Agellan in the First Quarter: Prime Is Current and Offices Still Pressure NOI
Agellan's first quarter did not change the property-value story much, but it made the Prime refinancing clock more explicit: $161.1 million is now classified as current while the office assets almost stopped contributing to NOI. Logistics still works, but interest expense, negative shareholder-level AFFO, and the February 2027 refinancing date now define the read.
The first quarter confirms that Agellan is not being held back by the entire asset base, but by the financing layer and the remaining office exposure. Business and logistics parks continued to grow revenue and NOI, but the four office assets fell to average occupancy of about 43% and almost stopped contributing to NOI. At the same time, the $161.1 million Prime preferred financing is now classified as a current liability ahead of its February 2027 maturity, moving the issue from a future watch item to an active refinancing process. There is a positive signal: 33 potential lenders signed NDAs and two already submitted term sheets, so the company is not facing an empty wall. Still, AFFO attributable to the company's shareholders turned slightly negative, interest expense rose sharply, and quarterly cash flow benefited from reserve releases and payment timing. That makes 2026 look less like a clean recovery year and more like a bridge year in which the company must prove two things at once: logistics NOI can continue to absorb the office weakness, and Prime can be refinanced or extended without giving up too much value.
What Agellan Really Holds Now
Agellan is a U.S. income-producing real estate company listed in Israel through bonds, without a traded equity security of its own. Its portfolio is focused on business and logistics parks in the United States, alongside four office properties. That matters because this report should mainly be read through a creditor lens: not as a classic equity growth story, but as a company trying to preserve NOI, collateral value, and access to refinancing.
The economics are simpler than the legal structure. The assets need to produce rent, NOI has to support debt-yield and debt-service ratios, and the company needs enough accessible cash upstream to service a shekel bond and dollar liabilities. In this quarter, the logistics core still does most of the work, but the financing layer sets the story. In the previous annual review, the question was whether 2026 would become a successful bridge year after the 2025 refinancing. The first quarter says the bridge has started, but it is not yet comfortable.
The number that can mislead is the relatively small revenue decline. Revenue fell only 4.4% to $18.1 million, and NOI fell 4.4% to $11.2 million. That sounds stable. The segment split tells a different story: logistics grew, offices weakened sharply, and interest expense consumed much of what remained below NOI.
Logistics Holds, Offices Barely Contribute
The split between the two parts of the portfolio is sharp. Business and logistics parks increased revenue from $14.8 million to $16.1 million, and gross profit rose from $10.0 million to $11.0 million. Offices moved the other way: revenue fell from $4.1 million to $2.1 million, and gross profit fell from $1.7 million to only $0.2 million. This is not a small decline in a small segment. It is almost the disappearance of a layer of NOI that previously still helped fund the company.
The operating explanation is clearer than the consolidated figure. Average occupancy in the four office assets fell from about 72% to about 43%, while the rest of the logistics and industrial portfolio maintained average occupancy of about 91%. This is not a broad portfolio collapse. It is a logistics portfolio that continues to work, paired with an office tail that reduces the company's margin of safety exactly when financing requires more proof.
McIntosh remains the asset that requires careful reading. Its fair value at quarter-end stayed at $122.7 million, but period-end occupancy was 69.08%, compared with 92.27% in 2025. First-quarter NOI was $1.26 million, a simple annualized pace of about $5.0 million if nothing changes, compared with $7.05 million of NOI in 2025. That does not mean the asset lost more value during the quarter. It means the move from historical income to new leasing has not yet been completed. McIntosh is therefore still the first proof point: a stable valuation is not enough. The company needs leasing that restores NOI, not only a lack of additional fair-value pressure.
Prime Is Current, and Cash Is Not Building Enough Cushion
The most important accounting event this quarter is the classification of Prime financing as current. The $161.1 million liability matures on February 7, 2027, and that classification created a consolidated working-capital deficit of $142.9 million. The board concluded that this does not represent a liquidity problem, but the explanation depends on an action that still needs to happen: replacing Prime with a new lender or extending the current maturity with Prime itself.
