Sella Capital Real Estate 2025: NOI Is Still Rising, but 2026 Is a Bridge Year Between Beit Mani and Kfar Saba

Getting To Know The Company

The first read on Sella Capital is too comfortable. Open the 2025 package and the company looks like a textbook local REIT: 45 income-producing assets in Israel, NIS 5.976 billion of fair value, 550 tenants, no single tenant accounting for 5% or more of activity, all assets unencumbered, and NOI up to NIS 356 million while real FFO rose to NIS 253 million. Even in the market, the story still looks relatively calm. Market cap is around NIS 2.46 billion, still below the NIS 2.767 billion equity base, and short positioning exists but is nowhere near extreme.

What is actually working now: the core portfolio still produces. Same-property NOI rose to NIS 358 million from NIS 336.5 million, total real FFO grew by 7.6%, the weighted effective cost of long-term debt stands at just 2.03%, and net financial debt to NOI remains 8.8 against a covenant ceiling of 12. That is a real base, not management spin.

The active bottleneck is not balance-sheet stress. It is execution plus shareholder economics. The portfolio still leans heavily on offices, 51% of fair value and 47% of area, exactly in the segment where the company itself describes longer negotiations and tenants asking for more flexibility. Beit Mani, acquired in 2024, ended 2025 at only 22% occupancy and reached 32% by the report publication date. At the same time, the 2027 estimate already assumes 75% average occupancy at Beit Mani and 50% average occupancy in the Mizrahi Tefahot space at Moshe Aviv. In other words, two of the biggest swing points for 2027 are still assumptions, not delivered facts.

That is why 2026 looks more like a bridge year than a breakout year. The company guides to NOI of NIS 376 million to NIS 382 million, but only NIS 254 million to NIS 258 million of FFO and 100 to 105 agorot of FFO per share, versus 109.7 agorot in 2025. That is not accidental. It means assets and operating volume keep growing, but the economics reaching common shareholders are not keeping up at the same pace.

Economic Map In Brief

What matters here is that the bar chart looks diversified at first glance, but four of the five largest assets still sit directly or indirectly inside the office story. So even if retail and logistics improve the overall balance, the 2026 to 2027 read still runs through a small number of office swing assets.

Events And Triggers

The first trigger: 2025 delivered another growth year in the accounts, but also another layer of capital. The company raised NIS 157.3 million net in an equity issuance, received another NIS 7.3 million from warrant exercises, and the weighted share count used for FFO per share rose to 230.54 million from 223.89 million. That explains why total FFO grew nicely, while FFO per share rose only 3.6%.

The second trigger: in February 2026 the company signed the Kfar Saba HaYeruka acquisition. This is the purchase of full ownership rights in part of the building at 3 Natan Rappaport Street in Kfar Saba, for NIS 580 million plus VAT, with another NIS 42 million of purchase tax and transaction costs expected. The property is 93% occupied and includes 19,500 sqm of retail, 16,200 sqm of offices, storage areas, and 855 parking spaces. On first read this looks like a move that reduces dependence on pure offices and adds a relatively stable asset.

But this is where the math changes. The immediate report speaks about expected annual net rental income of NIS 40.5 million at full occupancy, and a 7% yield relative to the purchase amount. That is correct only against the NIS 580 million headline price. Once the NIS 42 million of purchase tax and transaction costs are added, total entry cost rises to about NIS 622 million, and the economic entry yield drops to about 6.5%. That still leaves a spread over debt cost, but the move is not as generous as the headline suggests.

The third trigger: external validation is still supportive. Around the cycle, the company kept high ratings with stable outlooks. Maalot showed ilAA on the bond series, and Midroog maintained an Aa3.il issuer rating and P-1.il short-term rating on the commercial paper. That does not remove risk. It does say the company still has institutional credibility and good debt-market access.

The fourth trigger: management itself is telling the market where 2027 really sits. The 2026 guidance excludes income from Beit Mani. The 2027 estimate already assumes 75% average occupancy at Beit Mani and 50% average occupancy in the Mizrahi Tefahot space at Moshe Aviv. So 2026 is the year in which the company has to prove that the problem assets are starting to move, so that 2027 can look like more than an assumption set.

Efficiency, Profitability, And Competition

Sella Capital's 2025 operating story is genuinely solid. Rental and asset operation revenue rose to NIS 397 million from NIS 371 million. NOI rose to NIS 356 million from NIS 334 million, and real FFO climbed to NIS 253 million from NIS 235 million. The fourth quarter was also strong, with NOI of NIS 90 million versus NIS 85.3 million in the comparable quarter, and real FFO of NIS 65.5 million versus NIS 59.3 million.

But the number that really carries 2025 is not the fair-value line. It is the same-property portfolio. Same-property NOI rose to NIS 358 million from NIS 336.5 million. That matters because it shows the core is not living only on acquisitions. It is also benefiting from inflation-linked leases, renewals, and pricing improvement inside the existing portfolio.

That chart sharpens what the nice headline misses. NOI is supposed to keep rising. Total FFO is supposed to stay around peak levels. But FFO per share is supposed to fall. That means 2026 looks like a year in which portfolio scale and operating output keep improving, while the translation to shareholder-level economics stalls.

This is also where competition matters. The company itself describes an office market with longer negotiations and tenants trying to extract more flexible terms, especially in areas with excess supply. It also points to more than 1 million sqm of projects expected to be completed and marketed around Tel Aviv and the nearby area in coming years. Midroog pushes the point further, warning that in 2026 landlords in oversupplied areas may need contractual flexibility and targeted incentives in order to accelerate lease-up.

That is why the portfolio mix matters more than the consolidated total. Yes, 56% of the company's retail area is leased to anchor tenants and essential businesses with an average lease term of 5 years. Yes, the company is not dependent on any single tenant. But 51% of value is still in offices, and that is exactly where Beit Mani and the Moshe Aviv story sit.

There is also a less-discussed issue: the external management layer is not negligible. Management fees paid to the external manager in 2025 came to NIS 28.751 million. Against NIS 253 million of real FFO, that is around 11.4% of the very metric management wants the market to use for recurring earnings power. Portfolio growth and NOI growth help shareholders, but they do not flow through one-for-one.

Cash Flow, Debt, And Capital Structure

To read Sella Capital properly, two different cash pictures need to be held at the same time.

The first is recurring cash generation. Here the picture is perfectly reasonable. Cash flow from operations stood at NIS 241.2 million, relatively close to the NIS 253 million real FFO figure. The gap is mainly explained by non-cash adjustments, especially NIS 128 million of property fair-value gains and NIS 71.8 million of loan and bond revaluation.

The second is all-in cash flexibility, how much cash remains after actual period uses. This picture is different. In 2025 the company spent NIS 39.8 million on investment property, paid NIS 131.0 million of dividends, repaid NIS 47.1 million of short-term bank debt, and repaid NIS 337.4 million of bonds. Before new issuance, that was already a negative picture.

The meaning of that chart is not that the company is under pressure. It means real flexibility still relies on an open capital market. The rise in year-end cash to NIS 205.9 million did not come only from the current portfolio. It also leaned on NIS 245 million of net bond issuance, NIS 157.3 million of equity issuance, NIS 50.5 million of commercial paper, and NIS 7.3 million from warrant exercises.

That matters because 2025 still does not include Kfar Saba, and investment-property spending during the year itself was only NIS 39.5 million. In other words, 2025 cash-flow optics are still relatively comfortable versus what 2026 is likely to demand.

On the debt side the picture is genuinely strong. Cash stands at NIS 205.9 million, and the company discloses NIS 250 million of signed bank credit lines, unused as of the report approval date. All assets are unencumbered. The weighted effective debt cost is 2.03% with an average debt life of 4.06 years. Covenant headroom is also comfortable: net financial debt to NOI at 8.8 versus a ceiling of 12, NIS 2.767 billion of equity versus equity floors ranging from NIS 900 million to NIS 1.4 billion depending on the series, and unencumbered asset coverage of 127% versus a 100% requirement.

The subtle point is that this cushion does not make the company immune to everything. Current financial liabilities and short-term debt stand at NIS 608.1 million. Cash plus signed bank lines together provide about NIS 455.9 million. That creates comfort, but it does not close the whole year on its own without debt markets, operating cash flow, and refinancing capacity.

Put differently, Sella Capital is not a pressure story. It is a story that still needs all three engines to keep working together: recurring cash generation, access to debt markets, and lease-up execution in the big office assets.

Forecasts And The Road Ahead

Before going into the detail, four points need to be held together:

The immediate takeaway is that this is not a breakout year. It is a bridge between three buckets: an existing portfolio that still works, a problematic asset that still needs to be leased, and a new acquisition that has to start contributing.

Beit Mani is the center of the story. It is a NIS 469 million asset with an original cost of NIS 650 million, and it ended 2025 at only 22% occupancy. The valuation note adds that average occupancy during 2025 was only 3%, and by the report publication date it had reached 32%. Management chose not to include income from Beit Mani in the 2026 guidance. That is a conservative move, but it also means the major 2026 improvement is not supposed to come from this asset.

The Moshe Aviv situation is different, but still not clean. The asset is shown at NIS 514 million of fair value and roughly NIS 39 million of NOI on a 36% ownership interest, but the 2027 estimate already assumes 50% average occupancy in the Mizrahi Tefahot space. So here too the real question is not just what value sits on paper, but what occupancy will actually be achieved after the current tenant movement.

