G City in the First Quarter: Citycon Lifted Equity, Debt Still Sets the Pace

G City opened 2026 with a quarter that strengthens the positive side of the story, but does not remove the main constraint. The properties themselves still look healthy: same-property NOI rose 5.4%, tenant sales rose 3.1%, and the company kept its 2026 guidance for 6% same-property NOI growth and income-producing real estate FFO of NIS 1.98 to NIS 2.08 per share. The Citycon deal is no longer only a future control move: the stake rose to 86.4%, equity increased by about NIS 619 million, and Citycon's special dividends turn part of the move into real cash. Still, the quarter shows that value still has to pass through the balance sheet: at the extended-solo level, gross debt fell, but cash, marketable securities and short-term investments fell faster, so net debt rose from NIS 12.9 billion to NIS 13.2 billion. Bond and share buybacks and the higher dividend signal confidence, but they also consume cash while the company still needs to prove disposals, refinancing and FFO that reach the shareholder layer. The coming quarters will be judged less by revaluations and more by a practical question: will Citycon and group disposals actually reduce net debt and release excess cash, or will the improvement remain mainly in leverage ratios that look better because equity increased?

The Properties Work, Not All the NOI Decline Is Weakness

G City is a global income-producing real estate company operating in Israel, Central Europe, Northern Europe, the U.S. and Brazil. It manages a large property portfolio through redevelopment, disposals, refinancing and higher control in platforms where it sees a discount. The machine is assets plus leverage: property value reaches shareholders only when it becomes disposals, refinancing, subsidiary dividends or preserved liquidity.

The headline number looks weak: rental and other revenue fell 10.5% to NIS 509 million, and NOI fell 8.1% to NIS 354 million. This is not a clean operating deterioration. The decline came mainly from currencies and NOI from properties sold during the past year, while the remaining properties continued to grow. Same-property NOI rose 5.4%, and proportional NOI excluding exchange-rate changes rose 14.4%.

The geographic breakdown reinforces that distinction: same-property NOI rose 6.3% in Israel, 6.4% at Gazit Horizons in the U.S., 4.5% at Citycon and 11.1% at G Europe, while Brazil was almost flat at 0.1%. Visitor traffic rose 0.7% and tenant sales rose 3.1%, so the quarter is about asset mix and currency, not disappearing demand.

FFO sharpens the positive side. Management-basis FFO rose to NIS 125 million from NIS 69 million in the comparable quarter, and FFO per share rose to NIS 0.68 from NIS 0.35. Even excluding special financing activities, FFO from income-producing real estate rose to NIS 101 million and NIS 0.55 per share. That is real progress, but it does not close the debate alone. Part of the quarter benefited from a NIS 32 million gain on bond repurchases, and part of the improvement sits above the parent-company balance sheet layer.

Citycon Has Brought Cash, but Net Debt Has Not Fallen Yet

The higher Citycon stake is what separates this quarter from a routine update. The tender offer was completed in March 2026, and the company purchased about 50 million Citycon shares, or 27.3% of its equity, for about EUR 190 million. After the deal, ownership rose to 86.4%. The immediate impact is clear: equity attributable to shareholders increased by about NIS 619 million, or NIS 3.46 per share, and the company expects an annual FFO addition of about NIS 38 million, or NIS 0.21 per share.

More important, the net cost of the move now looks different from the cost implied when the offer was launched. Citycon paid a quarterly dividend of EUR 0.2 per share and declared a special dividend of EUR 0.9 per share, with the company's share of dividends received in April reaching about EUR 164 million. As a result, the tender-offer consideration, net of special dividends, is presented at about EUR 26 million. This is not only an accounting uplift. Part of the move has already returned to the cash account.

Still, Citycon is not frictionless. The deal reduced extended-solo leverage by about 2.3 percentage points, but increased consolidated leverage by about 2.7 points. G City's rating returned to a stable outlook, while Citycon's debt and issuer ratings moved to B+ and B. Its new EUR 520 million credit facility, completed 2026 bond redemption and intended 2027 redemption reduce near-term uncertainty, but the bigger task remains about EUR 1 billion of non-core disposals within 24 months and continued cash upstreaming.

The gap between improved leverage ratios and cash position is the most useful part of the quarter. At the extended-solo level, interest-bearing liabilities fell from NIS 14.99 billion at the end of 2025 to NIS 14.28 billion at the end of March 2026. But cash, marketable securities, short-term investments and FX-derivative balances deducted from debt fell from NIS 2.08 billion to NIS 1.13 billion. Net debt therefore rose slightly, from NIS 12.91 billion to NIS 13.15 billion.

Capital Return, Short Interest and Maturities Raise the Proof Bar

Two cash frameworks need to be separated. Current extended-solo operating cash flow was NIS 144 million, up from NIS 84 million in the comparable quarter, and that is an improvement. But on a consolidated basis, operating cash flow was negative NIS 42 million, mainly because of about NIS 70 million of tax advances connected to disputed Polish assessments. The company funded the quarter partly through about NIS 1.19 billion of net property disposals and about NIS 1.21 billion of net loans and credit lines.

That cash quickly went to real uses: about NIS 686 million for the purchase of non-controlling interests in Citycon, NIS 703 million for bond repayments, NIS 85 million for treasury-share purchases and NIS 143 million of group dividends. After the balance sheet date, the company added NIS 71.7 million of bond repurchases, NIS 66.6 million of share repurchases, and a new NIS 0.20 per share dividend, about NIS 34.3 million, payable in June.

These are not necessarily poor uses of cash. Bond repurchases create early-redemption gains and reduce debt, while share repurchases can be good capital allocation when management sees a deep discount. But when this happens alongside an increase in the quarterly dividend from NIS 0.16 to NIS 0.20 per share, the message is that the company is already returning capital while it still needs to prove a clean decline in net debt.

Short-interest data show that part of the technical pressure already fell before the report was published. On May 1, 2026, short interest stood at 21.79% of the float and SIR stood at 15.09. By May 15, short interest had fallen to 6.07% of the float and SIR to 3.1. Still, even 6.07% of the float is far above the sector average of 1.29%. The market is probably not debating only property quality. It wants proof that Citycon control, group disposals, bond repurchases and the new dividend can coexist without putting leverage back at the center of the story.

The maturity schedule keeps that debate alive. The company has NIS 2.7 billion of liquidity and credit lines, of which about NIS 2.1 billion sits at the company and wholly owned subsidiaries, but consolidated repayments are NIS 2.37 billion in 2026 and another NIS 3.01 billion in 2027. In addition, assets held for sale of about NIS 1.86 billion, mostly at Citycon, need to become cash at a pace that lowers debt. The coming quarters will therefore measure the move from paper value and planned disposals to cash that reduces net debt.

Conclusion

The first quarter of 2026 improves G City's story, but does not close it. Property-level activity looks better than reported NOI, Citycon has already contributed to equity and cash, and FFO per share has returned to a level that allows the company to keep stable annual guidance. On the other hand, extended-solo net debt has not yet fallen, dividends and buybacks consume cash, and the newly created value depends on executing disposals and maintaining access to financing.

The current read is that the company has moved from "are the properties recovering" to a harder stage: can that recovery reduce net debt and release cash to shareholders. The counter-thesis is strong: if Citycon continues redeeming debt, selling assets and distributing surplus cash, and if bond buybacks keep reducing financing costs, the market may reassess the discount quickly. Until that proof arrives, the report shows a company with better assets, stronger equity, and the same basic demand from the next quarters: show that value created in the portfolio reaches cash, not only leverage ratios.