Follow-up to Airport City: The Buyback Versus Debt and Financial Flexibility
The expansion of the buyback to NIS 400 million is a major capital-allocation decision, but Airport City’s 2025 liquidity cushion was also built on NIS 1.239 billion of bond issuance. The real question is not whether the company passes the legal distribution test, but how much of its flexibility is true excess capital and how much still depends on open debt markets.
What This Follow-up Is Testing
The expansion of the buyback to NIS 400 million is not a symbolic gesture. By the end of 2025, the company had already spent about NIS 119 million on treasury shares, and in January and February 2026 it bought another roughly NIS 160 million of stock, or 2,656,000 shares. By the time the annual report was approved, about 69.64% of the enlarged plan had already been executed. That means the question is no longer whether the board wanted to signal confidence, but how much cash and flexibility management is actually willing to convert into equity.
At first glance, the starting point looks comfortable. At year-end 2025 the company held NIS 1.893 billion of cash and cash equivalents, NIS 588 million of trading securities, and another roughly NIS 2 million of short-term investments. Working capital stood at about NIS 1.998 billion, and the directors' report also pointed to roughly NIS 12.3 billion of unencumbered assets. This is not a company operating with a narrow cash buffer.
But that cushion was not built only by the underlying business. In 2025 the company generated NIS 579 million from operating activity, but it also raised NIS 1.239 billion through bond issuance. In other words, the 2025 capital-allocation picture rests on both operating cash flow and an open debt market. That is why the right frame here is all-in cash flexibility, meaning after debt repayments, interest, investment spending, and share repurchases, not just the CFO line.
The good news is that this is not a covenant-stress story. Net financial debt to adjusted NOI stands at 5.50 against a ceiling of 15. Equity to net balance sheet stands at 59.8% for series E and T, and 70.8% for the newer bond series, against floors of 25% or 32% and 30%, respectively. The company is also far above the absolute equity floors set in its trust deeds. So the core issue is not financial survival. It is management's hierarchy of capital uses: how quickly it is willing to return capital to shareholders instead of preserving liquidity or de-levering.
How The Cash Cushion Was Built
The number to start with is NIS 414 million. That was the increase in cash during 2025. On a first read, it looks like a year that expanded flexibility. On a second read, the increase clearly came from a dual engine: NIS 579 million from operating activity, but also NIS 1.239 billion from bond issuance. Against that, the company repaid NIS 827 million of long-term liabilities, paid NIS 154 million of interest, invested NIS 257 million in investment property and fixed assets, bought securities on a net basis for NIS 229 million, and spent NIS 119 million on treasury shares.
That chart sharpens the key point: the full NIS 400 million authorization is almost equal to the entire cash increase of 2025. That does not mean the company cannot execute it. It does mean the buyback is large enough to compete almost one-for-one with the year's entire incremental liquidity.
The same point holds against operating cash flow. A NIS 400 million authorization equals about 69% of the NIS 579 million generated from operations in 2025. Since the same year also carried NIS 154 million of interest payments and NIS 257 million of investment-property and fixed-asset spending, it is hard to describe the buyback as deployment of entirely clean surplus cash. It is surplus that exists inside an active refinancing year.
This is where legal capacity and real financing flexibility diverge. In the immediate report expanding the program, the company cites distributable profits of NIS 8.227 billion for the purposes of the distribution test, and states that it does not believe the program will impair its ability to meet liabilities as they come due. The board explicitly references cash balances, forecast cash flow, leverage, and unencumbered assets, and says the funding sources are internal resources. That matters, but economically those internal resources were partly replenished during the year through debt issuance.
What The Buyback Is Competing Against
At year-end 2025, the book value of financial liabilities stood at NIS 7.217 billion. That included NIS 6.678 billion of bonds and NIS 242.6 million of long-term loans from financial institutions. The contractual maturity schedule shows NIS 1.419 billion of financial obligations due within the first year, including about NIS 1.103 billion of bonds, about NIS 151 million of short-term loans, and other operating and financial items.
On paper, liquidity covers the near-term schedule. At the end of 2025 the company had roughly NIS 2.484 billion of liquid assets against NIS 1.419 billion of first-year contractual payments. That is a real buffer. But that is not the same as saying the buyback is small. When management allocates up to NIS 400 million to repurchases, it narrows that buffer and shifts part of the comfort from cash on hand to confidence in future refinancing access.