This is where Kfar Saba comes in. The new deal does three things at once. It adds retail. It modestly diversifies the portfolio mix. And it brings NIS 40.5 million of full-occupancy NOI potential. But it also requires about NIS 622 million of all-in cost before financing, is subject to Competition Authority approval, and is unlikely to look equally attractive at the FFO-per-share layer if it is funded partly through additional debt or equity.

That is exactly why 2026 is a bridge year. If Beit Mani stays slow, and if Kfar Saba is funded at a higher marginal cost or through dilution, the company may still show higher NOI without showing real improvement for shareholders. If, on the other hand, Beit Mani moves faster, Kfar Saba closes on reasonable terms, and debt is rolled without meaningful friction, 2027 could become a genuine proof year.

The NIS 146 million minimum dividend for 2026 adds another layer to the read. On one side, it signals balance-sheet confidence. On the other side, it means a meaningful share of the cushion will still be distributed in a year when the company also needs to fund lease-up and acquisition activity.

That is why the right label for 2026 is a bridge year with a proof test. Not because the operating base is weak, but because the picture still has not turned in favor of per-share economics.

Risks

The first risk is office oversupply and tenant concessions. The company itself points to more than 1 million sqm of projects expected to be completed and marketed in the Tel Aviv area in coming years. If that supply arrives quickly, landlords may have to concede on lease terms, fit-out spending, and lease-up pace. That does not have to collapse NOI, but it can delay the eventual improvement in FFO per share.

The second risk is execution in Beit Mani and the Mizrahi Tefahot space. Beit Mani is not a side issue. It is a NIS 469 million asset, and occupancy is still low. Moshe Aviv also returns as a 2027 test point. If either of those assets moves slower than expected, the 2027 story changes.

The third risk is valuation sensitivity. Every 0.25% move in cap rate changes fair value by about NIS 142 million. That is a reminder that part of the accounting strength in a REIT does not sit only on cash or NOI. It also sits on the valuation environment.

The fourth risk is funding and capital-markets access. Yes, the company is comfortably inside covenants and ratings remain high. But 2025 already showed that practical flexibility still leans on issuance and refinancing. Kfar Saba, an ongoing dividend, and commercial paper with 7-business-day call options together all say the story depends on an open capital market.

The fifth risk is value leakage through the external manager. The management structure includes management fees, a performance bonus, and equity-based compensation. This is not new. But it matters more precisely at the stage where every point of FFO per share is more valuable.

Short Positioning

Short positioning in the stock is not currently signalling an aggressive market bet against the story. Short float fell to 0.96% on March 27, 2026, with an SIR of 1.85. That is above the sector average of 0.55%, but very far from distress territory. More important is the direction: at the end of January 2026, SIR stood at 7.82, and by the end of March it had already fallen back to 1.85.

The reasonable read is that the market is not ignoring the office friction, but it is also not building a heavy short thesis around a sharp deterioration. That fits exactly with a company in a bridge year: skepticism exists, but it is focused on execution rather than on a balance-sheet crisis.

Conclusions

Sella Capital enters 2026 from a place many peers would want: a strong balance sheet, unencumbered assets, low debt cost, and a portfolio that still produces rising NOI. But this is no longer a company that can be read through the consolidated number alone. The main yellow flag is that the path from 2025 to 2027 runs through two large office assets and one new acquisition, while per-share economics have already stopped rising with NOI.

Current thesis: Sella Capital is still creating operating and balance-sheet value, but 2026 is a bridge year in which lease-up, funding, and dilution matter more than the growth visible in the reported headline.

What changed: in 2025 the company could still be read mainly as a stable REIT with cheap debt. In 2026 the question is already whether Beit Mani, Moshe Aviv, and Kfar Saba translate into FFO per share, not only into more asset volume.

Counter-thesis: one can argue that the caution is overstated because even without Beit Mani the company still shows stable NOI and FFO, stays far from covenant pressure, and keeps all assets unencumbered.

What can change the market read in the short to medium term: a smooth closing of Kfar Saba, faster lease-up at Beit Mani, and proof that FFO per share stops falling even without another equity move.

Why this matters: in an income-producing REIT, the difference between NOI growth and per-share economic growth is the difference between operating value creation and value that is actually accessible to shareholders.

What must happen over the next 2 to 4 quarters: Beit Mani needs to accelerate, the Mizrahi Tefahot space needs a clearer occupancy path, Kfar Saba needs to close without excessive funding friction, and the company needs to show that the transition does not require another round of capital before it starts paying off at the share level.