Living Stone in the First Quarter: The Rent Gap Remains, but Expansion Consumes Cash
The first quarter confirms that Living Stone is still signing new leases above the average portfolio rent, but rental profit barely moved and cash fell sharply as acquisitions and investments absorbed liquidity. For 2026 to improve the read, the new assets need to show NOI and cash flow before portfolio growth becomes accessible value at the bondholder layer.
Living Stone opened 2026 with two signals that look positive in isolation, but less clean together: new residential leases are still being signed about 22% above the portfolio's average rent, while consolidated cash fell from EUR 14.8 million to EUR 7.7 million in one quarter. The rent-uplift engine is real, but it has not yet fully reached rental profit: rental income rose 8.3%, rental profit was almost flat, and management FFO fell to only EUR 74 thousand. The active bottleneck is not tenant demand. It is the pace at which a larger portfolio becomes accessible cash at the parent-company layer. In the same quarter in which the company signed the EUR 30 million Wülfrath acquisition, the proof point became sharper: expansion can materially increase the residential portfolio, but it consumes cash before the new assets prove recurring contribution. Bond covenants remain reasonably comfortable, and the company has no floating-rate financial debt, but the shekel bond exposure already created a EUR 524 thousand FX loss. The current read is therefore mixed with a cautious lean: the asset-improvement model is alive, but 2026 needs to show that the rent gap is moving into NOI, cash flow, and parent-company liquidity rather than staying mostly as potential.
Company Setup
Living Stone is a Dutch bond issuer that owns and manages income-producing real estate in Germany, mainly residential buildings in North Rhine-Westphalia and the Ruhr area. This is not a mature cash-distribution real estate company. It is a growth platform that is building a portfolio, improving occupancy and rents, and trying to turn that improvement into liquidity that can support the Israeli bond layer.
At the end of March 2026 the company held 38 income-producing residential buildings, 852 residential units, 48 commercial units in mixed-use buildings, about 64.6 thousand sqm of leasable area, and additional commercial properties of about 11.6 thousand sqm. Average occupancy was about 92% in residential assets and about 93% in commercial assets. The business map is clear: most of the value is supposed to come from German residential rental growth through acquisitions and active management, while commercial assets and the bond layer create most of the noise around valuation, liquidity, and funding.
Management targets annual organic rent growth of about 5% or more on a like-for-like basis. In the first quarter, that growth was 3.06%. It is still positive, but below the company's own target, so the quarter is not yet enough to say that the uplift engine is working at full pace.
The Rent Gap Is Real, but Profit Did Not Follow
The good number in the quarter is that new leasing is still happening above the existing rent base. New residential leases were signed at about EUR 8.6 per sqm, compared with an average portfolio rent of about EUR 7 per sqm. That gap gives the company raw material for value creation as tenants turn over, subject to German regulatory limits.
Profitability moved more slowly. Rental income rose to EUR 1.59 million from EUR 1.47 million in the comparable quarter, but rental profit was EUR 1.28 million, almost unchanged from EUR 1.26 million. The revenue increase was mostly absorbed by property maintenance costs, which rose from EUR 210 thousand to EUR 318 thousand, and by general and administrative expenses, which rose from EUR 235 thousand to EUR 437 thousand following the bond issuance and the shift into reporting-company status.
| Metric | Q1 2026 | Q1 2025 | Read-through |
|---|---|---|---|
| Rental income | EUR 1.59 million | EUR 1.47 million | Growth exists, but is still moderate |
| Rental profit | EUR 1.28 million | EUR 1.26 million | Most of the revenue growth did not reach rental profit |
| Property maintenance costs | EUR 318 thousand | EUR 210 thousand | Vacancy and payroll costs offset the improvement |
| G&A expenses | EUR 437 thousand | EUR 235 thousand | The public-company layer already costs money |
| Management FFO | EUR 74 thousand | EUR 543 thousand | Adjusted cash earnings remain very weak |
That gap matters because it connects directly to the previous coverage checkpoint. In the parent-cash analysis, the open question was whether 2026 would show more cash moving from subsidiaries to the parent, rather than accounting profit or asset value on paper. The first quarter does not close that question. It shows a larger asset base and better new rent levels, but also operating profit before fair-value changes that fell from EUR 1.03 million to EUR 838 thousand.
Expansion Is Consuming Cash, While Covenants Still Hold
Liquidity is where the quarter changes the read. All-in cash flexibility, meaning cash left after operating activity, investments, financing uses, interest, repayments, and FX, was negative by about EUR 7.1 million. Operating cash flow of EUR 1.14 million was not enough against EUR 7.45 million used in investing activity and EUR 1.02 million used in financing activity.
