Shlomo Real Estate in 2025: the portfolio got bigger, but the story shifted to refinancing and the lease-up of HOPE TOWN

Getting to Know the Company

Shlomo Real Estate is not a standard listed real-estate equity story waiting for a rerating. It is a bond-listed real-estate platform, with a large property base in Israel and Europe, so the right public lens is not only asset quality but also the speed at which those assets turn into cash flow, debt-service capacity and stability for bondholders. In 2025 the company did expand the portfolio, raised NOI, completed HOPE TOWN and bought another office asset in Petah Tikva. But in the same year net financing expenses nearly doubled, FFO fell and cash dropped sharply.

What is working right now is the property base itself. In Israel, NOI rose to NIS 78.1 million. In Europe, NOI rose to EUR 24.9 million. HOPE TOWN reached roughly 60% occupancy by year-end, and Kiryat Shlomo remained fully occupied with NOI of NIS 27.6 million. In addition, future minimum non-cancellable lease payments rose to NIS 1.515 billion. That is a stronger business platform than the company had a year earlier.

The active bottleneck is different: the gap between value creation and funding flexibility. The report shows equity of NIS 1.228 billion, very wide covenant headroom and a roughly NIS 42 million increase in investment-property fair value. It is easy to look at that and conclude that the story is clean. It is not. Year-end cash was just NIS 31.7 million, negative working capital widened to NIS 664.7 million, and net financing expenses climbed to NIS 60.7 million. In other words, the problem is not property quality. It is the price and timing of the transition financing layer.

Another point that is easy to miss is that the portfolio has not truly become as diversified as the asset count suggests. In Israel, roughly half of the leasable area is rented to companies controlled by the controlling-shareholder group, and Kiryat Shlomo, the anchor asset, is effectively dependent on two tenants from that same ecosystem. At the same time, by management FFO Europe still generated NIS 45.7 million in 2025, versus only NIS 14.1 million in Israel. So the portfolio is becoming more Israeli in fair value, but recurring cash economics still rely heavily on Europe.

Four points that frame the story:

• NOI rose in both regions, but management FFO fell to NIS 59.8 million from NIS 68.7 million, mainly because financing costs absorbed the operating improvement.
• HOPE TOWN moved from construction to leasing, but by year-end it was still a ramping asset, with only a 1.7% actual yield and roughly 60% occupancy.
• Kiryat Shlomo looks like a very stable asset, but the hard contractual revenue visibility disclosed in signed leases only runs into 2026, and continuation beyond that depends on tenant options and new terms.
• Covenant headroom is very wide, so the real test is not whether the company is close to a breach, but whether it can refinance and stabilize the new assets at a cost of debt that does not wipe out the yield.

The 2025 economic map looks like this:

Events and Triggers

The main transition in 2025 is the move from assets under development to assets that now need to prove occupancy, rent and financing sustainability. That is why the critical events are not just buying, building or marking assets up, but how each move changes the 2026 cash timetable.

HOPE TOWN moved from construction to proof

Trigger one: HOPE TOWN received occupancy approval in January 2025, and by year-end stood at a fair value of NIS 334 million, rental revenue of NIS 6.9 million, actual NOI of NIS 5.7 million and occupancy of roughly 60%. That is a material shift, because the project no longer lives only in the development line or in appraisal language. It has started to generate rent.

But value creation is not the same as accessible value. HOPE TOWN's actual yield in 2025 was just 1.7%, and its adjusted yield was 4.1%. So even after completion, this was still a transition asset. It was not yet a fully stabilized income property that could comfortably carry a heavy funding layer on its own.

That is why the post-balance-sheet amendment to the bank facility matters more than the usual headline that the project was completed. As of December 31, 2025, the bank had provided about NIS 452 million out of a NIS 490 million framework, at prime plus a spread in the 0.5% to 1% range, with final maturity on March 31, 2026. In March 2026 that final maturity was extended to March 31, 2027, and the spread was cut to a 0% to 0.5% range above prime. That reduces immediate pressure, but it does not answer the bigger question: can lease-up progress quickly enough to support conversion from a construction-style facility to longer-term income-property financing.

The new Martin Gehl 7 asset has not yet delivered its full economics

Trigger two: In July 2025 the company, together with Shlomo Insurance on a 50-50 basis, acquired a shell-condition office building at 7 Martin Gehl Street in Petah Tikva for about NIS 73.9 million. At the same time, a lease was signed under which Shlomo Insurance will rent about 5,000 square meters and roughly 100 parking spaces, with a 9-month fit-out period free of rent and then a 180-month term. Combined monthly rent for the company and Shlomo Insurance is about NIS 388 thousand, CPI linked, and the landlords also committed to participate in fit-out work up to NIS 15 million.

So the company bought a vacant asset, but one with a clear tenant and a long lease. That can improve cash-flow visibility, but not inside 2025. The current year absorbed mostly cost and transition time, while the full contribution should only appear after the fit-out period ends.

The funding layer became more flexible, not cheaper

Trigger three: In January 2026 the company issued NIS 150 million of commercial paper at Bank of Israel rate plus 0.25%, rated P-1.il. This does not change property quality, but it does change the liquidity read. The company is showing that even after the balance-sheet date it can still open fresh funding channels.

