the filing.

Efficiency, Profitability, And Competition

Rent went up, but very little of it stayed in rental profit

The central point in 2025 is that pricing improved, but the flow-through to operating earnings weakened. Rental income rose 7.1% to EUR 6.06 million, while property-maintenance cost jumped 50.6% to EUR 1.15 million. The result was that profit from rental activity barely moved, coming in at EUR 4.91 million versus EUR 4.90 million in 2024.

That is not a cosmetic detail. In a small residential platform, readers can easily see rent growth and assume an almost automatic NOI improvement. In practice, the company had to work harder just to keep rental profit roughly flat. From there the pressure continued into G&A, which rose to EUR 1.78 million from EUR 1.01 million in 2024, mainly because of professional fees, payroll, and the adjustments required for life as a bond issuer.

The more interesting detail is that management and other revenue, and management expenses, both stood at EUR 2.499 million. That means this is not a new profit layer. It is largely a pass-through line. What really drives the economics of the business is the rent line itself.

The residential engine is still holding

The good news is that residential still provides real operating proof. New-letting rent reached EUR 8.59 per sqm per month, versus EUR 8.2 in 2024 and EUR 7.36 in 2023. Tenant turnover stayed around 10%, giving the company a built-in mechanism for rent uplift. Management also estimates that the gap between existing rents and market rent can still support 3% to 4% annual like-for-like growth in the coming years, plus another 0.5% to 1% from rent adjustments on existing leases.

That is a reasonable thesis, but it still needs to be read carefully. Like-for-like growth already slowed to 4.18% in 2025 after 5.85% in 2024 and 9.05% in 2023. Still good, but the direction is moderation rather than acceleration.

Hamm is a strong anchor, but also a reminder that not all the value is hidden

The three very material Hamm assets are an important quality anchor. The attached valuation report assigns them a combined value of EUR 34.98 million, roughly 30% of the company’s total investment property. Temporary vacancy there is only 2.97%, current annual rent is EUR 1.75 million, and market rent is estimated at EUR 1.84 million.

That matters because Hamm proves the company can buy, stabilize, and raise rents. But it also shows that part of the upside has already been pulled forward. The gap between current income and market rent in this anchor portfolio is only about EUR 91 thousand. So in this part of the book, the story is less “huge hidden value” and more “keep operating well and hold occupancy.”

The commercial tail is small, but still large enough to weigh

The company is right to frame itself as a residential platform, but two of its three office buildings are still material assets. Leithestr. 47 is the important example: occupancy fell to 83% in 2025 from 100% in 2024, and prior revaluation gains turned into a EUR 486 thousand revaluation loss. With a EUR 10.56 million value and 69.5% asset-level LTV, this is not large enough to change the main thesis, but it is certainly large enough to affect tone.

By contrast, the other two commercial assets look more stable. So the message is not that commercial is breaking the company. It is that the company is not yet a pure residential story. As long as this layer remains, it will keep influencing how the portfolio value is read and how much noise the filings carry.

The moat is not brand. It is local operating capacity

Living Stone is not a meaningful-scale player in the context of the German housing market. The report says so explicitly. That means its edge does not come from absolute size. It comes from focus. The company works in the same region, owns an internal management and operating setup, has no dependence on a single broker, and explicitly says that rents on new leases in acquired assets shortly after acquisition were 20% to 25% above the last rents achieved by the sellers.

If that remains true over time, that is the real core of value. If it starts to weaken, what will remain is mainly the asset base and the debt stack.

Cash Flow, Debt, And Capital Structure

The relevant cash lens here is the parent company

In Living Stone’s case, looking only at NOI or even consolidated cash flow is not enough. The more relevant picture is all-in cash flexibility at the parent, because that is where the public bond sits and where the public buffer is really tested. On a consolidated basis, the company generated EUR 3.77 million of operating cash flow in 2025. That is respectable. But after EUR 5.92 million of investment activity, cash would have gone down before financing.

