Megurit: NOI Is Growing, but Shareholder Value Still Runs Through the Funding Bridge

Getting to Know the Company

Megurit should not be read like a standard residential developer. It is a residential rental REIT, so its economics are supposed to come from rent, occupancy, financing, and distribution discipline over time, not from one-off apartment sales. By the end of 2025 it had 2,312 housing units across 44 projects with a reported value of about NIS 6.349 billion, of which 1,474 units were income-producing and 838 were still in development and construction. By the time the report was published, that number had already risen to 46 projects and about 2,376 units.

What is working right now is fairly clear. Activity revenue rose to NIS 92.4 million, NOI rose to NIS 87.9 million, the number of income-producing assets rose to 30, and by the report date occupancy in the income-producing portfolio had already reached about 97%, or about 99.3% excluding projects still in initial marketing. Tenant concentration is also low: no tenant accounts for 10% of revenue, and the signed lease table already contains NIS 392.5 million of fixed rent income without tenant options, or NIS 420.9 million assuming those options are exercised.

But anyone who stops at net profit of NIS 179.9 million will miss the heart of the story. Most of the jump still comes from revaluation gains, not from free cash for shareholders. In 2025 the company recorded NIS 221.5 million of fair-value gains, while FFO under the Securities Authority approach remained negative at NIS 34.2 million. That is not a technical gap. It is a reminder that Megurit is still at a stage where the portfolio is growing faster than its ability to produce clean surplus after financing, overhead, and the capital layer.

That is also the active bottleneck today. At year-end the company had a working-capital deficit of about NIS 1.186 billion, with meaningful 2026 maturities in series E, Vav, and Het, alongside short-term loans and credit lines that had to be repaid in early 2026. After the balance-sheet date the company did raise substantial debt and equity, but that is exactly the point: the 2025 story is not only portfolio growth, but balance-sheet repair through the capital markets.

The early screen is straightforward: the assets are larger, lease-up is progressing, but the portfolio is still not speaking in clean shareholder terms. Market cap in early April 2026 was about NIS 1.451 billion, below year-end equity of NIS 1.864 billion. Short interest is almost nonexistent, at about 0.19% of float and 0.74 days to cover, so skepticism is not showing up through an aggressive short position. It is showing up through a different question: how much of the value created in the portfolio is actually reachable for shareholders, and how much still depends on refinancing, equity issuance, and balance-sheet proof.

Events and Triggers

The 2025 step-up in scale

First move: 2025 was a year of aggressive portfolio expansion. Investment property rose to NIS 4.836 billion from NIS 2.792 billion a year earlier, helped by about NIS 979.4 million transferred from advances on account of investment property, about NIS 297.2 million transferred from property under construction, about NIS 549.6 million of new acquisitions, and additional ongoing investment. In plain English, a large part of what was still "on the way" in 2024 became a real income-producing portfolio in 2025.

Second move: part of that growth came through deals that generated fast balance-sheet value, but not yet accessible cash. In Geffen Tower in Ramat Gan, the company bought 75 apartments for NIS 328 million and recorded a fair-value gain of NIS 68.1 million, partly because the seller was distressed. In Ono One in Kiryat Ono it recorded another NIS 16 million gain. These may prove to be good economic deals, but they do not solve the FFO question on their own.

Third move: at the same time, Megurit moved from the phase of construction and advance payments into the phase of handover and lease-up. That explains why average occupancy fell to 89.4% in 2025 from 99.1% in 2024, even though occupancy by the report date had already returned to a very high level. The portfolio simply grew quickly, and the new assets were still moving through a stabilization period.

The most important trigger arrived after the balance sheet

Fourth move: the financial picture changed materially only after December 31, 2025. After the balance-sheet date the company raised about NIS 436 million net through unsecured series Yod-Alef, about NIS 152.6 million net through an expansion of series Tet, about NIS 147.5 million through a private placement, and about NIS 130.7 million through a rights issue. That is not a footnote. Without this package, the working-capital-deficit read would have been much harsher.

But this has two sides. On one hand, the raises reduced immediate tail risk and let the company show that it still has access to both debt and equity markets. On the other hand, they make it clear that the 2026 relief did not yet come from internal cash generation. It came from the capital markets and from dilution.

Distribution discipline, even while the bridge is still open

Fifth move: Megurit continues to behave like a REIT even at a stage when FFO is still negative. In 2025 the company paid NIS 35.5 million of dividends. After the balance-sheet date it also recorded NIS 5 million distributions in January and February 2026, followed by three more dividends of about NIS 6.071 million each from March through early May. That supports the REIT identity, but it also raises a legitimate question: is this the right pace of distribution before the growth in the portfolio has already proven it can support the capital layer on its own?

Efficiency, Profitability, and Competition

Net profit looks better than shareholder economics

Net profit rose to NIS 179.9 million from NIS 148.9 million in 2024, and operating profit rose to NIS 257.0 million. But that number still sits on top of a heavy revaluation layer. In 2025 the company added NIS 221.5 million of fair-value gains, so the industry metric that matters most, FFO, remained negative.

