Av-Gad's City Kinneret: How Much of the Value Is Still Accessible After the Cancellation Letter

The main article argued that Av-Gad's 2025 operating result depended on the City Kinneret fair-value gain. This follow-up isolates the question that matters once you look past the headline: what exactly was recognized here, and how much of it is still truly accessible after the February 1, 2026 cancellation letter turned the contractual right itself into a dispute.

The documents point to a fairly sharp answer. At year-end 2025 the company carried NIS 17.07 million of investment property and recorded a NIS 16.439 million recognition gain. But it did not show cash, an executed sale, or a clean uncontested right. What it showed was a valuation attached to Stage B land at City Kinneret, resting on a contractual mechanism with multiple gates, even though by November 2025 the landowners were already challenging one of the core triggers in that mechanism, and by February 2026 they had escalated to a full cancellation demand.

That is the heart of the gap between book value and accessible value. The issue is not just whether the valuer used a slightly high or slightly low price per square meter. The issue is that the recorded value depends on a right that still has to survive legal challenge, pass planning and financing conditions, and only then become something the company can actually monetize.

What Was Actually Booked In 2025

Note 7 lays out the chain of events behind the mark. At the end of 2024 Av-Gad notified the owners that it was exercising the option over Stage B, so the Stage B combination agreement came into force. In January 2025 the district committee approved deposit of a plan adding 500 hospitality units and 500 residential units to the project. In March 2025 the local committee approved a permit subject to conditions for Stage A1. On top of that progress, the company recognized City Kinneret as investment property.

The hard numbers themselves are clear:

The chart intentionally mixes different types of numbers because that is exactly the point. NIS 17.07 million and NIS 16.439 million are accounting entries that were recorded. NIS 836 thousand is the disclosed valuation sensitivity for a 5% move in price per square meter. By contrast, NIS 4.14 million and NIS 60 million are amounts sitting at the center of the owners' claims. In other words, the real risk here is not ordinary valuation drift. It is whether the underlying contractual right holds.

Another important detail is the March 17, 2026 valuer letter. It did not provide a new post-letter valuation. It only confirmed that, to the valuer's knowledge, there was no material change in value as of December 31, 2025 compared with the September 30, 2025 appraisal date. That matters. It supports the company's year-end accounting position, but it does not resolve whether the right remained enforceable in the same form after February 1, 2026.

The valuation method also says something about the nature of the asset. The appraisal used a comparison approach, based on 13 comparable land transactions, with NIS 1,850 per equivalent built square meter of hospitality and NIS 5,500 per equivalent built square meter of retail. That is land-valuation language, not monetization language.

And there is an even simpler question: what actually reached the cash layer in 2025 from this story? The filings do not show monetization. On the contrary, Note 7 says that although Av-Gad Kinneret published an IPO supplement prospectus in August 2025, no equity or debt was raised under it. So even before the cancellation letter, City Kinneret already sat much more in the accounting-value layer than in the cash layer.

Where The Value Stops Being Accessible

The easy mistake is to treat City Kinneret like clean land that can simply be marked and sold. The filings describe something much more complicated: a contractual right with a staged economics formula, multiple conditions, and a realization waterfall that does not leave the company with a clean residual upside.

The sale mechanism is not simple ownership

Under the Stage A agreement, if the parties agree to sell the Stage B hotel lots and certain planning milestones are reached, the company's share of sale proceeds steps up over time: 5% after a first committee decision, 10% after a first permit, 15% after a committee decision for Stage A, and 20% only once work starts on the ground.

That means the recognized right is not a fixed, simple piece of land that Av-Gad can freely touch. It is a staged economics mechanism that improves only as the project moves forward. Until the project moves, the right remains partial, conditional, and distant from cash.

Even the key trigger was already disputed before February

As early as November 25, 2025 the owners argued that a "scrivener's error" appeared in the combination annex. Under the language reflected in the annual report, once a committee decision is received for Stage A the company becomes entitled to 15% of proceeds from selling Stage B land. The owners argued that the original intent was a committee decision for Stage B, not Stage A.

This matters because it shows that the enforceability problem started before the balance-sheet date. The February cancellation letter made the issue far more severe, but it did not create the gap from scratch. Even at year-end there was already a disconnect between the number recognized and the contractual consensus that was supposed to make that number accessible.