That means the market will likely give some credit to its financing access. On the other hand, the very need for a commercial-paper layer underlines that the company is still operating with flexibility that has to be purchased through debt markets rather than sitting as available cash.

Control moved into a new phase

Trigger four: On March 1, 2026, Atalia Shmelzer passed away. Her holdings were transferred equally to her children, and they entered into a shareholders agreement that governs a joint-control mechanism at the holding-company level and across the companies it controls. As of the report date, probate had not yet been completed.

This is not an immediate operating event, but it does matter because a meaningful part of the tenant base, related-party transactions and broader business ecosystem sits inside that same control group. When part of the company's stability depends on lease relationships and capital-allocation choices within that ecosystem, a change in control architecture is something that needs to stay on the radar.

Efficiency, Profitability and Competition

The operating picture in 2025 is better than the accounting picture in the bottom line, but it is still not fully clean. Rental and management revenue rose to NIS 188.1 million from NIS 171.7 million, and gross profit rose to NIS 143.3 million from NIS 128.3 million. At the same time, fair-value gains fell to NIS 41.9 million from NIS 68.0 million, and net financing expense jumped to NIS 60.7 million from NIS 30.7 million. That is why net profit fell to NIS 111.7 million even though the property base itself expanded.

The key decomposition looks like this:

• Volume was positive, mainly because assets in Israel and Europe contributed for the first time.
• Price was mixed. In Israel there was rental improvement in some uses, but much of the anchor-asset base still sits with related parties or long-standing anchor tenants.
• Mix was positive in Israel because offices rose to 53% of NOI, but that same mix also increases dependence on assets that still require lease-up, fit-out and large-ticket leases.

Israel: NOI rose, but the tenant base did not really open up

Israel did improve in a real way. Same Property NOI rose to NIS 71.2 million from NIS 66.8 million, and total NOI rose to NIS 78.1 million from NIS 68.3 million. Israeli investment-property fair value jumped to NIS 1.724 billion from NIS 1.252 billion. This was not only a revaluation story. The company completed HOPE TOWN, completed the Ofakim project, and bought the new office asset in Petah Tikva.

But the picture is less simple than it looks. Offices now make up 55% of Israeli investment-property value and 53% of Israeli NOI. In other words, the center of gravity has shifted toward places where lease-up, fit-outs and large leases matter. In addition, roughly half of the Israeli leasable area is rented to companies controlled by the controlling-shareholder group, and rental and management revenue from related parties reached NIS 48.3 million in 2025.

The sharpest example is Kiryat Shlomo. This is a very good asset: NIS 425 million of fair value, 100% occupancy, NIS 27.6 million of NOI and a 6.5% actual yield. But underneath that stability sits unusual concentration. Two tenants generate the entire asset income, with 78% attributed to Shlomo Holdings and its controlled companies and the remaining 22% to Shlomo Garage Network and Road Services. Both leases end in August 2026, with extension options. That is not necessarily an immediate operating problem, but it does mean the flagship Israeli asset is not a long-duration annuity with no event risk. More importantly, the signed-lease revenue table shows only NIS 23.4 million of hard contractual revenue for 2026 and zero thereafter as long as tenant options are not assumed.

Europe: hotels carry the stability, offices still have not closed the gap

Europe looks quieter, but in some ways higher quality. Same Property NOI rose to EUR 24.8 million from EUR 23.6 million, and total NOI rose to EUR 24.9 million. Segment net profit in Europe also rose to EUR 22.0 million on a consolidated basis. What supports that improvement is not one big office or one single project, but a broader base, especially in hotels.

That matters because 52% of European fair value and 58% of European NOI in 2025 came from hotels and tourism. Offices contributed only 25% of NOI, and retail 17%. In addition, year-end occupancy stood at 100% in hotels, 93% in retail and only 78% in offices. So Europe looks more stable than Israel at the FFO level, but it still has a meaningful office vacancy pocket.

Who actually produces FFO, and who consumes the funding

The metric that best captures the gap between portfolio optics and economics for creditors is FFO. By the regulator's method, FFO fell to NIS 51.4 million from NIS 65.1 million. By management's method it fell to NIS 59.8 million from NIS 68.7 million. And that is before asking where it came from.

Under management FFO, Israel contributed just NIS 14.1 million in 2025, versus NIS 45.7 million from Europe. That is a critical finding, because it means the Israeli moves of 2025 increased fair value, area and future visibility, but have not yet become the main recurring earnings engine. That is exactly where the gap between the portfolio story and the cash story is born.

Cash Flow, Debt and Capital Structure

This is the section where you have to choose the right cash frame. Here the right frame is all-in cash flexibility, not a normalized cash-generation lens by itself. The reason is simple: the core 2026 question for Shlomo Real Estate is not only how much the assets generate before investment, but how much real flexibility remains after investment, repayments and interest.

The cash picture: the business generates, but the transition period consumes

On a normalized basis, the business does not look broken. Operating cash flow rose to NIS 57.6 million, and management FFO stood at NIS 59.8 million. Anyone who wants to argue that the company has a functioning operating base has evidence for that view.

But that is not the frame that decides the year. On the all-in view, the company spent about NIS 185.3 million on investing activity in 2025, mainly acquisitions and investment-property spending, and year-end cash fell from NIS 140.2 million to NIS 31.7 million. That is the heart of the story. