Anshei Ha'ir: Permits Are Advancing, but Profit Still Lags the Backlog

Getting to Know the Company

Anshei Ha'ir is not a "normal" residential developer that sells apartments and moves forward on a steady handover cycle. In practice, this is a Tel Aviv focused urban renewal platform holding a large inventory of projects across signature collection, planning, permitting and construction, while only a relatively small portion of its value shows up in profit at any given point in time. Anyone looking only at headlines such as a building permit, project financing or a legal majority of tenants could come away thinking the company is already in harvest mode. That is the wrong read. What 2025 mainly showed was projects moving into more advanced stages, not the company moving into a clean and stable earnings model.

What is working now? The backlog is moving. The company ended 2025 with revenue of NIS 192.6 million, up a modest 4.1%, with more projects maturing toward the permit stage, with a net equity raise of about NIS 48.4 million and with a net Series B bond raise of about NIS 82.6 million. Right after year-end, building permits were received for Yehuda Gur 7 and Epstein 4, and in February 2026 Maane 4 also received project financing. In other words, the development machine is moving.

What is still not clean? Profitability, financing and cash flow. Gross profit fell to NIS 21.2 million from NIS 23.7 million, operating expenses expanded, finance expense rose to NIS 18.0 million, and the company finished the year with a net loss of NIS 18.5 million. At the same time, operating cash flow was negative NIS 73.5 million, while another NIS 22.7 million was invested in future projects. This is the heart of the story. Anshei Ha'ir is not stuck on the entrepreneurial side. It is stuck in the conversion phase, between permits, financing and construction starts on the one hand, and profit and cash on the other.

The practical market point matters as well. At the last traded price of 308.5 agorot and based on 50.2 million shares, market cap is roughly NIS 155 million, but turnover on the latest trading day was only about NIS 25.5 thousand. So even if the thesis improves, liquidity is still weak. At the same time, short interest is almost nonexistent. That means the stock is not trading under meaningful short pressure, but it also does not enjoy enough market depth to reprice changes quickly.

Four non-obvious points shape the right read of 2025:

• First finding: the jump in the balance sheet is not just more debt. Part of the increase came from a non-cash recognition of NIS 163.6 million in construction-services obligations, while liabilities to land sellers jumped to NIS 158.6 million from NIS 62.8 million. This shows projects moving into more advanced stages, but also shows the company pulling forward obligations before they turn into cash.
• Second finding: the all-in cash picture in 2025 was financed externally. Operating and investing activities together consumed NIS 83.6 million, and cash rose to NIS 51.8 million only because financing contributed NIS 120.2 million.
• Third finding: the early-2026 event sequence does improve the quality of the backlog, but a meaningful portion of that value is still far away. Yehuda Gur and Epstein move the company closer to execution, while Le Guardia and Ibn Gabirol still mainly sit on time, permitting and financing.
• Fourth finding: the company itself says accelerated buyer payments are also used as a tool to reduce senior project debt and improve surplus release. So the quality of sales is not just a question of whether an apartment was sold, but also on what financing terms.

The company's economic map currently looks like this:

Events and Triggers

First trigger: 2025 was a real transition year in capital structure. In June, the company became public and raised roughly NIS 48.4 million of net equity. In November, it raised about NIS 83 million net through Series B bonds. Those two moves did not solve the profitability question, but they bought time. That is why the increase in cash this year is not evidence that operations are generating cash on their own. It is evidence that the company was able to bring in financing when it needed it.

Second trigger: 2026 opened with a sequence of events that improves the quality of part of the backlog. On January 25, 2026, Yehuda Gur 7 received a building permit, completing both all conditions precedent in the TAMA agreement and one of the early conditions for using the project financing facilities. On February 9, a building permit was also received for Epstein 4. According to the land inventory note, both projects are expected to move in the first quarter of 2026 from future projects into inventory of apartments for sale. That is an important transition point, because it moves them from planning promise toward a stage where construction, marketing and financing drawdowns become possible.

Third trigger: in February 2026, Maane 4 received a financing agreement, signaling that lenders are still willing to fund the company at the project level. The package includes about NIS 53 million of project credit, about NIS 83 million of guarantees, about NIS 16 million of financial credit and another roughly NIS 2.3 million for equity completion. This is positive, but not one-directional. On one hand, it moves Maane 4 from a planning bottleneck to an execution bottleneck. On the other, the agreement is subject to conditions such as equity injection, minimum presales, a building permit and a shell contractor agreement. Financing has opened, but not without tests.

