Aspen Group in the First Quarter: Adjusted FFO Covers the Dividend, Solo Cash Flow Still Does Not

In the first quarter of 2026, Aspen Group gave only a partial answer to the question raised by its 2025 results: the income-producing assets are working, but accessible cash at the parent level is still not enough to make the dividend a clean cash-flow story. Operating profit rose to NIS 41.3 million, mainly because of fair-value gains in Israeli assets, while rental and management-service revenue slipped slightly to NIS 51.1 million. Adjusted FFO attributable to shareholders came in at NIS 9.1 million, enough to cover the NIS 6.25 million quarterly dividend declared with the report, but solo operating cash flow was still negative, at minus NIS 5.8 million. The Series 11 bond issue, a Dutch refinancing and liquid financial assets give the company time and flexibility, but they do not by themselves solve the gap between asset value and recurring cash. Rayk, M Haderech Mall and the assets under construction can add value and NOI, but they still require funding, approvals or binding agreements before they send cash back to the parent. The next quarters should therefore be judged less by accounting profit and more by three simpler tests: solo cash flow, transaction completion without eroding liquidity, and sufficient covenant headroom after dividends and investments.

Company Setup

Aspen is an income-producing real-estate company with a growing development layer. The legacy base sits in income-producing assets in Israel and the Netherlands, mainly offices, logistics, industrial properties and retail. On top of it sits the growth layer: Israeli properties under construction and residential activity through Rayk, in which Aspen holds 50%. This is not a pure income-property company that distributes most of its recurring cash, and it is not a classic residential developer either. It is in the middle: the income portfolio is supposed to carry debt and dividends, while development and investments are supposed to create the next step-up in value.

The economic map explains why the quarter looks better on the balance sheet than in cash flow. In the Netherlands, the company has 19 income-producing assets with about 219 thousand square meters, occupancy of about 95%, WAULT of about 5.7 years and representative NOI of about NIS 127 million a year on a 100% basis, of which Aspen's share is about NIS 64 million. In Israel, it has 13 income-producing assets with about 50 thousand square meters and occupancy of about 91%, plus 4 assets under construction with about 107 thousand square meters, of which Aspen's share is about 54 thousand square meters. In residential, Rayk promotes 26 projects with about 8,194 housing units on a 100% basis, while Rayk Aspen adds 11 projects with 1,371 units based on its share in the projects.

Operating Profit Improved, but Rent Did Not Drive the Quarter

The headline operating number looks positive: operating profit rose to NIS 41.3 million from NIS 29.8 million in the comparable quarter. But the improvement did not come from rental growth. Rental and management-service revenue fell to NIS 51.1 million from NIS 53.1 million, and gross profit was almost unchanged: NIS 38.0 million versus NIS 38.3 million.

The gap came from two directions. On the negative side, the German property has been vacant since March 2025, and the 2.9% depreciation of the euro against the shekel reduced revenue and cut about NIS 51 million from the investment-property line. On the positive side, the company recorded NIS 12.1 million of fair-value gains and gains from investment-property disposals, mainly a positive fair-value adjustment of about NIS 13.7 million in Israeli assets. Operating profit therefore says more about accounting revaluation and progress in Israeli assets than about a higher rental run rate.

FFO, the common operating metric in income real estate, also needs a careful read. FFO under the securities-authority approach attributable to shareholders rose to NIS 5.4 million from NIS 3.8 million in the comparable quarter. By contrast, management-adjusted FFO attributable to shareholders fell to NIS 9.1 million from NIS 10.4 million. That covers the quarterly dividend declared with the report, but it does not erase the cash-coverage question at the parent-company level.

Cash Flow Got Oxygen From Debt, Not From Operations

All-in cash flexibility after the quarter's actual cash uses still relied mainly on financing. On a consolidated basis, operating activity generated only NIS 0.1 million. Investing activity consumed NIS 73.4 million, mainly about NIS 54 million invested in investment property under construction and about NIS 45 million deposited in restricted and pledged short-term deposits. Financing activity contributed NIS 64.6 million net, mainly through NIS 198.1 million of net proceeds from the Series 11 bond issue, offset by about NIS 187 million of loan repayments.

At the solo level, where the parent company's direct cash access is measured, the picture is tighter: operating cash flow was minus NIS 5.8 million, investing activity consumed NIS 79.1 million, and financing activity contributed NIS 66.6 million. Parent cash fell to NIS 29.5 million, but together with short-term financial assets and pledged deposits, Aspen's share of cash and short-term financial assets was about NIS 386 million as of the signing date.

