Netz USA in the First Quarter: NOI Growth Ran Into the Financing Layer

The first quarter at Netz USA strengthens the operating side of the story, but it does not close the financing question that was left open in the 2025 reports. NOI rose to $7.8 million, rental revenue grew 41%, and acquisitions signed by the report approval date add another layer of expected NOI for the next periods. Net profit of $9.1 million looks strong, yet most of it came from a fair-value uplift on an Atlanta property rather than from cash reaching the bond-company layer. In the same quarter, attributable FFO fell to $0.5 million, management AFFO fell to $1.3 million, and operating cash flow declined to $4.9 million. The asset base is still growing, but financing and currency are still absorbing much of the improvement before it reaches creditors and investors. The next proof point is not another accounting uplift in property values, but the 2026 and early 2027 refinancing work, actual contribution from the new acquisitions, and a clear decision on the currency hedge before July 31, 2026.

Company Setup

Netz USA is a foreign bond company incorporated in the British Virgin Islands. It raised shekel bonds in Israel and holds US multifamily assets through subsidiaries in Atlanta, Georgia, and the Eastern US, mainly Connecticut and Florida. Cash has to move from the properties to the bond issuer after mortgages, management costs, local partners, currency effects, and financing restrictions.

The economic model has two engines: buying and improving multifamily assets, and financing them cheaply enough to leave a spread above NOI. A 63.5% net debt-to-CAP ratio and comfortable covenant headroom are only the starting point. The more important number is cash left at the bond-company level after interest, investments, maturities, and refinancing.

The open point after the 2025 analysis was clear: the portfolio had grown, NOI had risen, and the company had already shown it could buy assets. The first quarter adds operating evidence, mainly through revenue and NOI. It also shows why net profit alone can mislead. The operating improvement still has to travel through financing, currency, and parent-level cash.

Accounting Profit Rose Before Cash And FFO Followed

The first number that stands out is net profit: $9.1 million in the first quarter, compared with $1.1 million in the comparable quarter. Fair-value changes in investment property, including transaction costs and gains or losses on disposals, contributed $9.3 million, mainly from an Atlanta property uplift. That is a strong accounting contribution, not free cash.

The underlying operation did improve. Rental revenue reached $15.1 million, up 41.3% year over year, and NOI rose to $7.8 million, up 39.0%. Higher rents on lease renewals, assets bought over the past year, and improved occupancy were partly offset by higher insurance, municipal taxes, and operating costs. NOI as a share of revenue stayed around 52%, so the growth does not look hollow.

The issue sits below NOI. Interest expense rose to $6.0 million, up 67% year over year, and general and administrative expenses rose to $1.5 million as the company became a reporting corporation. Net FX differences reduced profit by $0.8 million, while the swap added $0.3 million of fair-value gain. Attributable FFO fell to $0.5 million, and management AFFO fell to $1.3 million.

The cash gap is especially important. Operating cash flow was $4.9 million, below $5.7 million in the comparable quarter, even though NOI and net profit rose. Part of the decline is timing-driven: tenants, receivables, and other current balances increased by $2.5 million, including around $2 million of prepaid municipal taxes and insurance. The quarter still did not prove that the larger portfolio is producing more free cash.

Acquisitions And Debt Shift The Proof To Refinancing

The quarter is not only a report on existing assets. By the time the financial statements were approved, the company had bought 53 properties, most of them after the balance-sheet date. During the first quarter itself, it bought 2 Connecticut properties with 50 housing units for $4.6 million, without mortgage financing, and expected NOI of $0.36 million. After the balance-sheet date, it bought another 2 Atlanta multifamily properties and 49 Connecticut properties, with a combined cost of $53.6 million, of which $40.7 million was financed with mortgages.

This is a positive point for portfolio management: the company is still adding assets that can improve the NOI run rate. The funding mix moves the proof to the spread between new NOI and interest cost. Acquisitions with $4.6 million of expected NOI can improve the story only if debt cost, asset investments, and cash after interest allow that NOI to reach AFFO and the parent company.

The same logic applies to the new loan taken on March 23, 2026. Through a controlled entity, the company took a $19.6 million mortgage on an Atlanta asset, at a fixed 5.47% rate, with interest-only payments and principal due on April 1, 2031. That shows access to relatively long property-level funding, but current mortgage maturities still have to be refinanced during 2026 and the first quarter of 2027.

At the covenant level, the position is comfortable. Consolidated equity excluding minority interests was $194.2 million, compared with a $95 million minimum. Adjusted net financial debt to net CAP was 63.5%, compared with a 75% ceiling, and adjusted net financial debt to annual NOI was 11.54, compared with a 18.5 ceiling. On May 5, 2026, S&P Maalot affirmed the issuer and bond ratings with stable outlooks.

Those numbers reduce the risk of an immediate debt event. They still require execution on the ground. Current liabilities include $25.1 million of current bank-loan maturities, including $22.2 million of mortgages due during 2026 and the first quarter of 2027. The two main loans inside that amount, $6.7 million and $12.3 million, mature in December 2026 and January 2027, with LTV ratios of 45% and 47%, respectively. Those are reasonable sector leverage levels, and they still leave the thesis dependent on refinancing price and terms.

The important distinction is between consolidated liquidity and all-in cash flexibility at the bond-company level after actual cash uses. On a consolidated basis, cash and equivalents were $25.3 million at the end of March, after the new mortgage. In the separate parent-company statements, cash declined from $8.7 million at the end of 2025 to $7.4 million at the end of March. During that period, the parent used $0.9 million in operating cash and provided a net $1.1 million to subsidiaries as loans and investments, partly offset by $0.6 million of interest received.

This is not an immediate liquidity problem, and management expects to meet current obligations. The analytical point is narrower: as long as new acquisitions and debt refinancing remain major funding events, the market should check how much new NOI moves up to the bond-company layer. In the separate financial statements, contractual maturities of financial liabilities show $10.6 million due within one year, including payables and bond interest. A higher refinancing cost or cash that stays mostly at the property level would leave accounting profit with too little impact on the thesis.

Conclusions

The first quarter is partial proof. The property operation is working: revenue and NOI grew, Atlanta continues to gain weight, and acquisitions signed by the reporting date add future NOI. At the same time, net profit was heavily affected by fair value, FFO and cash flow did not move in the same direction, and the parent company did not increase cash despite high accounting profit. The current conclusion is that the portfolio is moving faster than the cash proof that bondholders need to see.

The counter-thesis remains credible: the LTV on the near-term loans is not excessive, covenant headroom is wide, the rating is stable, and the new Atlanta loan shows that property-level funding is still available. If the new acquisitions contribute NOI as expected, and if upcoming refinancings close on similar or reasonable terms, the first quarter will look in hindsight like a transition period in which operating improvement arrived before cash. The thesis would improve over the next 2-4 quarters if the December 2026 and January 2027 refinancings close, AFFO and operating cash flow rise, cash starts moving up to the parent, and the currency hedge is extended or replaced before July 31, 2026. It would weaken if another quarter shows rising NOI while FFO, parent-level cash, and financing cost do not improve with it.