That does not mean the activity itself is weak. Quite the opposite. NOI rose to NIS 87.9 million from NIS 70.9 million a year earlier, and same-property NOI rose to NIS 57.1 million from NIS 54.0 million. In other words, even the older assets are improving. But the translation of that improvement into the amount left for shareholders is still only partial.

Portfolio growth has not yet closed the cost layer

The problem is not only interest expense. General and administrative expense rose to NIS 45.0 million from NIS 36.0 million. Within that, management fees to the external manager reached NIS 31.5 million including VAT, or NIS 26.7 million excluding VAT. The company itself has no employees, while the management company employs or sources services from 35 workers and service providers for Megurit's activity.

The economic implication is simple and not always comfortable: as the portfolio grows, the management-fee base grows too. The agreement now charges 0.45% on asset value up to NIS 6 billion and 0.3% between NIS 6 billion and NIS 8 billion, and the manager is also entitled to an annual share allocation equal to 0.06% of asset value net of cash. So asset growth does not roll through one-for-one to shareholders. Part of it is absorbed on the way by the management layer.

There is also a meaningful legal-cost layer. In 2025 the company recorded NIS 4.6 million of legal expense, and payments for legal services from a related party totaled about NIS 5.854 million. When a company is raising frequently, buying aggressively, and refinancing repeatedly, this cost layer is not minor.

Asset quality is reasonable, but current yield is still low

One of the more important numbers here is yield. Average actual yield on the portfolio fell to 1.8% in 2025 from 2.5% in 2024, while adjusted yield rose to 2.8% from 2.6%. That gap says the portfolio is not yet sitting at full occupancy and full market rent across the new assets. In other words, Megurit is asking the market to underwrite a portfolio whose potential is higher than its current run rate.

On competition, the company has some advantage in relative scale and national reach, but not a moat that overrides sector rules. It itself points to the general market, other listed REITs, and companies such as Ashtrom, Shikun & Binui, Prashkovsky, and Africa Residences as competitors. So any excess value will have to come not just from owning apartments, but from whether Megurit can manage cost of capital, lease-up pace, and overhead better than the market.

Cash Flow, Debt, and Capital Structure

The right cash lens here is all-in cash flexibility

For Megurit, it makes more sense to start with the total cash picture than with a "normalized" view, because the core argument is about funding flexibility rather than maintenance economics of a mature asset base. In 2025 the company generated NIS 44.9 million from operating activity. That was better than NIS 35.5 million in 2024, but still not enough to carry the capital layer on its own.

Once actual cash uses are included, the picture remains tight. Financing cash outflows included NIS 63.8 million of interest and CPI-linkage payments, NIS 35.5 million of dividends, and NIS 0.9 million of lease-principal repayment. In other words, on an all-in cash-flexibility basis the company was negative even before growth investment. Investing cash flow was negative NIS 1.306 billion, and against that the company had to generate NIS 1.288 billion from financing activity.

That is not a criticism of growth itself. An expanding residential REIT is supposed to invest. But the numbers need to be read correctly: in 2025 Megurit still did not finance its scale jump from the inside pocket of the business.

The 2025 problem was not asset scarcity, but compressed maturities

At year-end the company had NIS 3.642 billion of bonds outstanding, of which NIS 917.2 million was classified as current. In addition, it had NIS 1.029 billion of bank and institutional loans, and NIS 450.5 million of short-term interest-bearing loans.

The NIS 1.186 billion working-capital deficit did not arise because the company was "running out." It arose because 2026 repayments were stacked forward: about NIS 495 million in series E, about NIS 371 million in series Vav, about NIS 51 million in series Het, about NIS 250 million in an institutional loan repaid in January 2026, about NIS 90 million in bank credit lines repaid in January 2026, and about NIS 110 million in a short-term bank loan due at the end of March 2026.

The relief is real, but it bought time rather than a final solution

Against those maturities, the company pointed to several cushions. At the balance-sheet date it had about NIS 573 million of assets available to be pledged, and by the report-signing date that number had already risen to about NIS 1.248 billion. It also had NIS 80 million of unused bank lines. Most importantly, the board argued that the company should be able to refinance series E and series Vav based on about 80% loan-to-value on the pledged assets, implying about NIS 523 million for series E and NIS 366 million for series Vav.

Still, the edge already came close to a covenant. The debt-to-collateral ratio for series E moved above the 90% threshold at the end of the third quarter of 2025 and reached about 91.4%, only to fall back to about 88.4% by year-end. That is not a crisis number, but it is clearly a smaller-margin number.

Another layer to watch is the structure of financing cost. The weighted effective rate on total debt was only about 2.8% and CPI-linked, but net financing expense still rose to NIS 77.1 million. Within financing expense on bonds alone, about NIS 30.7 million came from CPI linkage, and loans added another about NIS 11.1 million. So even if the nominal coupon does not look dramatic, the CPI layer is still heavy.

