Ashtrom Properties in the First Quarter: NOI Advances, but Cash Still Leans on Refinancing

Ashtrom Properties gave a partial answer in the first quarter to the question left open after 2025: NOI and FFO are genuinely moving up, and the U.K. is already contributing more property income. But this is still not a harvest year. The quarter proves that the portfolio can grow, mainly through Newcastle and properties acquired overseas, but it also shows who is paying for the transition: lower cash, a U.K. bridge loan, German debt refinancing, short-term credit and a dividend paid before the quarter itself generated enough cash to cover it on its own. Operating cash flow of NIS 9 million versus management FFO of NIS 24.8 million is an improvement from the comparable quarter, but all-in cash flexibility after the quarter's actual cash uses still relied on positive net financing rather than operating surplus. The quarter therefore does not contradict the cautious thesis from the previous annual analysis. It updates it: the engines are working, especially in the U.K., but 2026 will still be decided by refinancing, occupancy, financing cost and the ability to turn acquisitions into NOI that also reaches FFO and cash. The next proof point is simpler than the headline: whether Newcastle, Cologne and the existing properties add income without adding more financing friction.

NOI Is Advancing Through the U.K., Not Fair Value

Ashtrom Properties is an income-producing real estate company active in Israel, the U.K. and Germany, alongside development activity in Israel. It should not be read only through quarterly net profit, because a large part of the bottom line can move with fair-value changes, currencies and taxes. Its economics sit on three more useful variables: NOI, net operating income from income-producing properties, FFO, the real estate metric that strips out fair-value and other non-cash items, and the ability to refinance debt without letting cost absorb the operating improvement.

On that basis, the first quarter looks better operationally. Company-share NOI from existing properties rose to NIS 94 million from NIS 90 million in the comparable quarter, up about 4%. Consolidated rental income from investment property rose to NIS 80.4 million from NIS 73.7 million, up about 9%, and management FFO attributable to shareholders rose to NIS 24.8 million from NIS 20.4 million, up about 21%. The rental improvement came from real and inflation-linked rent growth and the inclusion of income-producing properties acquired in the U.K. and Germany during 2025 and 2026.

Still, net profit fell to NIS 19.7 million from NIS 30.7 million, mainly because the comparable quarter included a NIS 14.2 million fair-value gain while this quarter recorded a NIS 3.4 million fair-value loss. Operating profit fell to NIS 46.1 million from NIS 67.3 million even as gross profit rose. The quarter is therefore not simply a "profit fell" story or a "NOI rose" story. It is an operating improvement whose quality depends on the financing that carried the growth.

The current mix explains why the U.K. remains the key monitoring point. In the first quarter it generated NIS 23 million of NOI, about 24% of property NOI, with 88% occupancy and an 8.5% weighted capitalization rate. Germany contributed NIS 18 million, about 19% of NOI, at 90% occupancy and a 5.0% capitalization rate. Israel still holds the core base through malls and retail, offices, industrial and logistics, and mixed-use properties, but the more meaningful growth in the quarter came from overseas activity.

The U.K. platform stepped up because of Newcastle. In February, the company acquired a retail property in the Newcastle area for about GBP 102.5 million, or roughly NIS 435 million including transaction costs. The property includes about 36,000 square meters and around 1,061 parking spaces, and is 97% occupied by roughly 31 tenants. This is a higher-quality income asset than a property that still needs heavy lease-up, so it strengthens the argument that the U.K. already adds a mostly occupied rental base.

But a reader who stops at occupancy misses the second half. The acquisition was funded with equity and a bridge loan equal to 65% of the acquisition value. The bridge loan was repaid after the balance sheet date and replaced by a U.K. bank loan expected to mature in May 2029. Newcastle therefore improves portfolio quality, but it does not reduce financing dependence. It replaces "a property that still needs to prove income" with "a property that is already almost fully leased," but still places debt against it that needs to roll on reasonable terms.

The segment numbers support that read. U.K. revenue on the consolidated plus proportionate basis rose to NIS 24.3 million from NIS 19.4 million in the comparable quarter, and gross profit rose to NIS 22.9 million from NIS 18.3 million. Yet segment operating profit rose only to NIS 13.8 million from NIS 13.2 million, partly because of a NIS 2.4 million fair-value loss and higher G&A. At the same time, financial liabilities serving the U.K. segment reached NIS 1.88 billion versus segment real estate assets of NIS 1.84 billion. This is not an immediate distress claim, but it is a reminder that U.K. growth comes with a very large debt base relative to the segment property line.

Germany also received a new financing layer. In February, a German subsidiary signed a EUR 95 million refinancing agreement, using it to repay EUR 84.5 million of existing loans. The loan is secured by six properties, bears three-month Euribor plus a 1.79% margin, and matures in January 2031. The company also entered into an interest-rate cap that limits the maximum effective rate to 4.5%. That is positive because it extends maturity and reduces open rate risk, but it also highlights that the company is still in an active refinancing phase, not in a stage where the assets are releasing surplus cash with little dependence on debt markets.