At the parent level the picture is sharper. Operating cash flow was only EUR 474 thousand. Investing cash flow was negative EUR 7.4 million. The parent ended 2025 with EUR 14.26 million of cash, but that happened because financing activities brought in EUR 20.86 million. In other words, the cash cushion exists, but it still rests on capital-markets access and funding rather than on a thick stream of upstream cash.

This chart highlights the gap between the layers. The consolidated business can produce cash, but the parent does not yet enjoy a self-explanatory stream that alone accounts for the cash balance. That is exactly why the public market will keep reading the company through the funding lens.

The debt structure is better, but not comfortable enough to forget

The good news is that the debt structure improved. Bank and other debt fell to EUR 55.87 million from EUR 69.41 million in 2024 after the Arbel repayment. As of the report date the company had no floating-rate credit, and most bank debt carried fixed rates in a 1.25% to 4.19% range. That matters, because rates can still hurt values and refinancing, but they are not currently hitting operating cash flow directly through open floating-rate exposure.

On the other hand, the bond layer is not cheap. The bond carries a 7.18% coupon, an 8.3% effective rate, and it is unrated and unsecured. Principal amortizes 10% at the end of 2027, another 10% at the end of 2028, and 80% at the end of 2029. That is not an immediate maturity wall, but it does make clear that this is still not a property company that can afford to stop thinking about public-market access.

The covenants provide room, but not full freedom

At the bond level, the minimum equity requirement is EUR 28 million and the net financial debt-to-CAP ratio is capped at 73% through the end of 2026 and 72% thereafter. At year-end 2025, equity attributable to shareholders stood at EUR 47.14 million and the net debt-to-CAP ratio was 63.5%. So there is real room today. This is not a covenant-on-the-edge story.

But covenant room is not the same thing as capital freedom. When parent cash flow is still small, every additional acquisition, every valuation hit, or every delay in turning a new asset into NOI can move funding accessibility back to the center of the story.

Even the specific debt says something about the risk type

The Hamm loans are a good example. They are non-recourse, secured by the three assets, and the company was in compliance at year-end 2025 and at the report date with the annual net rental-income covenant of at least EUR 1.6 million, versus actual annual net rent of about EUR 1.7 million. There is also an annual CAPEX commitment of EUR 295.2 thousand. In other words, even the best assets are not fully “free value.” They still sit inside an operating and financing discipline.

The balance-sheet picture looks better than a year ago, but it is worth remembering why. Equity is higher and the expensive bridge is gone. True. But the path there also ran through fresh equity and new public debt. That is not the final steady state. It is an intermediate station.

Outlook And What Comes Next

The first finding: the rent engine still works. Management is guiding to 3% to 4% annual like-for-like growth from turnover, plus another 0.5% to 1% from rent adjustments on existing tenants.

The second finding: the company says that in 2026 no additional funding sources should be required beyond the IPO proceeds for ongoing operations. But in the same breath it says that additional asset acquisitions could require more equity, more debt, or other funding sources.

The third finding: FFO is still not mature enough to serve as the anchor metric. That is an important sentence because the company says it about itself.

The fourth finding: Hamm proves that the strategy can work, but precisely because of that, 2026 becomes a test of replication rather than of storytelling.

That leads to the right name for 2026: a proof year with an ongoing funding test. Not a breakout year, because the company is not there yet. Not a reset year either, because the existing business works. Rather, a year in which the company has to show that three things can happen at once.

First, rent growth needs to continue without relying only on a broad narrative of “market gap.” The market will want to see 2025 translate into NOI and cash, especially after a year in which rental revenue rose but rental profit barely improved.

Second, the late-2025 and early-2026 acquisitions must not reopen the funding gap. Management’s statement that 2026 operations do not require additional sources sounds good, but it only holds as long as the company does not accelerate external growth again. The moment a new deal enters the picture, especially something like the Mettmann negotiation, the market immediately moves back to underwriting the funding side.

