Gav-Yam in 2025: NOI rose, but the real test is pipeline leasing and debt-market access

Understanding The Company

Gav-Yam is no longer just an office landlord. It is a large Israeli income-producing real-estate platform with about 1.3 million square meters of operating assets, about 288 thousand square meters under construction, an income-producing portfolio valued at NIS 13.2 billion, and a heavy presence in the prime locations where Israeli and multinational tech tenants still want to sit. A superficial read of 2025 sees NIS 670 million of net profit and concludes that the company simply delivered another clean growth year. That is only part of the story.

What is clearly working now is the existing portfolio. Occupancy rose to 97%, rent in new and renewed leases kept moving up in real terms, NOI climbed to NIS 759 million, and the company still owns a set of prime assets that attracts tenants even in a market that is not easy. Funding, at least at the headline level, also remains supportive: the weighted effective cost of debt is 2.3% CPI-linked, all assets remain unencumbered, and the company ended the year with NIS 772 million of liquid resources plus NIS 515 million of credit lines.

But the bottleneck has moved. Gav-Yam is no longer being tested mainly on whether the existing assets are good. They are. It is being tested on whether it can turn a very large development pipeline into NOI and FFO at a pace that justifies the fair-value marks, without becoming more dependent on the bond market. At the end of 2025 the company had seven projects under construction with expected annual rent of NIS 293 million once completed and occupied, yet only about 51% of the above-ground area in those projects had already been marketed.

That is also what a first-pass reader can easily miss. The 2025 story is not only a higher NOI story. It is a transition from a company whose value was driven mainly by the existing rent roll to one whose next leg increasingly depends on projects that still need to be completed, leased, and turned into cash-paying assets. That is why 2026 looks less like a harvest year and more like a bridge year with a proof burden.

The quick economic map looks like this:

The economics still sit mainly in office and tech assets. 69% of the income-producing property value is concentrated there, and about 60% of 2025 rental income came from tenants operating in tech. That does not mean single-tenant dependence. The opposite is true: the company has no tenant contributing more than 10% of annual revenue. But it does mean the concentration is sectoral and geographic rather than customer-specific. If demand for prime office space stays firm, Gav-Yam benefits almost everywhere. If the sector weakens again, the first pressure point will likely be leasing velocity in new projects rather than an immediate cliff in the existing rent roll.

One more point needs to be framed early. In 2024 the company re-entered residential development through Gav-Yam Magurim, and in 2025 it already recorded about NIS 70 million of other income tied to additional rights in the Ramat Hanasi residential project in Haifa. That is not irrelevant, but it is still not the core engine of the thesis. The right way to read Gav-Yam in 2025 is through its income-producing portfolio, the development stack around it, and the bridge between NOI, fair-value gains, and debt. Residential is still an option layer, not the main economic center of gravity.

Events And Triggers

The existing rent roll is still doing its job

The first trigger: the standing portfolio still carries real operating momentum. During 2025 Gav-Yam signed 192 lease agreements in existing assets, covering about 204 thousand square meters of above-ground area and generating about NIS 168 million of annual rent. Those agreements were signed at an average real rent increase of about 4.2%, after neutralizing the effect of tenant-fitout timing. In the fourth quarter alone the company signed 58 agreements over about 65 thousand square meters, generating about NIS 59 million of annual rent, at an average real increase of about 4.0%.

The important point is not only that this was another year of lease signing. The important point is that higher rent came together with 97% overall occupancy rather than instead of occupancy. In other words, at year-end 2025 the company still was not buying stability through broad price concessions.

The development stack is moving, but not evenly

The second trigger: the company holds a very large development pipeline, but it is not de-risked uniformly. At the end of 2025 there were seven projects under construction, with total investment of about NIS 3.8 billion in the consolidated accounts and expected annual rent of NIS 293 million after completion and occupancy. That is meaningful embedded growth, but it is also the main risk center for 2026 through 2027.

Some assets are already close to falling off the risk list. The O2 project in Herzliya was 100% marketed and is expected to be completed in the second quarter of 2026, with annual rent of NIS 47 million. The fifth building in Gav-Yam Rehovot was completed after the balance-sheet date, all of its area was leased to a leading international technology company, and Gav-Yam’s share of annual rent stands at about NIS 14 million. The data-center project in Park Matam was also fully marketed and is expected to be completed in the third quarter of 2027.

The two assets that will really shape the forward reading are still more open. ToHa2, the flagship next-leg project, stood at only 39% marketed at year-end 2025. Matam East 3 stood at only 15%. Gav-Yam HaIvrit 3 was still at just 4%. So the right way to read the pipeline is not “NIS 293 million of rent is on the way,” but “NIS 293 million of rent is on the way if leasing keeps up with delivery.”

