Adgar Investments in the First Quarter: Profit Returned, but Canada Still Drags FFO

Adgar Investments did not report a quarter that changes the 2025 story. It reported a quarter that makes the story sharper. Net profit swung from a NIS 3.0 million loss in the comparable quarter to NIS 34.9 million profit, but most of that improvement came from a sharp reversal in net financing expenses rather than from a clean improvement in the assets themselves. NOI fell 5.2%, real FFO attributable to shareholders fell 10%, and Canada remains the place where accounting value and planning upside still have to become occupancy and rent. On the other hand, the company is not under immediate balance-sheet pressure: cash rose to NIS 510.5 million, unused credit facilities total NIS 728 million, and the bond market reopened through the Series 13 expansion. The blocker is liquidity quality, not liquidity existence: a meaningful part of current maturities is intended for refinancing, the large facilities expire during 2026, and the new dividend policy depends on FFO that still has to prove stability through the year. That makes 2026 look more like a stabilization and proof year than a full value-unlocking year. The near-term test is fairly concrete: signing 120 Bloor, keeping Adgar 360 as a stable financing anchor, and advancing Adgar Hub without turning the data-center option into another capital outlay before income.

Company Map

The company operates an income-producing real-estate portfolio across four markets: Israel, Poland, Canada and Belgium. At the end of March 2026 it managed 38 income-producing properties with total lettable area of about 541 thousand square meters, of which about 409 thousand square meters were attributable to the company, and total occupancy was about 85%. The core use is offices, but two additional layers matter for valuation: flexible workspace under Brain Embassy, and development rights embedded in existing assets.

The economic machine is a mix of income-producing real estate and asset-enhancement optionality. Israel is the valuation and credit anchor, Poland is the steadier operating leg, and Canada is the main source of the gap between accounting value and value accessible to shareholders. The market is pricing that gap carefully: compared with EPRA NAV of about NIS 1.89 billion, or NIS 10 per share, the latest market value was about NIS 835 million. That does not mean the market is ignoring the assets. It means the market wants proof that this value can move through occupancy, debt refinancing, rights monetization or accessible cash flow.

The geographic split explains why this quarter is not only about the profit line. Israel generated NIS 30.0 million of NOI in the quarter, Poland NIS 22.5 million, Canada NIS 15.5 million and Belgium NIS 3.3 million. Canada represents 23% of the portfolio's net asset value, but for now it contributes less to operating quality because occupancy is lower and local NOI is still declining. That is where both the risk and the upside sit.

Profit Improved, but Canada Still Drags FFO

The eye-catching number is the return to net profit. First-quarter net profit was NIS 34.9 million, compared with a NIS 3.0 million loss in the comparable quarter. The path matters more than the result: net financing expenses fell from NIS 63.9 million to only NIS 7.5 million, mainly because of foreign-exchange effects, hedges and indexation. That is a real improvement in the income statement, but it is weaker as evidence of improvement in the assets themselves.

The gap between net profit and real FFO is the warning signal. FFO under the Israel Securities Authority definition actually rose to NIS 29.5 million, but the measure the company presents as real FFO attributable to shareholders fell to NIS 27.9 million. That distinction is not cosmetic. It means the quarter looks better in net profit than in the measure intended to isolate the recurring cash-generating power of the real-estate assets.

NOI also did not weaken equally across markets. Israel declined slightly, mainly because parking and event income at Adgar 360 fell and one contract was extended at somewhat lower rent. Poland rose 3.4% in euro terms, mainly because average occupancy improved. Belgium declined 3.6% in euro terms. Canada fell 5.9% in Canadian-dollar terms, and that is no longer just shekel translation. It is still the weakest business signal in the portfolio.

The previous annual analysis identified Canada as the central bottleneck, and the first quarter did not close that question. Occupancy in Canada was about 78% based on signed contracts at the end of March, while the portfolio table referred to average occupancy of 75%. Canadian NOI fell to CAD 6.8 million, down 5.9% from the comparable quarter, mainly because average occupancy declined. That is not a collapse, but it is not proof that the erosion has stopped either.

The 120 Bloor update is therefore more important than the quarterly number itself. The company is in advanced negotiations to lease all vacant space in the property, about 9 thousand square meters, with the company's share at 50%, and that space represents about 2.8% of lettable area in Canada. If that is signed and occupied on reasonable terms, 2026 can shift from a waiting year to a year in which Canada starts to repair. If it is delayed or signed on weak terms, the market gets another confirmation that the Canadian upside remains mainly a planning story.

