Discount Investments: leverage is lower, but turning paper value into cash is still the bottleneck

Company Overview

Discount Investments is no longer the multi-asset investment vehicle it used to be. After the sale of Cellcom in May 2024 and Elron in September 2024, the 2025 story is effectively the story of a listed parent company with just 9 head-office employees, built almost entirely around a 70.5% stake in Properties & Building. From the point of view of DIC shareholders, that is the key shift: anyone still reading the company as a diversified holding structure is looking in the rear-view mirror.

What is working now is clear enough. Parent-level debt has come down sharply. DIC's financial liabilities at the parent and fully owned headquarters entities fell from ILS 985 million at the end of 2024 to ILS 427 million at the end of 2025, while net finance expense at headquarters dropped from ILS 55 million to ILS 34 million. At the same time, the core asset underneath, Properties & Building, still rests on Gav-Yam, which reported roughly 97% occupancy, ILS 1.521 billion in revenue, and ILS 670 million of profit attributable to shareholders. That is why DIC returned to ILS 98 million of net profit in 2025.

What a superficial read can miss is that reported value is not the same as accessible parent-level cash. At the end of 2025, DIC's head-office liquidity stood at only ILS 32 million, against expected uses of ILS 322 million through the end of 2026 and another ILS 127 million in 2027. In other words, the core issue is no longer whether the holding company has enough stated asset value. It is whether that value can actually travel upward on time, without forcing additional asset erosion along the way.

The active bottleneck here is parent-level liquidity and value access. Not covenant stress, not an immediate rating accident, and not a near-term going-concern event. DIC was comfortably inside every financial covenant at year-end 2025. But that does not answer the real question: how much cash can move up through dividends, refinancing, or selective monetization without hollowing out the very assets that generate the value.

For the read on DIC to improve over the next few quarters, three things need to happen at the same time: DIC needs to show credible coverage for its 2026 maturities, Properties & Building needs to secure its own 2026 funding without consuming all the room for upstream cash, and 10 Bryant needs to move from a story of leasing progress to a story of monetization or clearly more stable cash generation. Until then, this is a case of value that exists, but still does not flow freely.

Four non-obvious points that matter from the start:

• DIC's debt burden is much lower, but parent cash is still very light relative to the 2026 and 2027 repayment schedule.
• The current issue is not covenant pressure. Actual ratios are far away from trigger levels, so the real test is refinancing and upstream cash access rather than technical default math.
• 10 Bryant looks better at the headline level, but the Amazon lease also includes 16 months of free rent, large tenant-improvement commitments, and sale-related payments. Value created is not the same as cash captured.
• DIC is much simpler than it used to be, but also much narrower. The sales of Cellcom and Elron reduced leverage while also shrinking alternative sources of value and liquidity.

Economic Map

Events And Triggers

The first trigger: DIC has effectively completed the move from a broad investment company to a narrow real-estate-centric holding structure. The 2024 exits from Cellcom and Elron, together with the 2024 increase in the stake in Properties & Building, created a much simpler structure. That is good for analytical clarity, because it is now easier to see what drives value. It is less helpful from a diversification standpoint, because once the story is mostly Properties & Building, any problem in the middle layer becomes a DIC problem quickly.

The second trigger: Properties & Building sold Gav-Yam shares during 2025 for aggregate proceeds of about ILS 850 million. In November alone it sold around 7.6% of Gav-Yam for about ILS 650 million, while still retaining control at roughly 64.02%. This improves liquidity and supports deleveraging, but it also reduces the future asset base that should produce dividends. It buys time, but it also trims the layer that generates most of the group's operating value.

The third trigger: Properties & Building paid an ILS 200 million dividend in December 2025, of which DIC's share was about ILS 141 million. That matters, because it proves cash can move up one layer. But it also highlights the limitation: for DIC to benefit from this repeatedly, Properties & Building has to preserve enough room for its own debt, its own 10 Bryant commitments, and its own 2026 funding needs.

