Sella Capital: How Much of the Growth Actually Reaches Shareholders After the External Manager
At Sella Capital, most of the 2025 FFO growth still remained after the external manager, but the management layer still absorbed about 14.6% of real FFO once equity compensation is included. The updated agreement changes the mix, not the leakage.
The main article already established that the weak link in Sella Capital is not NOI itself, but the conversion of NOI and group FFO into per-share economics. This follow-up isolates the external-manager layer: what it cost in 2025, what actually changed in the agreement approved in February 2025 and effective from March 18, 2025, and how much of the growth really remained for shareholders after passing through that structure.
The short answer is that the external manager did not erase 2025 growth, but it also did not leave shareholders with the full amount. On the company's own real FFO basis, most of the year's increase did remain after the management layer. The issue is different: even after the updated agreement, the manager still participates economically in asset growth, NOI growth, and equity-based upside. The leakage did not disappear. It changed shape.
The 2025 Math: What The External Manager Actually Cost
The cleanest place to start is with the numbers the company itself discloses from two slightly different angles.
In the business section, the company says management fees paid to the management company, excluding equity compensation, reached NIS 28.780 million in 2025, equal to about 11.4% of FFO. In the related-party and executive-compensation disclosures, the reporting cut is slightly different: NIS 28.489 million of management fees, made up of NIS 24.409 million of recurring management fees and NIS 4.080 million of bonus, plus NIS 8.375 million of share-based compensation to the management company.
The gap between NIS 28.780 million and NIS 28.489 million is not a material contradiction. It reflects two reporting cuts, cash paid excluding equity compensation versus recognized expense in the accounts and compensation table. But the economic message is straightforward. Anyone stopping at 11.4% is seeing only half the picture.
| Metric | 2024 | 2025 | What it means |
|---|---|---|---|
| Real FFO | NIS 235.060 million | NIS 252.965 million | 7.6% growth |
| Management fees paid, excluding equity compensation | NIS 28.751 million | NIS 28.780 million | Almost flat in cash terms |
| Management fees as a share of FFO | 12.2% | 11.4% | The ratio improved, as management highlights |
| Management fees as recognized expense | NIS 28.701 million | NIS 28.489 million | The accounting cut is slightly lower than cash paid |
| Share-based compensation to the management company | NIS 6.440 million | NIS 8.375 million | About 30% growth |
| Management fees plus equity compensation | NIS 35.141 million | NIS 36.864 million | Roughly 14.6% of 2025 real FFO |
That chart makes the key point. The ratio improved, but not to a level that can be dismissed as trivial. Even after modest efficiency improvement, the management layer still absorbs close to 15 cents out of every shekel of FFO that the company itself wants the market to read as recurring earning power.
There is also a second layer that matters. The company's real FFO calculation adds back NIS 9.175 million of share-based payments to service providers. That means the reported FFO already strips out part of the equity cost. Once that equity compensation is brought back to the shareholder layer, the picture becomes less generous.
This is probably the most important finding in the whole continuation. Most of the 2025 growth did remain after the external manager. Real FFO increased by about NIS 17.9 million, while the combined management-fee and equity-compensation burden increased by only about NIS 1.7 million. In other words, about 90% of the incremental FFO still remained after the management layer. This is not a structure that swallowed the entire year's value creation.
But it is also not noise. At the level of the full economics, not just the annual increment, shareholders were left with about NIS 216.1 million after management fees and equity compensation, versus reported real FFO of NIS 253.0 million. That gap is the one that matters.
What Actually Changed In The Updated Agreement
On first read, the agreement approved in February 2025 can look like simple good news for shareholders. It does reduce parts of the old schedule. But that is only part of the story.
Under the old agreement, management fees were based only on asset value, with tiers ranging up to 1.00% on the first asset bucket and down to 0.24% on the higher layers. There was also an annual performance bonus, restricted shares, and options with a fixed annual value of NIS 2.7 million.