That gap between nearly de-risked assets and still-open flagship projects is the core of the current thesis. O2 and the leased portion of Rehovot 5 reduce risk. ToHa2, Matam East 3, and HaIvrit 3 still leave a large part of it unresolved.

What was completed, and what still is not fully closed

The third trigger: during 2025 the company completed two important moves that reduce part of the operating risk. It completed buildings 1 and 2 in Gav-Yam HaIvrit, with about 57 thousand square meters of above-ground area and about 95% marketing after the signed leases. It also completed the fifth building in Gav-Yam Negev, with about 15 thousand square meters, but there the marketing rate at year-end stood at only 51%, so completion did not immediately translate into full occupancy.

That distinction matters because it sharpens the difference between delivery and earnings. In Gav-Yam projects, finishing the building does not automatically mean full-rate NOI starts the next day. The south already shows this clearly: above-ground occupancy in that region fell to 90% at year-end 2025, from 98% a year earlier, mainly because the fifth Negev building was completed at only 51% marketing.

The bond market moved back to the center of the thesis

The fourth trigger: immediately after the balance-sheet date, the company moved into a financing sequence that sharpens the story even if it is not yet a fully closed event. On the same day as the annual report, the company received an ilAA rating for unsecured bond issuance of up to NIS 600 million par value through expansions of series H and XII. The stated use of proceeds was mainly refinancing and general operations. At the same time, the company disclosed that it was examining a public debt offering through those same two series, with the institutional tender scheduled for February 5, 2026.

This does not mean the refinancing question is solved or that the issuance was guaranteed. It means the capital market remains an integral part of the thesis. This is not an income-producing real-estate company funding all growth internally through operating cash. It is a company with a strong operating base whose development layer still needs an open bond market.

Efficiency, Profitability, And Competition

The right way to read 2025 is to start with NOI and FFO, and only then move to net profit. The reason is simple. Gav-Yam’s net profit rose to NIS 670 million from NIS 478 million, but only part of that jump came from clean operating economics. NOI rose to NIS 759 million from NIS 692 million, Same Property NOI rose to NIS 707 million from NIS 670 million, and FFO under management’s approach rose to NIS 432 million from NIS 407 million. Those are good improvements, but they are far more moderate than the jump in the bottom line.

This is not a weak result. It is a quality-of-earnings point. Inside the 2025 outcome there is real rental growth, index-linked uplift, higher management income, and a NIS 541 million increase in the fair value of investment property. Anyone blending all of that into one clean line risks attributing more pure operating strength to the existing portfolio than it actually delivered.

The company itself breaks the fair-value movement clearly. NIS 351 million came from CPI-linked uplift, NIS 231 million from revaluation of assets under construction, and NIS 41 million was lost because of higher capitalization rates. In other words, even in a strong year, reported profit still leaned materially on inflation, construction progress, and appraisal assumptions, not only on rent already being collected.

That is the difference between value created and value accessible to shareholders. A higher valuation on an operating asset or on a project under construction absolutely creates accounting value. But until those assets are fully leased and generating NOI, or until the company monetizes them in some other way, it is not cash in hand. So 2025 contains two true stories at once: one of genuine operating improvement, and one of a net-profit line still heavily influenced by fair-value items.

At the competitive level, Gav-Yam still has several real advantages. It has no single tenant above the 10% threshold, it operates prime assets, and most of its tech tenants are established multinational companies rather than small early-stage ventures. That explains why it could keep occupancy high and sign leases at real rent increases even through a prolonged period of uncertainty.

But the advantage is not absolute. About 60% of revenue still comes from tech-related tenants. That is sector concentration rather than customer concentration. The risk therefore does not show up through one tenant collapse, but through a broader slowdown in office-tech demand. If that happens, the first casualty will probably be leasing pace in the new projects rather than the standing portfolio itself.

Another sign that the year was not only a clean margin story is the gap between NOI and FFO. NOI rose 10%, but FFO under management’s approach rose only 6%. The reason is straightforward: net interest expense rose to NIS 120 million from NIS 94 million. So even in a year when the assets worked well, part of the operating improvement was already being absorbed at the financing layer.

Cash Flow, Debt, And Capital Structure

The normalized cash-generation picture

If the question is how much recurring cash the existing business produces, the picture is solid. Cash flow from operating activity rose to NIS 531 million from NIS 477 million, and FFO attributable to shareholders rose to NIS 432 million. That means the standing portfolio and the assets that have already been delivered continue to generate respectable recurring cash even after higher financing costs.

That is the narrower, normalized cash-generation frame. It asks what the existing business can produce before the large growth-investment layer. Inside that frame, Gav-Yam looks strong.

