Orion in the First Quarter: Stable Malls, But Cash Has Not Yet Reached Shareholders

Orion opened 2026 with assets that are working, but not with cash that is already clearly accessible to shareholders. Its three Polish shopping centers kept high occupancy, NOI rose slightly to EUR 7.9 million, and rental and other income rose 2.8% year over year. Still, this quarter does not yet prove a straightforward cash-distribution equity. After the spin-off from G City, the new financing layer already controls the reported result: finance expenses jumped, there was no revaluation gain like in the comparable quarter, and net profit turned into a EUR 4.1 million loss. Operating cash flow before tax was positive at EUR 7.4 million, but a Polish tax payment almost erased it in the quarter, even though the indemnity mechanism with G City limits the direct economic hit. The right test is therefore not whether the malls are leased, but whether NOI can pass through interest, tax, pledged deposits, currency effects, and the former parent relationship into positive AFFO and sustainable distributions. In the coming quarters, the market will mainly watch three things: a return to positive AFFO, no further tax surprise from Poland, and covenant comfort even while deposits and debt continue to shape the balance sheet.

Company Setup

Orion is a highly focused income-property company: three shopping centers in Poland, outside Warsaw, held through three wholly owned property companies. The company became publicly listed at the end of 2025 after the spin-off from G City. The first quarter of 2026 is therefore its first real test as an independent public vehicle with bonds, pledged deposits, loans, and its own tax exposure.

Orion is not a broad growth machine. It is closer to a leveraged asset vehicle trying to convert stable NOI into distributable cash flow. In this sector, debt, pledges, pledged deposits, and covenants are not an edge by themselves. The relevant finding this quarter is the gap between the properties and the shareholders: the assets are producing broadly stable NOI, but the listed company is still being measured through financing, FX, tax, and indemnity agreements that came with the spin-off.

The business map is simple, and that simplicity is both the advantage and the constraint. The three assets were valued at roughly EUR 466.0 million at the end of March, with no material change from the end of 2025. Galeria Dominikańska is the largest asset, with a EUR 206.3 million value and EUR 3.4 million of quarterly NOI. Focus Mall contributed EUR 2.7 million of NOI, and CH Biała contributed EUR 1.7 million. Occupancy across the three assets was high, ranging from 97.9% to 99.1%. The immediate problem is not tenant demand. The issue is how much of that income actually passes through the financing and corporate structure.

The Assets Held, Financing Drove the Result

The operating quarter looks acceptable if the analysis stops at NOI. Rental and other income rose to EUR 10.8 million from EUR 10.5 million in the comparable quarter. The company attributes the increase mainly to lower tenant incentives and CPI indexation in existing contracts. On the other side, property operating expenses rose to EUR 3.0 million, mainly due to higher marketing and energy costs. The result was EUR 7.9 million of NOI, almost unchanged from EUR 7.8 million in the comparable quarter, with NOI at 73% of revenue.

That number is good, but it is not enough. In the comparable quarter of 2025, the company recorded a EUR 7.9 million fair-value gain on investment property. In Q1 2026 there was no revaluation gain. Operating profit therefore fell to EUR 6.9 million even though the properties themselves did not deteriorate. The distinction matters: the profit line weakened not because the malls emptied out, but because the current quarter is being measured without an accounting tailwind and with a new public financing structure.

The financing line sharpens the gap. Finance income rose to EUR 2.3 million thanks to pledged deposits, but finance expenses rose to EUR 11.6 million from EUR 4.9 million in the comparable quarter. The main reasons were bond financing costs and exchange-rate differences during the period. A company with stable property NOI moved from a EUR 9.3 million net profit in the comparable quarter to a EUR 4.1 million net loss.

The chart captures the main point: NOI did not disappear, but management AFFO moved from a positive EUR 5.1 million to a EUR 0.9 million loss. FFO under the ISA approach was also negative at EUR 3.5 million. For an income-property company that states an annual dividend policy based on most of its free cash flow, this is the figure the market needs to see change. High occupancy is the starting condition, not proof of distributable cash.

Cash and Tax Keep G City Inside the Thesis

The relevant cash frame here is all-in cash flexibility after the period's actual uses of cash: taxes, capex, interest, issuance costs, and interim financing. On that basis, the first quarter still does not look like a distribution quarter. Operating cash flow before taxes was EUR 7.4 million, compared with EUR 6.4 million in the comparable quarter. But the property companies paid EUR 7.2 million of taxes, mainly due to the 2020 Polish tax proceeding, and operating cash flow ended at only EUR 201 thousand.