The fourth trigger: 10 Bryant secured two material leases in 2025. In April, Amazon signed a 15-year lease for about 330 thousand square feet, with an option on an additional roughly 145 thousand square feet in the 1W39 building. In June, Life Time signed for roughly 52 thousand square feet of retail space. That is real commercial progress, and the asset's fair value was updated to $728 million at year-end 2025. Even so, the tower remained classified as held for sale and its results were still presented as discontinued operations. So even after leasing progress, the market is still waiting for monetization, not just better leasing headlines.

The fifth trigger: After the balance-sheet date, Gav-Yam raised about ILS 876 million gross in February 2026 through bond-series expansions and declared an ILS 60 million dividend. That is a supportive external signal showing the income-producing real-estate layer still has decent access to debt capital. But that confirmation belongs first to Gav-Yam, then to Properties & Building, and only after that possibly to DIC. Investors should be careful not to read financing flexibility at the lower layer as if it were automatically free parent cash.

Efficiency, Profitability And Competition

The central insight is that DIC did not look better in 2025 because of some newly efficient headquarters machine. It looked better because the real-estate engine beneath it remained strong and because parent financing costs came down. To judge earnings quality properly, the right split is between what Gav-Yam generated, what 10 Bryant consumed, and what remained after that value climbed toward DIC.

What Really Drove 2025

DIC ended 2025 with ILS 98 million of net profit, versus ILS 31 million in 2024. Properties & Building contributed ILS 140 million to DIC's results, while head-office management expenses fell to ILS 10 million and net finance expenses fell to ILS 34 million. That does not mean the underlying contribution from Properties & Building surged. In fact, its contribution was lower than the ILS 180 million recorded in 2024. So the improvement in DIC's headline result came more from cleaner parent-level funding economics than from a broad-based operating acceleration.

At the consolidated level, profit from continuing operations rose to ILS 638 million, but that is not the figure that should anchor the equity story. The reason is simple: the consolidated statements also include a ILS 121 million loss from discontinued operations at 10 Bryant, and much of the operating value sits in lower layers. This is exactly where a reader can confuse a consolidated report with the economics of a holding company.

What Is Actually Working Below The Parent

Gav-Yam clearly improved on the business side. Consolidated revenue rose to ILS 1.521 billion from ILS 1.219 billion in 2024, while profit attributable to shareholders rose to ILS 670 million from ILS 478 million. Occupancy reached roughly 97%, versus around 95% a year earlier. The company held 1.3 million sqm of income-producing area and another roughly 288 thousand sqm under development. This is the real economic core of the group, not DIC headquarters.

The segment mix makes that even clearer. Out of ILS 1.447 billion of external revenue in 2025, ILS 1.429 billion came from income-producing properties and only ILS 18 million from residential activity. So anyone reading Properties & Building or DIC as a balanced mix of income-producing real estate and residential development is missing the picture. Residential exists, but recurring rental income is the engine that carries the economics.

Earnings Quality And What Should Not Be Rolled Up Automatically

This is one of the more important yellow flags. In the presentation, Gav-Yam reports FFO, the real-estate cash-flow metric, in several different versions: ILS 295 million under the Israel Securities Authority approach, ILS 432 million under management's approach, and ILS 440 million under management's normalized fourth-quarter approach. That gap is very wide. It does not mean one figure is necessarily "wrong", but it does mean that an investor in DIC has to be precise about which cash bridge is being used, and what that bridge still has to absorb once it passes through Properties & Building, parent-level overhead, and DIC's own debt.

That is exactly why it is dangerous to lift the highest figure and call it "DIC cash generation". Even Gav-Yam's ILS 531 million of operating cash flow in 2025 does not automatically become capital-allocation freedom at DIC. There is still the Properties & Building layer in between, with its own financing needs, dividends, monetizations, and expected investment requirements at 10 Bryant.

Competition, Asset Quality, And Concentration

At the asset-quality level, Gav-Yam still looks strong. Its properties are concentrated in demand areas and parks, and more than half of the revenue from its income-producing assets comes from major tenants such as Apple, Nvidia, Amazon, Google, Elbit, Intel, Philips, IBM, Zim, Microsoft, and EMC. That matters because it helps explain the high occupancy and the quality of the underlying rent roll.

But from DIC's point of view, that strength is also concentration. As DIC becomes a narrower holding company, any issue in this engine becomes more material. Simplification helped the balance sheet. It did not eliminate concentration risk.