Fourth trigger: Le Guardia and Ibn Gabirol add strategic depth, not an immediate fix for the next set of numbers. At Le Guardia 35-45, a design plan was approved, and the company now estimates a 420-unit project, of which 302 units would be for sale, plus about 1,280 square meters of commercial space, with revenue of about NIS 1.057 billion and costs of about NIS 877 million. But the company itself estimates that the building permit will arrive only in another 2 to 3 years, while occupancy is expected only during 2031. This is a meaningful option asset, not a next-quarter earnings driver.

At Ibn Gabirol 150-156, the company reached a 72% legal majority of owners in January 2026. Based on the preliminary estimate, the project would include 75 new apartments, of which 30 for sale, with expected revenue of about NIS 207 million and costs of about NIS 178 million. Here too, the company estimates the permit will arrive only in about 3 years. So Le Guardia and Ibn Gabirol help support the strategic thesis that the company keeps generating future inventory in the heart of Tel Aviv. They do not yet support a thesis of near-term earnings.

The implication is that the backlog has improved, but the time layer remains critical. For the market to give full credit to that backlog, it will need to see not just permits and legal majorities, but also financing agreements, construction starts, presales and a real pace of revenue recognition.

Efficiency, Profitability and Competition

The most important number in Anshei Ha'ir's report is not revenue, but the gap between revenue and profit. Revenue rose 4.1% to NIS 192.6 million, but gross profit fell 10.2% to NIS 21.2 million, and operating profit turned into an operating loss of NIS 7.7 million versus operating profit of NIS 3.5 million in 2024. In other words, more activity did not turn into more profit. It turned into less.

That comes from several layers at once. One layer is mix. The company itself attributes the decline in gross profit to changes in project mix, the pace of apartment sales and higher construction costs in projects already under execution. A second layer is operating expenses: project origination expense jumped to NIS 4.2 million from NIS 1.8 million, partly because around NIS 2.6 million of costs were written off in the Shlomzion 13 project; selling and marketing expense rose to NIS 12.2 million from NIS 7.9 million; and G&A increased to NIS 12.0 million from NIS 10.4 million. The third layer is financing: finance expense rose to NIS 18.0 million from NIS 14.3 million.

All of this creates an uncomfortable result: even when the company succeeds in producing more activity, a large share of the value is eaten up before it reaches equity holders. That is why 2025 was not a proof year for profitability. It was a proof year that the platform is expanding faster than it is stabilizing.

Another point a reader could miss is the quality of sales growth. During the year, the company signed 45 sale and upgrade agreements totaling about NIS 169 million, and from the start of 2026 through the report date it added 3 more agreements totaling about NIS 13 million. That sounds good, but the company also states explicitly that it seeks to reduce interest-rate exposure by allowing apartment buyers, at its discretion, to accelerate payments, and in the related-party transactions note it explains that this policy is also meant to reduce use of credit lines and increase the ability to release project surpluses. That is not a problem on its own, but it is an important clue. At Anshei Ha'ir, a sale is not only a commercial event. It is also a cash-management and financing tool.

Put differently, not every sale should be read as if it came from a fully clean market. The company operates in an environment where financing promotions and payment acceleration have become part of the rules of the game, and it uses mechanisms that pull cash forward in order to reduce senior debt. The key question is not only how many units were sold, but on what terms they were sold and what that did to financing needs.

Competition is another important point. The company itself admits that the scale of its projects is still not material relative to the leading players in the sector. That matters because it says Anshei Ha'ir's edge is not scale. It is local specialization, reputation and community relationships. That may be enough to build a quality Tel Aviv pipeline, but it does not provide a broad cushion against rising costs or margin erosion.

Finally, there is also a strategic attempt to change the value chain through a dedicated execution company. In August 2025, Anshei Ha'ir Bitzu'a was formed, with the company holding 49% and the professional partner 51%, and after the reporting period it also received a special contractor classification. The direction is clear: more control over execution, less external dependence, and possibly better margins over time. But 2025 is still the formation stage, not the harvest stage. The company's share of the associate's loss was NIS 0.57 million, and the move adds a layer of managerial complexity before it has proven an economic benefit.

Cash Flow, Debt and Capital Structure

Anshei Ha'ir's balance sheet expanded sharply in 2025 almost across the board. Assets rose to NIS 540.9 million from NIS 324.4 million, inventory of apartments for sale jumped to NIS 294.5 million from NIS 139.7 million, and equity rose to NIS 56.2 million from NIS 20.4 million. A superficial read might conclude that the company simply took on much more debt. In reality, the picture is more nuanced.

