Hilla Offices in the First Quarter: UK Rent Rose and Net Finance Costs Passed Gross Profit
First-quarter UK income jumped to NIS 2.514 million, while net finance costs reached NIS 7.302 million and exceeded gross profit. Series C and Series D are close to the rate step-up threshold, so the rest of the year will be set by contribution from the new assets and completed collateral registration.
In the first quarter of 2026, Hilla Offices began to receive the rental income its UK acquisitions were supposed to bring: overseas rental and property-management income rose to NIS 2.514 million, almost six times the comparable quarter, and group rental and property-management income more than doubled to NIS 3.531 million. The financing layer sets the interpretation of this quarter: net finance costs were NIS 7.302 million, more than twice gross profit of NIS 3.222 million, and operating cash flow was negative at NIS 0.798 million. The quarter marks an initial transition from acquired assets into quarterly income, before proof that NOI can cover the debt built around it. At the same time, Series C and Series D debt-to-collateral ratios stand at 74% and 73%, close to the 75% rate step-up threshold, while the mortgage on Centennial Park has been pushed into a fourth extension ending on June 28, 2026. Tel Aviv, Raanana and Los Angeles add asset value, without recurring income at this stage. The next quarters need to show full UK rent contribution, timely completion of collateral registration, and development spending that stops running ahead of the cash it is supposed to generate.
The UK Assets Are Starting to Pay Rent
The company is an income-property and development platform funded mainly through bond series, bank and non-bank credit, and controlling-shareholder loans. By the end of the quarter, the portfolio included Israeli income-producing properties, four UK office assets, and development assets in Tel Aviv, Raanana, Los Angeles and Herzliya. The UK income assets can increase rental income relatively quickly. The Tel Aviv hotel, Raanana and Los Angeles hold value and future option value, without current NOI.
The prior 2025 coverage left two open checkpoints: the UK portfolio had to become NOI, and the collateral structure had to exit its extension period. The first quarter advances the first checkpoint and leaves the second one on the table.
The strongest number in the quarter is overseas income. In the first quarter of 2025, it was only NIS 425 thousand. In the first quarter of 2026, it reached NIS 2.514 million, after Newport and Milton Keynes were completed and Centennial Park joined the asset base. Total rental and property-management income rose from NIS 1.592 million to NIS 3.531 million, up about 122%.
This increase is not only an accounting movement. It shows that the UK acquisitions started to pass through the revenue line. Centennial Park produced quarterly NOI of NIS 1.197 million at 100% occupancy, Northampton added NIS 378 thousand, and Tzur Yigal in Israel added NIS 559 thousand. The company also presents expected annual rental income of NIS 19.05 million in 2026 and NIS 20.15 million in 2027 from existing income-producing properties, excluding assets under construction and inventory sales.
The revenue base has changed from 2025 into 2026. Milton Keynes was acquired at a total cost of about NIS 35 million, Newport was acquired for GBP 5.8 million, and both should give the company fuller quarters later in the year. The current quarter is mainly a run-rate proof point: rent is arriving, and fuller income quarters need to show whether it is enough for the financing structure.
Finance Costs and Collateral Set the Pace
Gross profit rose from NIS 1.518 million to NIS 3.222 million, a positive number for an income-property company after acquisitions. Income and NOI remain too small relative to the financing layer: net finance costs rose from NIS 2.805 million to NIS 7.302 million, and the company moved from net profit of NIS 4.522 million in the comparable quarter to a net loss of NIS 4.568 million. Operating profit also fell from NIS 9.570 million to NIS 2.135 million, mainly because the comparable quarter included NIS 9.935 million of fair-value gains, while the current quarter included only NIS 425 thousand.
The cash read needs to separate recurring cash generation from all-in cash flexibility. On an all-in basis, meaning cash after operations, acquisitions, investments, financing and debt payments, the quarter relied on funding sources and previously raised trust deposits. Operating activity used NIS 0.798 million. Acquisitions and investment in investment properties consumed NIS 60.909 million, while the decline in trust deposits contributed NIS 46.522 million. On the financing side, bond issuance brought in NIS 25.108 million, while interest paid and bank-loan repayments consumed NIS 7.332 million together. After all of that, cash rose by only NIS 1.681 million to NIS 4.124 million.
