Kohan in the First Quarter: Series A Cleared Short-Term Debt, Chicago Adds Office Risk

Kohan opened 2026 with two messages that look constructive on a quick read: FFO rose, and after the balance-sheet date the proceeds of Series A bonds were already used to repay about $84 million of loans. That is a real improvement versus the starting point at the end of 2025, and it closes part of the immediate concern around short-term debt. But the quarter does not make the story simpler, because the company is also using the new funding window to expand its office exposure through the 131 South Dearborn transaction in Chicago. If the acquisition is completed, the asset is being bought at a price that may look low against possible stabilized NOI, but it comes with 47.6% occupancy, a sharp expected NOI decline in 2026 versus 2025, and a need for additional funding beyond seller financing. The current read is not that risk clearly fell or rose, but that it changed shape: less immediate maturity pressure, more dependence on office leasing, refinancing and the ability to keep cash after interest and distributions. The next few quarters need to show whether Series A only bought time, or also opened a path where NOI, funding and the new assets start to work together.

Kohan Is Primarily a U.S. Income Real Estate Credit Story

Kohan operates a portfolio of U.S. shopping centers, with an office layer that emerged mainly during 2025. This is not a normal growth-equity screen. The company is an Israeli bond issuer backed by U.S. real estate assets, so the core economic question is how quickly NOI, or net operating income from properties, turns into stable financing, FFO, or funds from operations adjusted for revaluations, and cash flexibility that can cover interest, distributions and investment.

The prior annual analysis focused on the short-term debt layer and on whether Series A bonds could replace expensive loans without leaving the company with too much office exposure. The first quarter advances one side of that story: the liens in favor of Series A bondholders were created in April, and the issuance proceeds were released to the company. After the balance-sheet date, about $84 million of loans that had been presented as current liabilities were repaid. That closes an important source of tension.

At the same time, the new Chicago asset brings offices back to the front of the story. The company is not only refinancing debt and stabilizing malls. It is also adding a large office asset with low occupancy and an improvement plan that requires leasing, additional funding and time. That is why the quarter should be read less as proof of recovery and more as a transition year that received financing oxygen.

NOI Rose, but the Growth Was Not a Clean Same-Property Reset

The consolidated numbers look better than in the parallel quarter. Rental income rose to $23.8 million, gross profit and consolidated NOI rose to $11.5 million, and FFO attributable to shareholders rose to $5.6 million. The issue is not the numbers themselves, but where they came from. Assets acquired during 2025 added about $8.5 million of rental income, while tenant income from existing assets fell by about $1.6 million.

Several properties show the gap between a positive headline and execution quality. Mall at Robinson dropped to NOI of $971 thousand in the quarter, from $1.2 million in the parallel quarter, with the company attributing the decline to expense recognition timing rather than income erosion. Santa Fe fell to $963 thousand despite higher 89% occupancy, mainly because of a one-time tenant credit. Rimrock fell to $1.18 million despite 95% occupancy because of retroactive rent adjustments. Valley View is the sharper outlier: NOI of only $88 thousand versus $340 thousand in the parallel quarter, after a temporary operational disruption hurt access and customer traffic.

The company frames most of these declines as one-time or temporary, and the appraiser’s no-change letter supports the view that there was no material change in fair value for the ten reviewed properties between September 30, 2025 and March 31, 2026. Still, this is not a clean organic improvement story. Acquired assets expanded the revenue base, while some existing properties still need to prove that quarterly NOI returns to a stable run rate.

Series A Reduced Immediate Pressure, but Cash Still Does Not Build Easily

Series A is the transaction that closes the clearest pressure point from the start of the year. In March 2026 the company issued bonds with par value of NIS 412 million, about $133.3 million, at a 7.5% stated coupon and a 9.0% effective interest rate after roughly $6 million of issuance costs. Principal is repaid in four annual payments from 2027 to 2030, with 85% of principal due in the final payment. That meaningfully extends duration compared with short-term debt that weighed on the beginning of 2026.

