Abu Megurim in the First Quarter: NOI Rose, but Growth Still Runs on Funding
Abu Megurim closed an important Rehovot financing pressure point and lifted NOI to NIS 5.5 million, but AFFO fell to NIS 0.8 million and investments used NIS 115.8 million of cash. The next quarters need to show that the new assets and signed transactions can release NOI before the need for new funding returns to the center.
Abu Megurim opened 2026 with a partial answer to the question left open at year end: the platform is already growing NOI, but it still does not produce enough AFFO and cash flow to fund its growth pace on its own. The first quarter showed real improvement at the income-producing asset layer, with NOI of NIS 5.5 million versus NIS 4.7 million in the comparable quarter, mainly from assets added during 2025 and improvement in existing properties. Still, net profit fell to NIS 0.6 million, AFFO fell to NIS 0.8 million, and investments used NIS 115.8 million of cash. The Rehovot refinancing after the quarter closed a near-term pressure point that was central in the previous annual analysis, but it did not make the company more self-funded. It increased the debt on the asset, linked it to CPI, and left a large bullet payment in three years. This quarter is therefore neither a full positive inflection nor a liquidity warning. It is a bridge quarter: the company bought time and expanded its asset base, but it now needs to show over the next 2-4 quarters that the money put into the balance sheet is producing NOI and AFFO faster than financing and management costs rise.
Company Overview
The company is a residential REIT focused on rental housing in Israel. As of the report date, it had 1,390 housing units nationwide: 477 income-producing units in eight projects, 230 units under construction in three projects, and 683 units in planning across six projects, including one project still subject to completion of a non-binding memorandum of understanding. This is no longer a public shell looking for activity. It is a residential REIT platform with assets, bonds, bank financing, and follow-on transactions.
The economics look simple: buy or build rental apartments, lease them, and distribute part of the profit under the REIT framework. In practice, at this stage it is still more of an asset and funding machine than a stable cash-flow equity. Value is created through acquisitions, development, delivery, and leasing, but shareholders receive that value only after debt, CPI linkage, management fees, public-company costs, and payment timing.
That gap is already visible on the balance sheet. Total assets rose to NIS 980.6 million, investment property rose to NIS 517.5 million, advances on account of investment property rose to NIS 270.6 million, and investment property under construction rose to NIS 101.1 million. That is a larger asset base, but a meaningful portion is still in advances, construction, or transactions that must move into delivery and leasing before they can fully contribute to NOI.
NOI Rose, but AFFO Did Not Follow
The first quarter gives initial proof that assets added in 2025 are beginning to work, but it also shows why NOI alone is not enough. Rental income rose to NIS 5.9 million from NIS 5.1 million in the comparable quarter, and NOI rose to NIS 5.5 million. The improvement came from delivery of units in the Harzit and HIGH VIEW Eilat projects during 2025, along with improvement in existing properties.
The problem is that every layer below NOI weakened. General and administrative expenses rose to NIS 2.9 million from NIS 1.1 million, mainly because of professional services, fees, and management fees that grew with the asset base. Net finance expenses rose to NIS 3.7 million from NIS 1.3 million, and fair-value gains on investment property fell to NIS 1.7 million from NIS 2.7 million.
Net profit therefore fell to only NIS 0.6 million, versus NIS 5.0 million in the comparable quarter. FFO under the Israel Securities Authority approach was NIS 0.7 million, and management-defined AFFO was NIS 0.8 million, versus NIS 1.9 million in the comparable quarter. This does not show that the assets themselves are weakening. It shows that the public-company platform, management fees, financing costs, and the fact that some assets are still not fully income-producing continue to absorb a large part of the operating improvement.
That is the quarter's edge: the issue is not whether the assets add NOI, but how much of that NOI remains after the listed-company layer. For a growing residential REIT, NOI is necessary, but it is not enough. For the market to read this growth as better business quality, AFFO needs to start rising with NOI rather than moving in the opposite direction.