The Cash Flow Shows Who Funded the Expansion

Cash flow is where the quarter shifts from a good operating story to a mixed financing story. Operating cash flow was NIS 9.1 million, an improvement from negative NIS 3.9 million in the comparable quarter. That is positive, especially when management FFO also rose. But it does not explain the whole quarter, because the company used NIS 396.3 million of net cash in investing activity, mainly NIS 434.9 million to acquire investment property and NIS 56.1 million of investment in investment property, partly offset by NIS 63.1 million of proceeds from real estate disposals.

Two cash frameworks need to be separated. Normalized cash generation from the existing property base is hard to measure in one quarter, especially while the company is buying and refinancing assets. All-in cash flexibility after the quarter's actual cash uses is clearer: after operating activity, investments, dividends, repayments, new loans and currency effects, cash fell by NIS 202.2 million during the quarter. In other words, the business generated a small positive operating cash flow, but the company's full capital movement consumed cash and required financing.

The interesting detail is not only Newcastle. The financing side was also heavy: the company received NIS 300 million of net short-term bank credit, received NIS 383.4 million of long-term loans, repaid NIS 320.2 million of long-term loans, repaid NIS 140.4 million of bonds and paid a NIS 40 million dividend. This is a company with funding access and debt-management ability, but not a quarter in which operating activity alone paid for growth and distributions.

The dividend matters because it illustrates the gap between profit, FFO and cash. The company distributed NIS 40 million in March. In the same quarter, profit attributable to shareholders was NIS 20.3 million, management FFO was NIS 24.8 million, and operating cash flow was NIS 9.1 million. This does not mean the dividend is inherently risky, because real estate dividends should be assessed over time rather than one quarter. But in this quarter the distribution was part of a broader sources-and-uses structure, not the output of clean quarterly surplus cash.

Funding Remains Accessible, but Headroom Is Less Comfortable Than at Year-End

Several facts prevent an exaggerated stress read. After the balance sheet date, in April, S&P Maalot published a rating report updating the company to ilA with a stable outlook. The company also says there are no special restrictions on upstreaming funds from controlled entities, that it has a NIS 225 million credit facility available during the coming year, and that consolidated cash and deposits near the report date stood at about NIS 347 million. In addition, the short-term U.K. loan of about GBP 69 million, or roughly NIS 289 million, was refinanced after the balance sheet date into a longer-term loan.

But that relief does not erase the fact that the balance sheet became tighter during the quarter. The consolidated working-capital deficit reached NIS 1.58 billion, and the solo deficit reached NIS 912 million. The company explains that the deficit mainly comes from credit, loans and bonds classified as short term, including bank credit in defined project-finance facilities. In income-producing real estate this is not necessarily a distress signal, because refinancing and current maturities are part of the model. The unusual part is the timing: in the same quarter in which the company bought a large U.K. asset and paid a dividend, a larger share of debt moved through the short-term layer.

The covenants remain comfortable, but less so than at the end of 2025. For Series 9, 10, 13 and 14, net financial debt was NIS 4.72 billion, equity to assets was 31.6%, net financial debt to CAP was 65.2%, and net financial debt to NOI was 12.2. At the end of 2025, the continuity memory showed more comfortable ratios: equity to assets of 33.7%, net debt to CAP of 62.8%, and net debt to NOI of 12.11. This is still not a danger zone, but the direction shows that growth is not free. It uses part of the financing headroom.

Another post-period event reinforces the same point from both sides. In May, a German subsidiary, held 49% through the chain, agreed to acquire a Cologne office building for EUR 41.9 million, at about 91.5% occupancy and expected rent of about EUR 2.8 million. This is an occupied asset, not an empty-property bet, but it was funded with equity and a four-year local bank loan, so it also adds another refinancing date to the monitoring list.

Conclusion

The first quarter of 2026 strengthens the view that the company is not operationally stuck. NOI, FFO and rental income advanced, the U.K. already looks like a more material income engine, and Newcastle adds an almost fully occupied asset to the portfolio. But the quarter also shows that this progress still has to pass through a heavy financing layer. Investments are larger than operating cash flow, the dividend was not covered by this quarter alone, and short-term debt jumped before part of it was refinanced after the balance sheet date.

The current read is that the company had a positive but incomplete proof quarter: operations are improving, but they still do not generate enough cash to make 2026 a harvest year. The counter-thesis is clear. High-occupancy assets, an ilA stable rating, German refinancing to 2031, a lengthened U.K. loan and strong Israeli core assets can make this quarter look like a reasonable opening to a growth year. The next few quarters will be decided by whether new NOI also appears in higher FFO, whether operating cash flow rises above a symbolic level, and whether refinancing closes without consuming more headroom. If that happens, Newcastle and Cologne will look like platform expansion. If not, they will look more like quality acquisitions bought while the balance sheet already required more caution.