The company has trust deposits, pledged assets, bond-market access and a two-year extension of Raanana financing. The quarter still does not show operating cash flow that reduces funding dependence. Trade receivables rose to NIS 2.976 million, and the company says income receivable was collected immediately after the reporting date. That reduces the collection concern, while new rent still needs to keep rising before this quarter can be treated as a change in cash-flow quality.
The company complies with its bond covenants, and that matters. Adjusted equity is about NIS 175 million, adjusted equity to assets is about 27%, and net financial debt to cap is about 50%. These are not distress metrics.
The friction sits in debt to collateral. Series B is at 62%, a reasonable distance from the 70% rate step-up threshold and the 75% early-repayment threshold. Series C and Series D are tighter: 74% for Series C and 73% for Series D, versus a 75% rate step-up threshold and an 80% early-repayment threshold. This leaves limited room for valuation erosion or another collateral delay before the cost of debt can move.
| Bond Series | Debt to Collateral at Quarter-End | Rate Step-Up Threshold | Early-Repayment Threshold | Current Read |
|---|---|---|---|---|
| B | 62% | 70% | 75% | More comfortable headroom |
| C | 74% | 75% | 80% | Very close to the rate step-up line |
| D | 73% | 75% | 80% | Relatively narrow headroom |
This is the continuation of the UK assets and collateral analysis. At Centennial Park, the company was supposed to complete mortgage registration within four months of closing. Since then, three extensions have been approved, and a fourth extension is expected to end on June 28, 2026. For an income-property company funding acquisitions through bonds, the time between buying an asset and registering collateral affects how quickly the asset can move from a fair-value number into a security layer bondholders can rely on.
Project Value Still Comes Before Income
The attached appraisals add an important layer: in the first quarter, no material market-value change was identified for Tzur Yigal, Elad, Raanana or the Tel Aviv hotel. Tzur Yigal remained at NIS 52.6 million. Elad remained at NIS 21 million. The Tel Aviv hotel stood at NIS 232.5 million at the end of March, mainly reflecting continued Stage A construction work and progress on the Stage B permit request. Raanana stood at NIS 77.161 million, with the appraiser noting no value change beyond investments recorded in the project.
This type of value requires patience and financing. The Tel Aviv hotel and Raanana progress through construction, permits and investment before rental cash flow arrives. At the hotel, Stage A works continue and the company is advancing the building permit for Stage B. In Raanana, the company received an open-storage permit in January 2026 as part of the broader process for the building permit, and the building permit itself had not yet been received. This value still has to pass through execution, costs and financing before it supports recurring earnings.
Los Angeles sits in the same future-value category. The company owns 15 lots for the development of 10 rental villas, expanded its US team, and uses Crest to advance the licensing process. The attached appraisals address property value based on future completion, not current rent. In a quarter where the company reports a net loss, the distinction between project value and current income matters more: value can support collateral, but it does not pay interest before a project becomes an income asset.
Conclusions
The first quarter strengthens the revenue side of the story, with UK assets beginning to work and expected annual rent of NIS 19.05 million in 2026. The debt layer still carries greater weight: net finance costs remain above gross profit, operating cash flow is negative, and Series C and Series D are close to the rate step-up threshold. This thesis requires faster proof that acquisitions are turning into recurring income and completed collateral.
The fair counter-thesis is that the first quarter is still too early: Newport and Milton Keynes did not contribute a full year, some trust deposits are already dedicated to investments, and the large projects are still ahead of their income point. If the coming quarters show rent running closer to NIS 19.05 million for 2026, completed collateral registration at Centennial Park, and debt-to-collateral ratios that do not move closer to the rate step-up threshold, this quarter will look like the beginning of a successful transition. If finance costs keep exceeding gross profit and collateral keeps being delayed, asset growth will remain paper value more than accessible cash.
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