The Series 11 issue is therefore more than another financing line. Aspen raised NIS 200 million par value, with a fixed CPI-linked coupon of 2.98% and a relatively long maturity profile, with principal due in 2030 and 2031. On the other hand, the bonds are secured by liens on five income-producing properties, and as of the report date not all liens had been registered and not all proceeds had been released. The deal extends time and replaces short debt, but it also uses collateral and increases CPI exposure.

The item that can improve liquidity without another raise is Pie Siam. Aspen had already received about NIS 31 million of the consideration, the last check of about NIS 5.6 million was repaid in January 2026, and the remaining consideration of about NIS 54.3 million is due no later than July 2026. At the same time, the Pie Siam shares still held by the company were written down by about NIS 36 million in the quarter. That captures the gap between cash that is already on its way and an investment value that can still move against the company.

Rayk and M Haderech Still Do Not Release Cash to the Parent

In the Rayk and Leumi Partners analysis, the question was whether the residential platform unlocks value or continues to draw credit. The first quarter did not settle that question. Rayk signed a non-binding term sheet with Leumi Partners for a NIS 100 million investment at a NIS 625 million post-money valuation, in exchange for 16% on a fully diluted basis, but the exclusivity period was extended by 45 days after the balance-sheet date. Until there is a binding agreement, this is an external valuation signal, not cash that already reduces Aspen's burden.

The move to increase the stake in Rayk Aspen has not closed either. The terms matter because they show who funds the interim stage: Rayk is expected to pay NIS 6 million for the additional shares and rights in capital notes, and to provide D.B.Z. with a non-interest-bearing, non-linked NIS 6 million loan. The consideration-adjustment mechanism is deferred for up to 7 years, or until project completion or a sale of control, and in any event Rayk will not be entitled to a refund of the consideration paid for the additional shares. In other words, the step-up can strengthen control and improve future value capture, but for now it still requires cash and patience.

M Haderech Mall points in the same direction. After the balance-sheet date, Aspen signed an agreement to acquire Australia Israel's holdings in Beit Herut, reflecting about 50% of the economic rights in the asset, for NIS 40 million before adjustments. The asset is leased to 41 tenants and average occupancy in 2025 was about 94%, but the purchase price took into account an existing bank loan of about NIS 81 million on a 100% basis, and completion depends on approval from the Competition Commissioner and the financing bank within 90 days from signing. The transaction can increase retail exposure in Israel, but it is still unclear how much cash Aspen will ultimately need to spend after debt and working-capital adjustments.

Most Covenants Are Comfortable, but Dividends Narrow the Error Margin

Aspen does not look like a company pressed against a financing wall. Net financial debt to NOI was 12.91, versus caps of 16 or 18. Solo equity was about NIS 575 million, compared with a NIS 370 million threshold. The consolidated equity ratio to adjusted balance sheet was 29.98%, comfortably above lower thresholds. In addition, after the balance-sheet date the company received approval to refinance a Dutch loan of about NIS 92 million for another two years.

But one line should not be ignored. Under the distribution restrictions, solo equity to solo balance sheet stood at 25.58%, versus a 25% minimum threshold in Series 8 and 9. It is still above the threshold, and the company declared a NIS 6.25 million dividend. Still, a 0.58 percentage-point cushion is not the same as the wider cushion seen in the other covenants. Another loss, valuation decline or distribution can make the dividend question less comfortable, even without an immediate liquidity problem.

That is the difference between legal distribution capacity and economic distribution quality. The board reviewed a projected cash flow, cash and short-term financial assets of about NIS 415 million, and obligations during the forecast period of about NIS 340 million, and concluded that there is no reasonable concern that the company will fail to meet its obligations. That answers the near-term liquidity question. It still does not fully answer whether the 2026 dividend is funded by recurring activity, or mainly by a mix of adjusted FFO, financial assets, disposals and access to debt markets.

Conclusion

Aspen opened 2026 as a company with stable assets, not as a company with clean solo cash flow. The core in the Netherlands and Israel continues to support the activity, and the new bond issue extended the financing runway. But the quarter also reinforced the conclusion from the April dividend analysis: the NIS 25 million annual policy is not yet supported by positive operating cash flow at the parent. It looks feasible because of liquidity, adjusted FFO, debt-market access and expected disposals, not because recurring cash clearly exceeds all uses.

Over the next quarters, the market is likely to focus less on accounting profit and more on four items: receipt of the remaining Pie Siam consideration by July, a binding agreement or failure with Leumi Partners, completion or delay of the M Haderech transaction, and improvement in solo cash flow while preserving the solo equity ratio above the distribution threshold. The proper counter-thesis is that Aspen has already done what an income-real-estate company should do in this environment: raised long debt, refinanced short pressure, maintained good occupancy and continued to build assets that can lift NOI. For that thesis to become stronger, the company needs to show less interim financing and more cash coming back to the parent.