The all-in cash-flexibility picture

But the picture changes once the analysis moves to all-in cash flexibility. During 2025 the company invested about NIS 1.2 billion in projects that were in planning, permitting, construction, or completed during the year. It also paid NIS 290 million of dividends, repaid about NIS 1.382 billion of bonds, and took about NIS 431 million of net short-term credit from financial institutions. To fund that stack it issued bonds for proceeds of about NIS 2.031 billion.

That distinction matters. The company generates cash, but it is still not funding its growth and distributions fully from internally generated cash. This is not a criticism of growth itself. It is simply the difference between a strong income-producing real-estate business and one that can finance its development jump without an open bond market.

The debt structure itself is still manageable

At year-end 2025 gross financial debt stood at NIS 9.931 billion and net financial debt at NIS 9.158 billion. 81% of the debt was CPI-linked and 19% was fixed-rate shekel debt. The weighted effective cost of debt was 2.3% CPI-linked and the weighted duration 3.3 years.

Those are reasonable numbers for a company of this type, and they explain why there is no immediate distress signal. Relative to the value of the income-producing asset base, the spread still exists. The weighted capitalization rate implied by the income-producing portfolio stands at 6.7%, so the gap versus debt cost remains wide.

There is still no reason to soften the friction point. The principal repayment schedule places NIS 2.443 billion in 2026, NIS 1.296 billion in 2027, and NIS 1.287 billion in 2028. So even if the balance sheet looks stable, the next several years remain refinancing years, not years of full independence from the capital market.

Why the working-capital deficit should still stay on the screen

Gav-Yam ended 2025 with negative working capital of about NIS 1.8 billion in the consolidated accounts and negative working capital of about NIS 1.9 billion for liabilities due within 12 months after neutralizing the longer operating cycle. The board argues, reasonably, that this does not indicate an immediate liquidity problem because the company has positive operating cash generation, credit lines, liquidity, a credit rating, and an entirely unencumbered asset base. All material bond series were also in compliance, and no immediate-repayment trigger existed.

Even so, it remains a yellow flag that should stay visible. Negative working capital in a large property company is not automatically a problem, but it does mean the story still depends on continued financing access. As long as the bond market stays open, this is manageable. If the market closes, even a strong company starts being read differently.

Outlook

The first finding: 2026 does not start from zero. O2 Herzliya and Rehovot 5 are already close to fully de-risked commercially, and that reduces part of the next-year risk.

The second finding: the real swing assets are still the projects that remain partially open, especially ToHa2 and Matam East 3. Those are the assets that can materially change the quality of the 2026 to 2027 read.

The third finding: the forward guidance looks good on paper, but it rests on delivery and leasing timelines, not only on the existing asset base. This is an execution forecast, not just a rent-roll forecast.

The fourth finding: even if guidance is met, 2026 still does not look like a clean harvest year. It looks like a year in which marked value needs to start turning into NOI without placing even more weight on the debt structure.

The company guides for 2026 NOI of NIS 825 million to NIS 845 million, NOI attributable to shareholders of NIS 660 million to NIS 680 million, and FFO attributable to shareholders under management’s approach of NIS 450 million to NIS 460 million. On a normalized annualized fourth-quarter basis, it is already talking about NOI of NIS 860 million to NIS 880 million and NOI attributable to shareholders of NIS 690 million to NIS 710 million. In other words, management is not framing 2026 as a stabilization year. It is framing it as another growth year.

The issue is that the growth is not uniform in quality. Some of it is already nearly locked in through O2, Rehovot 5, and the assets completed during 2025. Another part still depends on leasing and completion in ToHa2, Matam East 3, and Gav-Yam HaIvrit 3. That is why 2026 looks here like a bridge year with a proof burden, not a clean breakout year. If the company ends 2026 with strong leasing progress in ToHa2, a smooth ramp in O2, and measurable progress in Matam East 3, the market can begin to re-rate 2027 and 2028 differently. If not, the 2025 fair-value gains may look too early in hindsight.

Another important point is the level of visibility in the existing contract base. Based on signed lease contracts, the company has fixed revenue of NIS 814 million for 2026 from the standing portfolio. On top of that, it has expected revenue from signed leases in projects under construction of about NIS 1.054 billion in aggregate, which is not included in the table for existing leased assets. That does not mean 2026 is fully locked, but it does mean the next year rests on a broad contracted base rather than only on an abstract demand assumption.

In the investor presentation management already stretches the map into 2027 and 2028, with normalized NOI attributable to shareholders of NIS 840 million to NIS 860 million in 2027 and NIS 940 million to NIS 960 million in 2028, and normalized FFO of NIS 580 million to NIS 600 million in 2027 and NIS 640 million to NIS 660 million in 2028. Those are attractive numbers, but the base needs to be understood clearly: they assume the existing asset stack, timely entry of current projects under construction, and no new acquisitions or disposals. So this is not a promise. It is mainly a delivery map.