There is real progress, but not closure. Thirty-three potential lenders signed NDAs, two submitted term sheets, and the rest are at various internal stages before formal offers. That changes the quality of the risk relative to the annual report: the company is no longer only saying it will need a solution, it is showing an active financing process. On the other hand, no new financing has been signed, Prime extension terms are not final, and Prime's preferred return rises from 11% to 15% in August 2026 if the issue is not solved before then.
Financial headroom exists, but it is not broad across every layer. The bond is not close to immediate acceleration, but the loan-to-collateral ratio is already 73.1%, compared with a 75% threshold for interest adjustment and a 77% acceleration threshold. Under the Wells Fargo financing, debt yield is 8.1% versus a 6.5% requirement, and debt-service coverage is 1.17 versus a 1.10 requirement. Under Prime, debt yield is 7.11% versus 6.14%. That is enough to avoid an event, but not enough to make 2027 a secondary issue.
| Financing Layer | Quarter-End Metric | Relevant Threshold | Why It Matters |
|---|---|---|---|
| Prime | Debt yield 7.11% | 6.14% | Still above the level that prevents the lender from taking over operational control |
| Wells Fargo | Debt yield 8.1% | 6.5% | Better headroom, but dependent on continued NOI from the pledged assets |
| Wells Fargo | Debt-service coverage 1.17 | 1.10 | Relatively narrow cushion against a cash-trap mechanism |
| Series A bonds | Loan-to-collateral 73.1% | 75% / 77% | Closer to interest adjustment than to full comfort |
Operating cash flow looks positive: $7.1 million in the quarter, compared with $6.1 million in the same quarter last year. But all-in cash flexibility after actual cash uses is much narrower. After nearly neutral investing cash flow of negative $0.3 million and $5.7 million used in financing activity, cash increased by only $1.1 million. That is not acute weakness, but it is not rapid safety-buffer building before 2027 either.
The source of that result matters. Investing activity consumed very little cash on a net basis mainly because senior-lender reserves were released, including amounts related to Supervalue, 1325 Oakbrook, and Plainfield. At the same time, additions to investment properties were $2.36 million. The net investing line therefore does not mean the assets required no capital or tenant investment. It means timing and reserve releases helped the quarter.
The stronger warning signal is AFFO. On management's measure, total AFFO moved from positive $4.2 million in the same quarter last year to negative $0.5 million, and AFFO attributable to the company's shareholders moved from positive $3.1 million to negative $0.2 million. The decline mainly reflects higher interest expense, which fits the income statement: finance expenses rose from $10.2 million to $14.1 million, even before the company paid bond interest in the quarter, since the bond pays interest semi-annually in June and December.
That gap is important because it links the real estate to the financing structure. At the asset level, there is still NOI production. At the company level, interest, currency effects, and public-company costs weaken the adjusted profit that remains for shareholders. The issue is therefore not only whether the assets are good. It is whether the good assets are strong enough to carry the debt stack until Prime is refinanced.
What Almadev Changes and What Still Has to Happen
After the balance-sheet date, a new potential event entered the picture: Almadev, the upstream controlling shareholder, is exploring a TASE equity IPO. If the IPO is completed, the ultimate controlling shareholders are expected to acquire the minority partner's 31.26% interest in Crest Agellan LLC, and the company would end up holding 100% of the portfolio instead of the current 68.74%. That could reduce minority complexity and increase the company's economic share of the assets, but the IPO and minority purchase are not certain, and the Almadev IPO proceeds are not expected to fund the transaction. This is a possible positive option, not a substitute for solving Prime.
The next proof point is clear. The company needs to turn lender interest into a binding agreement or an extension with Prime, keep debt-yield ratios above the relevant thresholds, and show that logistics NOI can keep growing even after McIntosh and the office assets are tested on actual occupancy and NOI. The counter-thesis is that the market may overstate the risk: there is no covenant breach, operating cash flow is positive, and the logistics core remains relatively strong. But until Prime is refinanced or extended on reasonable terms, this quarter does not close the question. It only shows that the company has entered the stage where lender conversations must become cash, documents, and dates.
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