Cash Flow, Debt And Capital Structure

This is the real center of gravity in DIC's 2025 story. Not the bottom line, not the fair value of the real-estate assets, and not even Gav-Yam's occupancy rate. The question that decides the quality of the story is how much cash actually exists at the parent versus what the parent has to pay in reality.

The Right Cash Lens Here Is All-In Cash Flexibility

In DIC's case, the relevant framing is not normalized operating cash generation. It is all-in parent cash flexibility. At the end of 2025, liquid assets at DIC headquarters stood at ILS 32 million. Against that, the company itself shows expected uses of ILS 322 million through the end of 2026 and another ILS 127 million in 2027, mainly principal and interest on its bonds.

That means that under any serious financing-flexibility lens, the existing parent cash is not enough. DIC's own forecast says so: in 2026 it needs ILS 304 million from other sources beyond opening liquidity, and in 2027 another ILS 128 million. The company explicitly lists three core sources: monetization of holdings, equity or debt raising, and dividends from Properties & Building.

That is not a red-alert liquidity event for tomorrow morning. DIC also has an ILS 100 million bank credit line that was still unused at the reporting date. But it does mean that 2026 is first and foremost a funding year, not a year in which the parent simply sits on a comfortable cash cushion.

Covenants Are Not Tight. That Is Exactly The Point

What is actually interesting is how much room DIC still has against its financial tests. Net asset value stood at ILS 1.667 billion at year-end 2025 and ILS 1.844 billion on February 16, 2026. Net debt to NAV stood at 19% and 18%, respectively. The ratio of solo equity to total solo balance sheet was 80%, and solo liquidity stood at ILS 27 million against just ILS 2 million needed for the next interest payment on series 11.

This matters because it weakens the lazy reading of "there is debt, therefore there must be covenant pressure". That is not the story here. The bottleneck is economic rather than technical. The market is asking at what cost DIC refinances, how much cash reaches the parent, and whether that process requires additional trimming of Gav-Yam or more reliance on capital markets.

Group Cash Flow Does Not Automatically Mean Parent Freedom

At the consolidated level, the group produced ILS 525 million of operating cash flow in 2025. That is a healthy number, but it is not the answer to the parent-level question that matters to DIC equity holders. In the same year, investment in income-producing real estate and fixed assets reached ILS 1.241 billion, while the group also received ILS 2.031 billion of non-current financial liabilities and repaid ILS 2.505 billion. The consolidated picture shows a live and active real-estate platform. It does not show simple parent-level freedom of capital allocation.

Put differently, anyone who looks only at the consolidated cash flow and concludes that DIC is "comfortable" is missing the basic structural fact: at the parent layer, this is still a company that has to feed itself through refinancing, selective monetizations, and dividends that come up only after the lower operating and financing layers have taken their share.

Properties & Building Is Both The Asset And The Bottleneck

DIC's value sits in Properties & Building. But the challenge of making that value accessible also runs through Properties & Building. The company does not only upstream dividends. It also says explicitly that during 2026 it will require additional funding sources for its own ongoing debt service and expected investment in the tower. The potential sources it lists include refinancing, new or expanded bond issues, credit lines, dividends from Gav-Yam, further sales of small stakes in Gav-Yam while retaining control, and a sale of the tower.

That sharpens one of the most important points about DIC: the value is real, but it does not sit on one clean layer. Every layer on the way up can both create value and consume cash. That is why the real 2026 test is not just "what are the assets worth", but how much of that value is still reachable by common shareholders once all the intermediate needs have been funded.

Outlook

2026 looks like a proof year, not a harvest year. The group has already done much of the clean-up work: it sold non-core holdings, reduced parent debt, and narrowed the structure around real estate. The next stage is to prove that the cleaner structure does not only look better on paper, but also works in terms of cash transmission and capital structure.

Four points to keep in mind going into 2026:

• DIC does not currently need to rescue covenants. It needs to prove that refinancing and alternative cash sources are actually available at a reasonable price.
• Properties & Building is the main value engine, but it is also entering 2026 with funding needs of its own.
• 10 Bryant no longer looks like an asset with no leasing traction, but it is still far from a simple monetization story.
• Any additional Gav-Yam share sale may help short-term liquidity while weakening the future asset base that supports the thesis.