Third, the public layer needs proof that asset value is actually accessible. That can come through stable rent growth, good integration of new acquisitions, continued covenant room, or a rising share of cash reaching the parent without another financing event.

This may be the heart of the thesis. In 2024 it was easier to talk about a jump because fair value worked in the company’s favor. In 2025, once the noise is stripped out, what remains is a business that has not yet matured into a clearly visible shareholder-cash machine. That is not a collapse. It is simply not full maturity yet.

What must happen over the next 2 to 4 quarters for the thesis to strengthen? The market needs to see continued leasing momentum that preserves the rent gap, orderly absorption of the new properties without renewed balance-sheet pressure, stability in the commercial tail, and above all evidence that parent-company cash in 2026 is not just a leftover from the 2025 financing cycle.

Risks

The first risk is funding accessibility, not existential risk. The company is currently within covenants, it has no floating-rate credit, and Arbel is behind it. But if growth remains fast, and if the Mettmann deal or similar deals close, the market will again test how wide the funding window really is for a single unrated, unsecured bond issuer.

The second risk is regulation and turnover dependence. A meaningful part of the thesis rests on turnover remaining around 10% and continuing to allow reletting at market levels. If turnover slows or regulation gets tighter on rent increases, organic growth can decelerate faster than it currently appears.

The third risk is valuation sensitivity and refinancing conditions. The company shows sensitivity of about EUR 4.72 million to a 25-basis-point increase in the discount rate for residential investment property. That is not an immediate covenant threat, but it is enough to remind readers that value is still rate-sensitive even if current cash flow is less directly exposed.

The fourth risk is noise from the commercial layer. Leithestr. 47 already showed lower occupancy and a revaluation loss in 2025. Even if commercial is only about 15% of the portfolio value, it is enough to complicate a story that wants to be read as a clean residential platform.

The fifth risk is execution risk in acquisitions. In Velbert, Monchengladbach, Mulheim, and possibly Mettmann, the company is relying on local know-how to translate into higher rents. If some deals come in at the right price but without the operating uplift, the claimed deal-flow advantage can quickly become balance-sheet load.

Conclusions

Living Stone ends 2025 as a residential platform that clearly knows how to operate. It is raising rents, maintaining occupancy, running a real local operating platform, and it has removed expensive bridge debt. But this is still not a mature and clean shareholder-cash story. It is a platform still building the bridge between local NOI and accessible cash at the parent.

Current thesis in one line: Living Stone’s rental engine works, but 2025 shows that the public story still depends too much on financing and too little on recurring cash already reaching the parent.

What changed versus the simpler reading of the company? First, the move into public bond status turned the capital structure itself into part of the thesis. Second, 2025 makes clear that rental revenue is no longer the only key question. The more important question is the quality of the translation from rent growth into profit, FFO, and parent-company cash flow.

The strongest counter-thesis is that the company has already done most of the hard part. Arbel is gone, there is no floating-rate credit, the covenants are reasonably comfortable, Hamm validates the model, and continued acquisitions can lift NOI faster than the market expects. That is a good argument. The problem is that it assumes growth and funding will keep working smoothly together.

What could change the market reading over the short to medium term? Four things: holding onto several more points of rent growth in 2026, showing that new assets are absorbed without fresh balance-sheet pressure, stability in the commercial tail, and progress toward a situation in which the parent produces more operating cash and depends less on financing events.

Why does this matter? Because for a bond-only issuer like this, good assets alone are not enough. What matters is how much of that value is actually accessible to the parent in time.

What must happen over the next 2 to 4 quarters for the thesis to strengthen, and what would weaken it? The thesis will strengthen if leasing momentum and rent uplift continue, if 2026 shows better cash reaching the parent, and if new deals come only at a pace the balance sheet can absorb. It will weaken if the company again needs incremental financing to sustain growth, if the commercial assets keep weighing on results, or if organic rent growth slows more sharply than expected.

---