Stage B itself is loaded with gates even without the dispute

The Stage B combination agreement adds another layer of distance. Delivery of possession in the Stage B land to the company is subject, cumulatively, to receiving a building permit, delivering owners' security package, providing insurance, signing a tripartite agreement with the financing bank or obtaining bank accompaniment, and completing the allocation of the residential units between the parties. On top of that, the residential combination ratios are meant to be revisited after updated planning and an updated zero report.

So even if one temporarily ignores the legal conflict, this is still a right that must pass through permits, financing, security arrangements, and allocation mechanics before it becomes a monetizable project. It is not a value layer that can be turned into cash tomorrow morning.

And in a forced realization case, the upside is not the company's anyway

This is probably the sharpest detail in the package. The Stage B agreement states that if the financing bank realizes the lien over the Stage B land, the proceeds are used first to fully repay the owners' loan, then to repay the construction loan, including the company's equity put into the project, and only if a residual remains after all that, the owners are entitled to that residual.

That turns the shallow "there is land, so there is value" reading into something much weaker. In a forced-sale scenario the company is not sitting on a free residual claim. At best it can hope to recover layers of financing and equity already injected into the project. Any true leftover upside does not automatically belong to it.

Why The Cancellation Letter Changes The Read More Than Any Valuation Sensitivity

On February 1, 2026 the owners moved from interpretation dispute to cancellation demand. According to the letter, Av-Gad Kinneret failed to provide a NIS 60 million loan meant to clear liens and pay taxes within 12 months from signing, failed to pay NIS 4.14 million of agreed interest for 2025, and was required to vacate the land immediately. The company rejects the claims.

The analytical point is straightforward. The valuer discloses a plus or minus NIS 836 thousand sensitivity for a 5% move in price per square meter. But after the cancellation letter, the real question is no longer whether the land is worth a little more or a little less. The question is whether the contractual right itself survives. That is no longer a 5% pricing issue. It is an enforceability issue.

The annual report's own language reinforces that point. The company says the owners' letters were received against a backdrop of third-party interest in selling the rights of the company and Av-Gad Kinneret in the project, and that it rejects the claims. So this is not just a technical legal quarrel. It sits exactly on the mechanism that was supposed to convert accounting value into monetizable value.

That is why the cancellation letter does not merely "add risk." It changes the character of the mark. As long as the story was only about land valuation and planning progress, one could debate whether NIS 17.07 million was conservative or aggressive. Once the fight shifts to whether the agreement is still in force, the discussion moves from valuation to accessibility.

So How Much Of The Value Is Still Actually Accessible

If you are looking for a new clean number after February 1, 2026, the filings do not provide one. There is no updated post-letter appraisal, no legal opinion on enforceability odds, and no filing that says how much of the NIS 17.07 million is still monetizable today.

But they do allow three firm conclusions.

First, the NIS 17.07 million is not cash, and it had not become cash by the end of 2025. It is a non-current investment-property asset and a recognition gain, not collections or monetization.

Second, even before the cancellation letter the mechanism meant to turn City Kinneret into accessible value was already under dispute. That is true both for the "scrivener's error" claim around the 15% trigger and for the staged nature of the sale economics.

Third, after the cancellation letter the full NIS 17.07 million can no longer be read as if it were a liquid value layer. At most it can still be read as a year-end accounting number that received support for December 31, 2025. From there to accessible value for shareholders, a long legal, planning, and financing path still remains.

So the most honest answer the filings support is not a smaller replacement number. It is a more accurate classification: City Kinneret currently looks much more like a disputed contractual option than a liquid value layer. That is a very different read from what the 2025 operating line might suggest at first glance.

Conclusion

City Kinneret helped explain part of the gap between Av-Gad's operating business and its 2025 operating profit, but it did not resolve that gap. The fair-value mark gave the company a number in the accounts, not a clean monetization channel. The dispute with the owners, the staged trigger structure, the possession conditions, and the forced-sale waterfall all say the same thing: the value exists first on paper, and only later, if the contract holds and the project advances, might it become accessible value.

That makes the right way to read year-end 2025 very different from the easy headline read. The company did not create a clean new value layer of NIS 17.07 million that dropped into reach. It recognized accounting value on a right that still has to prove it is enforceable, financeable, and monetizable.