The covenant position also looks more comfortable than the working-capital headline suggests. Equity stood at $224.6 million versus a $120 million minimum for acceleration, adjusted net financial debt to net CAP was 50.7% versus a 75% cap, debt to collateral was 60.8% versus an 80% cap, and adjusted NOI for the last four quarters was $51.2 million versus a $25 million floor. The company also remains above the stricter distribution thresholds.

Still, all-in cash flexibility after actual cash uses did not expand much during the quarter itself. This is not a normalized recurring cash-generation test. It is a check of what happened to cash after operations, investment, interest, debt and distributions.

The meaning is straightforward: operating cash flow was good, but interest and distributions consumed most of it and more. Distributions to parent-company owners were $10.7 million, while profit attributable to parent-company owners in the quarter was $5.4 million. That does not mean the distribution was illegal or impossible, but it does mean bond investors should keep measuring the company by cash after real uses, not only by FFO.

Chicago Is a Value Option, but Also a Larger Office Bet

The event that changes the quarter’s interpretation came after the balance-sheet date: on May 19, 2026, the board approved an agreement to acquire 131 South Dearborn in Chicago, a 37-story Class A office tower with about 1.55 million square feet. The estimated transaction cost is about $97 million. Occupancy at the reporting date was 47.6%, weighted average lease term was about 6.4 years, and major tenants include JP Morgan Chase, Bain & Company and Constellation Brands.

The asset’s numbers explain both why the company wants it and why it is risky. NOI in 2025 was about $23.8 million, but expected NOI for 2026 falls to a range of $12 million to $15 million. After stabilization and completion of improvement measures, the company estimates potential NOI of $25 million to $30 million, based on signed leases, LOIs, occupancy of vacant areas and normalized operating expenses. If the plan succeeds, the entry price can look very low against stabilized NOI. If it does not, the company is adding a large office asset that needs time and funding before it justifies itself.

The financing structure highlights both sides. The controlling shareholder has already provided $10 million as a deposit that is expected to be assigned to the company as an equity contribution without cash consideration. That reduces pressure on the company at the first stage. The rest of the transaction is expected to rely on a $65 million non-recourse seller loan at 6.0% annual interest for three years, about $10 million from the company’s own sources, and the remaining amount through preferred equity or mezzanine financing that may carry a 12.0% annual return. In other words, the seller and owner help open the transaction, but additional funding is still required and there is no certainty that the acquisition or funding will close on those terms.

The main friction is that before Chicago, the company already had meaningful office exposure. 311 South Wacker remained valued at $45.5 million, but average occupancy in the quarter was 43% and quarterly NOI was $1.8 million. The Manhattan note is still expected to turn into ownership of five office properties during the second quarter of 2026, as discussed in the dedicated note analysis. Chicago does not replace that risk. It adds another large asset that requires leasing and management execution.

Conclusions

The first quarter strengthens Kohan’s funding position, but not enough to turn it into a clean income real estate story. Series A solved a meaningful part of short-term debt pressure, the company’s ratios under the trust deed look comfortable, and FFO improved. Against that stand three constraints: growth driven mainly by acquired assets, cash that is quickly consumed once interest and distributions are included, and office exposure that is expanding just after the company received a new funding window.

The current conclusion is that the company’s risk moved from immediate maturity pressure to execution. The rest of 2026 will not be decided only by whether debt was repaid, but by whether the company can complete the Chicago acquisition without overburdening the balance sheet, show that the point declines in mall NOI really reverse, and provide better operating updates on 311 South Wacker and the Manhattan note. The reasonable counter-thesis is that the company bought assets at relatively low prices, has comfortable covenants, and has already demonstrated access to the Israeli bond market and seller financing. For that thesis to carry more weight, the coming quarters need to show fewer leasing promises and more NOI, less short-term debt and more stable debt, and less reliance on distributions and owner support to keep cash from drifting lower.