The first part of the increase reflects the accounting and economic progress of projects. The liability to land sellers line rose to NIS 158.6 million from NIS 62.8 million, and the cash flow statement recorded a significant non-cash item of NIS 163.6 million from recognition of an obligation to provide construction services. That means part of the balance sheet expanded because more projects reached the stage where the land and the obligation to apartment owners are recognized in the accounts. This is not financial debt in the classic sense, but it does mean the company is advancing projects into a phase that requires more resources, more guarantees and more management.

The second part is real financial debt. Financial liabilities measured at amortized cost rose to NIS 331.7 million from NIS 228.9 million. Long-term loans from banks and others rose to NIS 71.6 million from NIS 45.0 million. Bond debt, including current maturities, rose to NIS 121.3 million from NIS 72.1 million. At the same time, finance expense rose to NIS 18.0 million. So even if not all of the balance-sheet growth is "more debt", financial debt clearly did increase and its cost is visible.

This is where the cash framing matters. In Anshei Ha'ir's case, the more important frame is the all-in cash picture, because the core thesis is about financing flexibility. On that basis, 2025 looks like this: operating activity consumed NIS 73.5 million, investing activity consumed another NIS 10.2 million, for total cash uses of NIS 83.6 million. Financing activity then contributed NIS 120.2 million, which is why cash rose from NIS 15.3 million to NIS 51.8 million. This is not self-funded cash generation. It is time bought through equity, bonds and loans.

The positive side is that the company does not look close to formal stress at the bond level. Under Series A covenants, equity stood at NIS 75 million against a floor of NIS 40 million, the equity-to-balance-sheet ratio stood at 24% against a minimum of 11%, and collateral-to-loan stood at 170% against a minimum of 120%. Under Series B, the metrics also look comfortable, with equity of NIS 56 million against a minimum of NIS 18 million and an equity-to-balance-sheet ratio of 18% against a minimum of 11%. That matters because it suggests the company's immediate problem is not a bond-level covenant event.

But that is also exactly why covenant reading alone is not enough. The covenants look comfortable while the underlying economics are still tight. The company itself states that a 1% increase in interest rates would raise annual finance cost by about NIS 1.147 million. As of the report date, it was also funding operations through total credit lines of NIS 130.5 million, of which about NIS 92 million were used as of December 31, 2025 and about NIS 97 million as of the report date. So there is room, but it is room that has to be preserved through execution pace, sales pace and capital discipline.

Another important yellow flag is that the company relies not only on capital markets, but also on controlling shareholders. Long-term shareholder loans stood at NIS 20.5 million at year-end, and some financing facilities are supported by guarantees from Rothstein and Anshei Ha'ir. That support is positive, but it also means the machine is not yet standing entirely on its own.

To the company's credit, working capital looks better than before. Current assets exceeded current liabilities by NIS 98.7 million versus NIS 11.5 million at the end of 2024, and the board states there is no working capital deficit for the coming 12 months. That gives the company a cushion. But it is a cushion built on cash, receivables and inventory, not on a situation where projects have already turned into free cash flow.

Outlook

The right way to read 2026 is as a transition year between backlog and execution, not as a breakout year. There are four reasons for that.

1. What is already signed is not enough on its own

The company presents future revenue to be recognized from binding sales contracts of NIS 100.9 million. Of that amount, only about NIS 40.0 million is expected to be recognized across the four quarters of 2026, while the rest is deferred to 2027 and 2028. On the cash side, the picture is better, with NIS 133.7 million of expected advances and payments, of which about NIS 69.8 million are expected during 2026. That means cash may arrive faster than accounting profit, but it also means the coming year is still not sitting on a thick enough backlog to run on autopilot. It still requires progress in new projects and additional sales.

2. Permits improve backlog quality, not the near-term P&L

Yehuda Gur 7 and Epstein 4 are important events because they move projects into a stage where construction, financing and accounting recognition can begin. But that transition does not automatically generate net profit. On the contrary, in its early phase it usually increases inventory, guarantees, engineering work, tenant rent support and required equity.

The report also reveals that expected profitability in some projects already assumes changes in agreements with apartment owners. The company states explicitly that without such changes, gross margin and even project feasibility could be materially harmed. This is a key sentence. It means some future profitability depends not only on the contractor, sales pace and construction index, but also on the company's ability to reopen agreements and improve economics vis-a-vis apartment owners.