At the parent-company level, the move is even sharper. Cash fell from EUR 14.26 million at the start of the year to EUR 6.94 million at the end of March. Parent operating activity consumed EUR 181 thousand, investing activity consumed EUR 7.31 million, and no new funding came in. In other words, the first quarter did not show parent cash being replenished by the assets. It showed the parent funding the next expansion stage.
The large move is Wülfrath. A subsidiary signed a binding agreement on March 25, 2026 to acquire a residential complex in Wülfrath for about EUR 30 million. The property includes 284 residential units, about 18.3 thousand sqm of leasable area, and 241 parking spaces. If completed, it would increase the residential unit count by roughly one-third versus the 852-unit portfolio at the end of March. That can be a meaningful step toward scale, but it also makes the coming year a funding and operating proof year: the company needs to show how this acquisition contributes to NOI and cash without bringing the story back to persistent capital-market dependence.
On the balance sheet, the company remains reasonably far from its bond covenant lines. Consolidated equity attributable to shareholders was EUR 46.35 million at the end of March, versus a minimum threshold of EUR 28 million. The adjusted net financial debt to net CAP ratio was 61.7%, against a ceiling of 73% through the end of 2026 and 72% from the first quarter of 2027.
The interest-rate side also looks calmer than the headline leverage might suggest. The company has no floating-rate financial liabilities, and the average bank funding cost in the quarter was about 2.7%, with a 3.2-year interest duration. Bank and other debt was about EUR 55.4 million, and bond debt was about EUR 26.6 million. The bonds carry a fixed 7.18% coupon, are unlinked, unrated, and unsecured by asset pledges.
The yellow flag is elsewhere: the bonds are shekel-denominated, while the assets and operations are in euros, and the company does not hedge that exposure. The first quarter included a EUR 524 thousand FX loss. A 5% strengthening of the shekel against the euro would create a pre-tax loss of about EUR 1.33 million and reduce equity by a similar amount. This is not an immediate liquidity stress, but it explains how a reasonable operating quarter can become a net loss.
The Hamm portfolio, which was central to the asset-improvement analysis, still requires steady execution. The three very material assets did not change value in the quarter, and new leases were signed at EUR 8.25 to EUR 8.3 per sqm, above the existing average rents. Still, annualized NOI did not jump: Rheinsberger showed annual NOI of EUR 497 thousand versus EUR 512 thousand in 2025, Allensteiner EUR 477 thousand versus EUR 492 thousand, and Merschstr. EUR 515 thousand versus EUR 530 thousand. That does not disprove the asset-improvement model, but it does show that higher rent on new leases does not move the whole portfolio at once.
The Next Proof Points
The first test is whether rent growth starts reaching rental profit. In the first quarter, that barely happened. If average rent rises but vacancy costs, payroll, maintenance, and public-company costs absorb the improvement, the market will read the company as a growth platform that still needs funding rather than as an independent cash generator.
The second test is Wülfrath funding and integration. A EUR 30 million transaction for a 284-unit portfolio can change the revenue pace, but only if the funding terms, closing timeline, and actual income do not weaken parent-company flexibility. Until the property closes and contributes, it mainly raises the execution requirement.
The third test is the bond layer. There is no large immediate principal wall, but already in 2026 the company needs to pay cash interest, manage FX exposure, and preserve covenant headroom after investments and acquisitions. Another quarter with a similar fall in parent cash would weaken the story even if the residential assets continue to show rental upside.
Conclusion
Living Stone did not lose its asset-improvement engine in the first quarter. The gap between new rents and existing rents remains wide, the residential portfolio continues to grow, and the bond covenants are still reasonably distant from the red line. But the quarter shifted the weight of evidence: expansion is consuming cash faster than the existing assets are producing accessible cash-flow improvement.
The current conclusion is that 2026 is a proof year, not a victory year. Over the next three to four quarters the company needs to show rising rental profit, a meaningful rebound in management FFO, funded integration of Wülfrath, and a slower decline in parent-company cash. The strongest counter-thesis is that the quarter may be too harsh a snapshot for a platform in build-out mode: cash still exists, bank debt is fixed-rate, covenants are comfortable, and newly acquired assets have not yet had time to contribute. The deciding factor is not the rent gap itself, but how much of that gap reaches cash and the bondholder layer before expansion requires additional external funding.
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