The timetable is not theoretical. On March 1, 2026, the company already made a partial principal repayment on series E of about NIS 562.7 million par value and paid interest on series T. In parallel, the buyback kept moving. After the NIS 119 million spent in December 2025 and another roughly NIS 160 million spent in January and February 2026, the remaining unused capacity was down to roughly NIS 120 million.
What matters most is that the company did not present the 2025 debt issuance as a direct and explicit funding line for the buyback. It issued debt to refinance liabilities and support ongoing activity, then chose to use part of the resulting flexibility for share repurchases as well. That distinction matters. It means the buyback is not a narrow one-off financing tactic. It reflects a broader management stance: the company prefers to operate a strong balance sheet actively, even if that means leaving leverage higher than it would be under a more conservative capital-allocation policy.
Covenants Are Not The Constraint, Which Is Exactly Why Capital Allocation Matters
If someone is looking for a wall-of-debt story or an immediate red flag, the report does not support it. Across the trust deeds, and even at the secured-loan level for the consolidated company in Ramat Hasharon, the headroom is wide.
| Metric | Reported level | Requirement | Read-through |
|---|---|---|---|
| Net financial debt to adjusted NOI, bond covenants | 5.50 | Max 15 | Very wide room, no near-term pressure |
| Equity to net balance sheet, series E and T | 59.8% | Min 25% | Large capital cushion |
| Equity to net balance sheet, newer bond series | 70.8% | Min 32% or 30% | More than double the required level |
| Equity floor, latest bond series | NIS 12.3 billion | Min NIS 3.5 billion or NIS 3.3 billion | Deep equity headroom |
| Ramat Hasharon loan, LTV | 50% | Max 72% | No pressure at the asset-secured level |
| Ramat Hasharon loan, coverage ratio | 1.41 backward and 1.42 forward | Above 1.2 | Headroom exists here too |
In addition, all bond series in the report are rated ilAA by Maalot, and the August 2025 review reaffirmed the rating without change. In November 2025 the new series YG and YD were also rated ilAA. That is not a side detail. It explains why management is willing to prefer buybacks over faster de-leveraging: it is operating from a starting point of relatively good access to debt markets.
And that is also the other side of the argument. The more confident the company is in its refinancing access, the faster it allows itself to consume liquid resources. That is rational as long as the funding backdrop stays supportive and as long as NOI and operating cash flow continue to absorb the business without surprises. It becomes less comfortable if issuance windows narrow, if new debt becomes materially more expensive, or if the company wants to preserve more dry powder for fresh investment.
What Needs To Happen Next
First checkpoint: after the March 2026 repayment on series E, cash and liquid assets need to remain high even without another unusually large issuance. If the liquidity buffer falls quickly, the market will read the buyback differently.
Second checkpoint: refinancing cost matters, not only refinancing access. The fact that the company raised NIS 1.239 billion in 2025 is a strength, but continued buybacks are much easier to defend if new debt terms do not materially burden future interest costs.
Third checkpoint: operating cash flow needs to keep providing a genuine base for capital allocation. NIS 579 million from operations is a strong number, but in a year with NIS 154 million of interest, NIS 257 million of investment-property and fixed-asset spending, and large debt repayments, the market will want to see that 2026 is not again leaning mainly on bond issuance to support both leverage and buybacks at the same time.
Conclusion
The expansion of the buyback to NIS 400 million is a credible move, not a desperate bet. Bond ratings remain at ilAA, covenants are distant, working capital is strong, and the company has a meaningful base of unencumbered assets. In that sense, management is genuinely signaling that it views the stock as a valid use of capital.
But this is not costless capital return either. The 2025 cash cushion grew alongside NIS 1.239 billion of bond issuance, and the full buyback authorization is almost equal to the entire cash increase of the year. So the right reading is not that a property company with a small surplus simply returned a bit of capital. It is that a company with strong debt-market access chose to use that financial envelope more aggressively.
If 2026 shows that liquidity remains high even after material repayments, without requiring the same scale of fresh issuance, this will look like strong capital allocation. If not, it will look in hindsight like a choice to favor shareholder yield over balance-sheet conservatism at a time when the debt market still remains part of the thesis.
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