There is an important nuance. The 2020 tax payment is not meant to sit fully on Orion economically, because the company recorded an indemnity from G City under the sale agreements. At the same time, financing cash flow includes a EUR 6.7 million loan from others. So the event does not look like a clean equity hit, but it does show that the public company is still carrying a layer of legacy transactions, indemnity, and financing from the G City group. That is different from clean recurring cash generated by the malls and freely available for distribution.

Beyond tax, the quarter also included EUR 573 thousand of investment-property development capex, EUR 6.8 million of interest paid, and EUR 2.9 million of bond issuance costs. Against that, the company received a EUR 1.8 million bank loan and the EUR 6.7 million other loan. This is not an immediate liquidity-stress picture, but it is a first-year public-company picture in which cash passes through many financing mechanisms before it can become a shareholder distribution.

Cash and cash equivalents stood at EUR 9.3 million at the end of March, alongside EUR 260.2 million of pledged deposits. These deposits generate finance income, but they are not ordinary free cash. They are tied to the bank-loan structure and the euro-shekel hedging exposure. When Orion is assessed as an income-property equity, it is important to separate broad accounting liquidity from cash that can reach shareholders after debt and hedges.

The Polish tax section is the most important finding outside the income statement. Polish tax authorities are reviewing withholding tax treatment for interest payments made in 2020 through 2022 by the Polish property companies to other companies in the G City group, before the transfer of the assets to Orion. For 2020, enforceable second-instance decisions were issued, and the property companies paid roughly EUR 6.7 million in March including linkage and interest. The company estimates, based on its advisers, that a favorable outcome is more likely than an unfavorable one, but the appeal has not yet been resolved.

For 2021 and 2022, disputed amounts have not yet been determined. This is where G City remains part of the picture: on April 16, 2026, Orion received an unconditional commitment from G City that, if the company is required to pay amounts related to those proceedings, G City will provide a loan in the amount required, at the company's request and at its discretion, with a 5% annual unlinked interest rate. If drawn, the loan will be repaid when the asset-management agreement ends, and in any event no later than January 2031.

The positive side is clear: there is financing support for a tax event that originated before the spin-off. The less clean side is that, even after the spin-off, part of the risk and part of the solution remain tied to the former controlling shareholder. That changes how the company should be read. It is not only a basket of three Polish malls with bonds. It is also a new public vehicle managing legacy transactions, taxes, and asset-management services with the group it came from.

There is also another tax layer that matters for shareholders themselves. The company committed to act so that the cost of Polish real estate, under the relevant Polish calculation rules and tax treaty, remains below 50% of the company's total assets based on its separate financial information. As of the end of March, the company met this condition. The purpose is that Israeli residents will not be required to report and pay tax in Poland on the sale of the company's shares. This is not a regular income-statement risk, but it is a practical market-access constraint that could affect how investors read the share if the ratio moves closer to the threshold.

There is no immediate warning sign from the bond covenants: Series A adjusted equity was roughly EUR 114.7 million, Series B adjusted equity was roughly EUR 60.1 million, and net interest-bearing debt to total balance sheet was 75.6% versus a 90% ceiling. Those figures are legally reassuring, but they do not solve the equity question. Annual dividend policy is based on free cash flow, not on occupancy, and the first quarter has not yet shown positive AFFO.

Conclusion

Orion does not look like an income-property company with a tenant-demand problem. The properties themselves delivered a stable quarter. But Q1 also makes clear that the company cannot be measured only through occupancy and NOI. The spin-off from G City, the bonds, pledged deposits, currency effects, and Polish tax proceedings create a financial layer that still absorbs too much of the operating result.

The current read is that Orion received a reasonably good asset portfolio, but it has not yet proved that this asset company already produces free cash flow for shareholders. The thesis improves if, in the coming quarters, NOI remains stable, finance expenses and currency effects moderate, operating cash flow turns clearly positive again even after taxes, and AFFO moves back to positive territory without unusual help from G City. It weakens if the 2021 and 2022 tax proceedings produce material amounts, if deposits and hedges keep creating financing volatility, or if dividend policy starts looking detached from actual free cash flow. The point matters because, in a leveraged income-property company, a good asset is only the beginning. Shareholders need to see the path from the Polish tenant to the cash left after debt.