The Toronto development-rights layer is also still far from accessible value. In Liberty Village, the potential development framework is significant: up to about 196 thousand square meters, of which about 121 thousand square meters are attributable to the company, including about 74 thousand square meters for residential use. At 120 Bloor, the company is advancing a formal residential development application with rights of 63.7 thousand to 106.6 thousand square meters on the company's share. But the development-rights table includes an important caveat: for the central Liberty Village rights, permit applications have not yet been submitted, and the numbers are based on appraiser estimates. That is real potential, not value that has already reached the execution stage.

Liquidity Exists, but Not All of It Is Free Cash

The all-in cash picture looks comfortable at first glance. Cash rose from NIS 422.2 million at the end of 2025 to NIS 510.5 million at the end of March 2026. In addition, the company had NIS 728 million of unused credit facilities and about NIS 389 million of unencumbered assets and land. These are strong numbers for a leveraged real-estate company, and they explain why the board does not see a liquidity problem despite a negative working-capital position of about NIS 273 million.

Still, the cash was not generated only by the recurring business. Operating cash flow was NIS 39.1 million, but the positive investing cash flow of NIS 65.6 million depended on NIS 65.7 million of compensation for an expropriated property in Canada, alongside NIS 22.5 million of investment in investment property. Financing cash flow was negative NIS 13.8 million, even though the company raised NIS 221.6 million net from the Series 13 expansion, because it simultaneously repaid NIS 217.8 million of bonds and NIS 165.8 million of loans. This is the cash picture of a company managing debt cycles well, not of a company that no longer needs them.

The practical point is current maturities. Of NIS 443 million of current maturities of long-term loans, the company repaid about NIS 148 million in early April, and about NIS 243 million are loans intended for refinancing, mostly with loan-to-value ratios below 57%. This is not immediate covenant pressure, but it is a credit-access test. The Adgar 360 facilities are not permanent either: a NIS 578 million facility is valid until July 31, 2026, and another NIS 150 million facility is valid until December 13, 2026. Therefore the quality of 2026 liquidity will be measured less by the current cash balance and more by the ability to renew, replace or draw these facilities without weaker terms.

The covenants are still comfortable. Equity was NIS 1.60 billion against much lower bond-covenant thresholds, the equity-to-balance-sheet ratio excluding cash was 31.3%, and net consolidated debt to adjusted NOI was 9.6. Even after the additional May dividend, net consolidated debt to CAP is expected to be about 66.1%. This is not a company close to a problem, but it is a company whose discount still reflects the continuing need for an open debt market.

2026 Will Be Measured by Contracts, Financing and CAPEX

The company maintained 2026 guidance of NIS 290-300 million NOI and NIS 110-120 million real FFO attributable to shareholders, compared with NIS 298.7 million NOI and NIS 119.9 million real FFO in 2025. This is not a sharp growth forecast. It is a year in which already-signed contracts have to become occupancy, vacant areas have to be leased, and loans have to be refinanced or extended at up to about 60% LTV and at rates consistent with current market terms.

The first-quarter real FFO rate, NIS 27.9 million, implies about NIS 111.6 million annually when multiplied by four. That is close to the lower end of guidance. Improvement in Canada or Poland can move the year upward, but delays in leasing, more expensive refinancing or additional currency pressure can leave the company with weaker FFO than in 2025.

The distribution layer adds another test. The company adopted a dividend policy of at least 50% of annual real FFO attributable to shareholders, paid NIS 20 million for 2025 and approved an additional NIS 14 million distribution after the reporting period. There is no covenant stress signal, but the dividend should be viewed together with CAPEX, Adgar Hub development and refinancing cycles.

Adgar Hub in Petah Tikva illustrates the dilemma. The company has already invested about NIS 221 million in excavation, shoring and foundation works, and Phase A is planned to include a 16 MW underground data center alongside offices and parking. Shell-level construction cost is estimated at about NIS 120 million, and the next investment decision will come after the building permit and according to market conditions. At this stage it is still a CAPEX-heavy option, not an income-producing asset.

The first quarter gives the company a better starting point than the NOI line alone suggests, but a weaker one than the net profit line may imply. Adgar enters 2026 with sufficient liquidity and proven access to the debt market, but still without the proof that would close the gap between NAV and market value. What would strengthen the year is a signed and occupied 120 Bloor lease, smooth renewal or replacement of the Adgar 360 facilities, and the ability to keep real FFO within guidance while distributing dividends and continuing development. What would weaken it is continued erosion in Canadian occupancy, more expensive refinancing, or progress at Adgar Hub that adds CAPEX before it adds income.