Under the updated agreement, effective March 18, 2025, the cash component changed into a two-engine formula: management fees based on asset value, plus management fees based on annual NOI. The bonus remained performance-linked, but the weights changed: REIT status fell to 10%, rating maintenance to 10%, real FFO return on opening equity rose to 45%, and achievement of the NOI target rose to 35%. The equity layer also changed materially. Options are no longer fixed at NIS 2.7 million per year. Their value now scales with asset size.
There is one smaller detail that should not be missed. The company notes that the updated agreement no longer includes the deduction for office rent and office services that existed under the old agreement, at about NIS 74 thousand per month. So even if the new cash formula looks a bit friendlier on paper, part of that relief is offset by the removal of a previous credit.
The right way to test the change is not through 2025 actuals, because 2025 is a transition year with old and new terms both affecting the reported year. The right way is to take the company's end-2025 scale, NIS 5.976 billion of assets and NIS 356 million of annual NOI, and run both agreements on that base. That is an analytical calculation, not a reported figure, and it should be read that way.
That chart tells the real story. The updated agreement does not remove leakage. It reallocates it. The recurring cash fee at the end-2025 scale does fall a bit, from about NIS 24.8 million to about NIS 24.1 million. The maximum bonus and restricted-share layers are also a bit lower. But the options leg moves the other way. Instead of a fixed NIS 2.7 million annual option value, the new formula implies nearly NIS 5.9 million of annual option value at the end-2025 asset base.
If all the pieces are added together at that illustrative scale, the result is not as intuitive as the headline suggests. The updated agreement is not necessarily cheaper for shareholders as the platform grows. It is somewhat lighter in the base cash leg, but it still gives the manager a direct claim on growth through NOI, through the bonus framework, and through an equity layer that scales with asset size.
That is exactly what the headline about lower management fees as a percentage of FFO misses. One component can improve while other layers keep a claim on the same growth.
The Counter-Thesis That Deserves Respect
It would be too easy to call all of this value leakage and stop there. That would be incomplete.
The company itself makes clear that the external manager is not just a detached adviser. The management company is not supposed to engage in any activity other than providing services to Sella. The CEO is supplied through the management company, as are the marketing VP, operations VP, controller, and the rest of the employees providing services to the company. At year-end 2025 the company had only two direct employees, while the broader platform had 21 employees, and the company explicitly says it has material dependence on the management company because most of the staff are employed through it.
So the external manager is also the operating platform. It is not only a compensation pipe. That matters because it changes the question from whether there is leakage to whether the price is reasonable for the platform the public company receives.
That is also why 2025 should not be presented as if the manager took the whole year's growth. It did not. The ratio of management fees to FFO fell from 12.2% to 11.4%, and even including equity compensation the broader burden edged down from about 15.0% to about 14.6%. On the narrow test of 2025 alone, most of the improvement did flow through beyond the manager.
The real yellow flag sits elsewhere. As the company moves into a stage where FFO per share, dilution, and accessible shareholder economics matter more, the management layer remains a formulaic toll on growth itself. That is very different from a cost base that stays roughly flat while the company scales.
Conclusion
The economic math behind Sella Capital's external manager is sharper than it looks on first read.
On one side, the structure did not wipe out 2025 growth. Most of the increase in FFO did remain after the external manager, and the cash-fee ratio to FFO even improved somewhat. On the other side, at the level of full shareholder economics, the management layer still absorbed a meaningful double-digit share, about 14.6% of real FFO once equity compensation is brought back in.
That is why the right thesis is not that the external manager "takes everything." The right thesis is that the updated agreement still leaves the manager economically exposed to almost every important growth engine: asset value, NOI, performance targets, and equity upside. Anyone trying to judge whether 2026 and 2027 will improve the story at the share level cannot stop at the fact that the cash-fee ratio improved a bit. They need to see whether the next phase of growth is still reaching the share after management fees, after bonus, and after dilution.
That is exactly where the external-manager question returns to the center of the Sella Capital thesis. As long as the company is mainly in a volume-growth phase, the structure can look tolerable. Once the test becomes how much of that growth actually reaches shareholders, the structure does not disappear. It simply stays first in line.
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