Outlook and Forward View

The four key findings for 2026 are not obvious:

• First: management is guiding to an unusual NOI jump, from NIS 87.9 million in 2025 to NIS 165.5 million in 2026, and then to NIS 199.1 million in 2027.
• Second: part of that jump already has an anchor in the lease table, with about NIS 103.4 million of fixed signed rent for the four quarters of 2026.
• Third: the question that will decide the story is not whether the portfolio is larger. That is already true. The question is whether the new NOI base is large enough to begin pushing FFO into positive territory.
• Fourth: 2026 looks less like a harvest year and more like a bridge year with a cash-proof test.

What is already signed, and what still needs to happen

The expected-rental-income table tells an important story. Without assuming any tenant option exercise, Megurit already has about NIS 27.1 million of fixed rent signed for the first quarter of 2026, NIS 25.9 million for the second quarter, NIS 25.2 million for the third quarter, and NIS 25.1 million for the fourth quarter. That adds up to about NIS 103.4 million of signed rent for 2026. That matters because it means a meaningful part of the improvement is already backed by contracts, not only by aspiration.

On the other hand, not all of the improvement is fully locked in. In 2025 the company itself estimated that the war and project delays reduced revenue by about NIS 16.5 million. In addition, in the Be'er Yaakov project it received timetable extensions in 2025 that moved completion to February 2026 and June 2026 for the two plots, and after the balance-sheet date it requested another three-month extension. So even in 2026 there is still an execution layer, not only a collection layer.

What has to happen for the thesis to improve

The positive scenario is easy to define: the assets added in 2025 stabilize, the high occupancy seen at the report date holds, NOI moves closer to the 2026 target, and the gap between NOI and the overhead and financing layers starts to close. If that happens, the market can begin to read 2025 not as another acquisition year, but as the base for a bridge year that is ending on the right side.

But if NOI rises and FFO still does not cross the line, the market may harden its reading. In that case Megurit will look like a company that knows how to grow assets and generate revaluation gains, but still has not proven that expansion leaves a clean residual for shareholders.

What the market will likely measure in the next reports

The market will not just measure the next revaluation. It will measure three harder things:

1. Whether the occupancy improvement visible at the report date holds through a full quarter.
2. Whether financing costs start to stabilize after the early-2026 funding package.
3. Whether the company keeps distributing at the same pace even if FFO remains negative.

Put differently, 2026 is not a story year. It is a translation year. Megurit has already shown that it can build a portfolio. Now it has to show that the portfolio can carry the capital layer.

Risks

Megurit's main risk is not rental demand. It is the pace at which a larger portfolio turns into clean shareholder economics.

The first risk is funding. The working-capital deficit, the 2026 maturities, and the fact that the relief came through debt and equity raises after the balance-sheet date all say that the company still depends more on the capital markets than on internal cash generation.

The second risk is that reported profit remains too far from cash. In 2025 the company recorded NIS 221.5 million of revaluation gains, including material gains in Geffen Tower, Ono One, and other assets. Those may reflect real value creation, but until that value is converted into stabilized NOI, positive FFO, or meaningfully cheaper refinancing, part of it remains accounting value rather than accessible value.

The third risk is costs and layer leakage. Management fees are based on asset value, not on FFO or residual shareholder value. That creates a structure in which the portfolio can grow faster than the net benefit to shareholders from that growth.

The fourth risk is dilution. In early 2026 the company raised equity through a private placement and a rights issue, and it continues to allocate shares to the management company under the existing scheme. If the NOI improvement does not shorten the distance to positive FFO, dilution will become a more structural part of the story.

The fifth risk is execution. The company already showed that project delays cost it NIS 16.5 million of revenue in 2025. At a stage when the thesis depends on moving from a portfolio under construction to a stabilized income-producing portfolio, even a few months of delay in individual projects can change the pace of proof.

Conclusion

Megurit comes out of 2025 with a larger, broader, and more income-producing portfolio. That part is real and important. But what still blocks a cleaner thesis is that the growth has not yet completed its trip through the funding layer. The near-term market read is unlikely to focus on whether there are more apartments or another revaluation gain. It is more likely to focus on whether this growth is finally starting to produce positive FFO and reduce dependence on repeated debt and equity raises.

Current thesis in one line: Megurit has already proven it can build a scaled residential rental portfolio, but in 2025 the value created still ran mainly through revaluation and capital raising rather than through free shareholder cash.

What changed versus the older Megurit read is not only size. In 2025 the company moved from a narrative of accumulating apartments to a narrative of a portfolio that is beginning to work, but has not yet passed the funding test. The strongest counter-thesis is that the market may be too cautious, because a meaningful part of 2026 NOI is already sitting in signed leases, occupancy at the report date is already very high, and the early-2026 funding package already reduced tail risk. That is an intelligent counter-thesis. The problem is that it still needs proof in the next reports.

What could change the market reading over the short to medium term is a combination of three things: actual lease-up pace, the direction of FFO, and whether the company continues to manage distributions and capital conservatively. If NOI rises and financing stops swallowing it, the read can improve quickly. If not, the market cap discount to equity will keep looking less like a mistake and more like a price for funding risk.