3. The larger projects are still far away in time

Le Guardia and Ibn Gabirol sharpen the gap between value created and value accessible. If the preliminary estimates materialize, these are very large projects in scale terms. But in both cases the road to permits, financing and execution is still long. They can support the thesis that the company keeps building its future, but they should not be used as a shortcut for the 2026 analysis.

4. There is strategic direction, but not yet proof of monetization

The company wants more in-house execution, more control over community and marketing, and less dependence on external parties. That makes sense. Employee count rose to 49 from 36, a self-execution unit with 7 employees was added, and the organization already looks more like a broader platform than a developer that simply rolls projects through outside consultants. But that also means the current expense structure is building future capacity at the expense of current profit.

That is why 2026 probably looks like a transition year. For the read to improve, the company needs to show three things together: that the new permits are actually translating into construction starts, that finance expense does not continue rising faster than gross profit, and that the signed backlog plus the new pipeline can turn into revenue without putting the same kind of pressure back onto the balance sheet.

Risks

Project profitability is still fragile

Anshei Ha'ir's central risk is not only "will the permit arrive", but "what will remain once the project advances". The construction input index rose by about 5.1% in 2025, and the company itself states that this had a material negative effect on its cost base. It is trying to respond through partial linkage of sale contracts to the index and through a combination of cost-plus and lump-sum construction agreements. But those are shock absorbers, not a full solution.

Financing available today does not guarantee financing available tomorrow

The company depends on project finance agreements and credit facilities. Those agreements include triggers for acceleration or facility reduction in situations such as budget overruns, weak sales pace or damage to projected cash flow. So even if there is no immediate bond-level pressure, at the project level any delay or margin erosion can become a financing issue very quickly.

Geographic concentration is both an edge and a constraint

The Tel Aviv focus gives the company specialization and local reputation, but it also creates concentrated risk. The company itself defines geographic concentration of assets in one area as a specific risk factor. If market conditions weaken in Tel Aviv, if the municipality slows processes, or if competition for tenants and buyers intensifies, the company does not have broad diversification to offset that.

Liquidity is a bigger issue than short interest

Short interest as a percentage of float is negligible, around 0.00% on the latest available date, and the company's SIR is well below the sector average. That means the market is not currently expressing an aggressive negative view through short positioning. But low daily turnover means the practical challenge is different: both good news and bad news may have to travel through a thinly traded stock.

The move toward self-execution is still unproven

The execution-company strategy could eventually improve control, timing and maybe margins. But at this stage it adds an operating layer that has not yet been tested over a full cycle. So it may become a strategic asset, but in 2026 it may also prove to be another managerial center that consumes resources before it returns them.

Conclusions

Anshei Ha'ir enters 2026 with good news on the development side and weaker news on the economic side. The backlog is advancing, permits are arriving, and the company showed it can raise equity and debt. But as of the end of 2025, the economics of the business still do not look like harvest economics. They look like transition economics: more projects advancing, more obligations, more finance cost, and still not enough profit and cash reaching the equity layer.

Current thesis: Anshei Ha'ir is building a better future option than the stable net profit it is generating today, so 2026 looks like a transition year between permits and execution rather than a breakout year.

What changed: instead of reading the company as just another small urban-renewal developer, 2025 shows a platform that is moving its pipeline at a decent pace, while also revealing how much capital, financing and execution discipline are needed to turn that pace into cleaner economics.

Counter-thesis: if the early-2026 sequence of permits and financing keeps going, and the company manages to convert it into construction starts, presales and surplus releases without another jump in finance cost, then 2025 may prove to have been the trough before a sharp improvement.

What could change the market's interpretation in the short to medium term: actual construction starts at Yehuda Gur and Epstein, use of the Maane 4 facilities without renewed pressure on equity, and an improvement in gross margin or cash flow before Le Guardia and Ibn Gabirol reach execution stage.

Why this matters: in an urban renewal company, real value is created only when signatures and permits turn into a financed, marketed and executed project. Until then, a large part of value remains an option.

In the next 2 to 4 quarters, the company needs to show three things for the thesis to strengthen: real construction starts in the projects that received permits, a moderation in finance expense relative to execution progress, and better earnings quality without relying only on another raise or another facility. What would weaken the thesis? Another year in which the backlog advances on paper but profit, cash flow and the balance sheet still fail to align with that progress.