Rehovot Was Closed, but Growth Still Relies on External Sources
The clearest progress point came after the balance-sheet date: the Rehovot transaction was completed, and the company now holds all rights in the asset. At the same time, it completed refinancing of NIS 107.7 million, CPI-linked, for 36 months, at fixed interest of 3.4% plus CPI. The loan repaid the existing loan of about NIS 72 million, and the remaining amount funded the acquisition of the full rights.
This changes 2026. The Rehovot loan that was due in June 2026 is no longer the same near-term funding wall. The company extended the source, increased its ownership in the asset, and turned a specific concern into a clearer debt structure. But the new structure is not frictionless: NIS 97.2 million of principal is due at the end of the term, NIS 10.5 million will be amortized under a quarterly schedule, and the loan includes a coverage ratio between net rent and current debt service plus an LTV covenant, without numerical disclosure of the cushion.
At the broader cash level too, the quarter looks good only if operating cash is separated from funding sources. The all-in cash flexibility after actual cash uses in the quarter was built as follows: operating cash flow of NIS 2.2 million, versus NIS 115.8 million used in investing activity, mainly advances, purchases, and additions to properties. The gap was closed by net financing cash flow of NIS 143.7 million, including equity issuance, new loans, and payments on the other side of the equation, including repayment of the investor liability and repayment of a related-party loan.
The balance sheet improved at a point in time. The SAFE financial liability was settled after the company issued 6.0 million shares to the investor at NIS 6.655 per share and paid about NIS 40.0 million in cash. Equity rose to NIS 442.4 million, mainly after a net equity raise of about NIS 190.5 million, and the equity-to-balance-sheet ratio under the bond deed was 49.2%, far above the 20% threshold. The bond covenants are not close to breach.
Still, this comfort comes from a balance sheet after a capital raise, not from a business already producing a large cash surplus. At the end of March the company had NIS 81.1 million of cash, but after that it paid a NIS 2.6 million dividend, completed the NIS 72.3 million bond expansion that funded a payment for Migdaley Family, paid additional advances for Migdaley Family, and completed the Rehovot refinancing. In addition, as of the balance-sheet date the company disclosed expected payments of about NIS 464 million from the second quarter of 2026 through the end of the first quarter of 2027, and another NIS 31 million in the following year, for existing purchase and development agreements.
The new growth deals sharpen the same point. In Bnei Brak, the closing conditions were fulfilled, the first NIS 15 million payment was made, and the seller received 2.1 million shares worth NIS 15 million, but the remaining NIS 75 million cash payment is still tied to receipt of Form 4. In Jerusalem, the company signed an agreement to buy 50 housing units for total consideration of about NIS 156 million, with delivery expected by June 2029 and closing conditions that include zoning changes, regulatory approvals, and approval from Dira Lehaskir. The consideration is not indexed and includes adjustments based on actual unit areas and a 4% annual return on net rent, including a reduction for apartments not leased by completion. This structure reduces part of the company's indexation and leasing risk, but the economic contribution is distant and still needs approvals, delivery, and actual leasing.
Conclusion
The first quarter improves the company story, but it does not clean it up. The Rehovot refinancing closed an important pressure point, NOI rose, the asset base grew, and the company proved access to equity, bank debt, and the bond market. Against that, AFFO fell, operating cash flow remains small relative to investments, and most of the progress is still externally funded. The current conclusion is that the company is executing, but 2026 still needs to prove conversion of assets into cash, not only balance-sheet growth.
What will shape the market's read in the next reports is not another asset added to the list, but three signals: whether NOI continues to rise as newly added assets contribute fuller quarters, whether AFFO stops falling and starts closing the gap with NOI, and whether the financing for Bnei Brak, Migdaley Family, and Jerusalem is completed without another quick dilution layer. The strongest counter-thesis is that the current quarter is still too early: assets bought in 2025 have not yet contributed fully, Rehovot has already been refinanced, and the balance sheet is stronger after the equity raise. That is true, so this is not a near-term stress story. But as long as NOI does not clearly flow down to AFFO and cash after investments, the company will remain dependent on refinancing, issuance, and payment deferrals to turn growth into value accessible to shareholders.
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