That is also where the near-term market read sits. The market is unlikely to spend much time on the fact that 2025 NOI increased. It will ask three simpler questions. How quickly do O2 and Rehovot 5 reach full run-rate contribution. Does ToHa2 move beyond 39% marketing fast enough to support the 2026 to 2027 story. And can the company keep refinancing at terms that absorb only part of the spread rather than the whole thing.

Risks

The main risk is not the current portfolio, but conversion speed in the development stack

The clearest risk through 2026 and 2027 sits in the projects that are not yet fully marketed. ToHa2 stood at 39% marketing at year-end 2025, Matam East 3 at 15%, and HaIvrit 3 at 4%. Those are not distress numbers, but they do leave substantial room for disappointment if office demand weakens.

The second risk is valuation sensitivity

In 2025 the company already recorded NIS 41 million of negative fair-value impact from higher capitalization rates, offset by other factors. That is a reminder that value does not move in one direction. The sensitivity disclosed for Gav-Yam Herzliya North sharpens the point: a 0.1% change in the average cap rate across that park changes value by about NIS 24 million, and a 5% change in rents changes value by about NIS 78 million. That is not a whole-company sensitivity, but it is a clear reminder that when a large part of profit comes from fair-value movement, even small yield changes matter.

The third risk is funding and execution at the same time

The construction-input index rose 5.3% in 2025, and the wage component alone rose about 9%. The company explicitly says the ongoing labor shortage increases construction costs and can delay projects. That matters because the problem is not only cost inflation. When completion is delayed, NOI is delayed. In a leveraged property company, that also delays the moment when new cash generation starts supporting the debt.

The fourth risk is sector exposure to tech

About 60% of rental income still comes from tech-related tenants. On the one hand, there is no material single tenant, and the company stresses that most of these tenants are established multinational companies. On the other hand, if the sector slows again, the pressure will appear through leasing pace, renewals, and fitout dynamics, not necessarily through one dramatic tenant failure.

Short Read

The short-interest data does not point to panic, but it does point to skepticism. As of March 27, 2026 the short position stood at 2.11% of float with an SIR of 3.58 days. That is far from extreme, but it is meaningfully above the sector average of 0.55% short float and 1.562 days to cover.

More important than the absolute level is the direction. At the end of November 2025 short interest stood at 0.64% of float. By the end of January 2026 it had already moved to 0.82%, and in February and March it crossed the 2% area. So even after the report and despite better results, part of the market chose to increase skepticism rather than reduce it.

The sensible reading of that signal is not that the market disputes the quality of the existing assets. It is that the market questions the quality of the next phase and whether NOI and FFO can keep rising at a pace that justifies both the fair-value gains and the development program. In that sense, the short read does not contradict the fundamentals. It is testing the next layer of them.

Conclusion

Gav-Yam exits 2025 as a stronger income-producing real-estate company, with a higher-quality portfolio, high occupancy, and genuine NOI growth. That is the part supporting the thesis. The main blocker is that the next phase will now be decided less by the strength of the existing rent roll and more by the speed at which development turns into real NOI, and by whether refinancing stays smooth enough not to eat the spread. In the short to medium term, the market read will be shaped mainly by O2, Rehovot 5, ToHa2, and continued bond-market access.

Current thesis: Gav-Yam is stronger than the short case suggests, but 2026 is still a bridge year in which the company has to prove that already-marked value can turn into operating income without putting more strain on the capital structure.

What changed: the story shifted in 2025 from stability in the standing portfolio to conversion of a large development stack into NOI and FFO. The main pressure point is no longer occupancy alone, but leasing pace, delivery, and funding.

Counter-thesis: the market may be right to stay cautious because a large part of 2025 profit still came from fair-value gains and construction progress, while the key projects meant to justify 2026 through 2028 are not yet leased at a pace that removes the risk.

What could change the market read: a faster leasing pace in ToHa2 and Matam East 3, together with continued refinancing at workable terms, would turn 2026 from a year of expectation into a year of visible delivery.

Why this matters: if Gav-Yam can move through the next few years without damaging the spread between property yield and debt cost, it can reach 2027 with a much higher NOI base and a cleaner equity story. If not, part of the value will remain accounting value rather than distributable economic value.

What has to happen over the next 2 to 4 quarters: O2 and Rehovot 5 need to move into full contribution quickly, ToHa2 needs to move well beyond 39% marketing, Matam East 3 needs a better leasing trajectory, and the 2026 refinancing calendar needs to remain manageable rather than becoming the main story.