Test One: Can DIC Get Through 2026 Without Weakening Itself

DIC itself points to three sources: monetization of holdings, debt or equity raising, and dividends from Properties & Building. Each of those comes with a cost. Monetization of holdings at DIC now effectively means selling another slice of Properties & Building. Equity raising dilutes. Debt raising pushes the problem forward and may come at a higher cost. Dividends from Properties & Building are the cleanest route, but that route depends on how much real room remains at that middle layer after it funds its own obligations.

That is why the constructive scenario for DIC is not simply "sell more and buy time". The constructive scenario is a combination of reasonable refinancing at the parent, continued workable funding access at Properties & Building, and ongoing dividend capacity from Gav-Yam without excessive erosion of control.

Test Two: Properties & Building Must Keep Feeding Upstream, But It Also Needs Air For Itself

Properties & Building clearly states that control of Gav-Yam is its main asset, and that its strategy remains focused on income-producing real estate through that control. That is the right description of reality. At the same time, the same company also says that it will need additional funding sources in 2026. So when a DIC shareholder sees the ILS 200 million dividend paid in December 2025 or Gav-Yam's February 2026 bond raise, the immediate question should be: how much of this is truly available to move one layer higher?

That is also where the distinction between created value and accessible value becomes critical. Selling another 2% or 3% of Gav-Yam could well be the correct move if it avoids more expensive financing or extends the runway. But it would also mean fewer Gav-Yam shares left for future dividends and less exposure to the group's highest-quality asset. So the question is not whether monetization would generate cash. Of course it would. The question is what price it extracts from future value creation.

Test Three: 10 Bryant Has To Move From Leasing Story To Access Story

There has been real progress at 10 Bryant, but a lot of work is still ahead. The Amazon lease sets annual rent at roughly $29.5 million on the leased space and another roughly $8.4 million on the additional space if the option is exercised. Rent on the leased space steps up after five years to $32.2 million and after ten years to $34.8 million. Those are the numbers that encourage the market to look at the tower differently.

But the agreement also comes with a price. Properties & Building committed to tenant-improvement costs of $53.8 million on the leased space, another $17.4 million on the additional space if the option is exercised, and further renovation and upgrade work of roughly $20 million. Amazon also received 16 months of free rent. And in an illustrative sale at the December 31, 2025 fair value plus the agreed tenant-improvement investments, Amazon alone would be entitled to around $7.8 million for the leased space and another around $3.3 million for the option area if the option were exercised.

That is the core issue. The Amazon lease improves the asset's profile, but it also adds obligations that narrow the gap between headline fair value and the cash that would actually remain after monetization. That is why the $728 million fair-value headline is not enough on its own.

The second weakness at 10 Bryant is that the 2025 accounting result still does not resemble a stabilized asset story. Discontinued operations recorded a loss of ILS 121 million, on expenses of ILS 301 million. The footnote explains that a large part of finance expense in 2025 came from foreign-exchange differences on loans extended by Properties & Building to the subsidiary holding the tower. That means the 10 Bryant loss is not just a leasing story. It is also a financing and currency-structure story.

What Can Change The Market Read

The market is likely to judge DIC on three relatively near-term axes:

• Whether DIC can refinance 2026 without sharply re-inflating its funding cost.
• Whether Properties & Building can fund itself and 10 Bryant without leaning mainly on further Gav-Yam stake sales.
• Whether 10 Bryant moves from lease headlines and fair-value optics toward an actual sale process or a visibly stronger occupancy-and-cash profile.

If those three axes develop constructively, DIC can begin to look like a holding company that has moved from cleanup to extraction. If not, it can remain stuck in a structure where improvement at one layer is consumed by the needs of another before it ever reaches the parent shareholders.

Risks

The main risk is not an immediate collapse. It is layered dependence. DIC depends on Properties & Building, Properties & Building depends on Gav-Yam and on funding the tower, and 10 Bryant depends on both the Manhattan leasing environment and eventual monetization timing. That creates a structure in which each layer is supposed to support the one above it, while also preserving cash for itself.

Asset Concentration

After the exits from Cellcom and Elron, DIC has very little in the way of alternative large assets. That makes the story easier to read, but it also makes mistakes more expensive. If Properties & Building disappoints, DIC does not currently have another large holding that can balance the hit.

Liquidity And Refinancing Risk

The fact that covenants are comfortably inside their thresholds does not remove funding risk. DIC still has material maturities in 2026 and 2027, and coverage relies on actions that have not yet been completed. This is not a panic liquidity case, but it is clearly a dependence on capital markets, dividends, and execution.

10 Bryant Execution And Monetization Risk

10 Bryant is still classified as held for sale, which means investors should care more about the eventual realized sale economics than about any theoretical fair-value mark. If the monetization process drags on, the company may continue to carry upgrade costs, financing costs, and market risk. If a sale does happen, net proceeds will still be affected by tenant commitments and especially by the economics embedded in the Amazon agreement.

Value Creation That Does Not Fully Reach Common Equity

The gap between strong operating economics at Gav-Yam and actual freedom of action at DIC is a risk in itself. It is entirely possible for Gav-Yam to keep producing good results, for Properties & Building to remain reasonably flexible, and for DIC shareholders still not to capture the full benefit because the value gets absorbed on the way up by financing needs, partial monetizations, or capital commitments.

Currency And Valuation Risk

The group is also exposed to currency and valuation swings, especially around 10 Bryant and the financing tied to it. That is another reason not to confuse asset-value improvement with clean cash improvement for common shareholders. When discontinued-operations losses are influenced by both foreign exchange and fair-value changes, the bottom line alone is not telling the whole story.

Near-Term Market Read

One moderating factor is that the stock does not appear to be a real short target. Short interest as a percentage of float stood at only 0.04% on March 27, 2026, versus a sector average of 0.55%, while SIR was 0.06 versus a sector average of 1.562. In other words, there is no crowded bearish positioning here waiting to be squeezed. That is helpful, but it also means the stock is more likely to move on funding, dividends, and monetization than on technical short dynamics.

Conclusions

DIC enters 2026 from a stronger position than it occupied two years ago. Parent debt is lower, the structure is cleaner, and Properties & Building still rests on a high-quality core asset in Gav-Yam. But the correct read on DIC is not "good real estate therefore value will surface". The correct read is that the parent holds meaningful value, while the path from that value to actual cash still runs through one busy middle layer and through a U.S. tower that still needs execution and monetization.

Current thesis: DIC is no longer fighting for balance-sheet survival, but it still needs to prove that the value created underneath it can move upward without repeated erosion of the asset base.

What changed: Compared with the years in which DIC was still dealing with a broader asset portfolio and a more acute balance-sheet clean-up, 2025 marks a move to a simpler, less leveraged, but much more concentrated structure. Debt is lower and value is now centered much more clearly around Properties & Building. At the same time, alternative sources of value have shrunk.

The strongest counter-thesis: The market may still be too cautious. DIC's NAV stood at ILS 1.667 billion at year-end 2025 and ILS 1.844 billion in mid-February 2026, while the market value shown in the presentation was ILS 1.455 billion. If Properties & Building continues to receive Gav-Yam dividends, refinance its own obligations, and monetize 10 Bryant on reasonable terms, that gap can narrow without drama.

What could change the market interpretation over the next 2 to 4 quarters: not another accounting profit line, but any step that clarifies the cash path. Reasonable refinancing, another dividend that successfully moves up a layer, a tower sale, or clear progress in leasing the Amazon option space would all matter more than another fair-value uplift.

Why this matters: DIC has mostly finished the clean-up phase. From here, the quality of the story will be determined by whether it can turn structural value into accessible equity value, not by one more monetization that merely buys time.

Over the next 2 to 4 quarters, the thesis gets stronger if DIC secures reasonable refinancing, Properties & Building preserves real room for upstream cash, and 10 Bryant moves toward more accessible value through leasing progress or monetization. It weakens if additional sales of high-quality assets become the primary answer to every funding need, or if operating improvement keeps showing up in lower layers without ever becoming real parent-level cash.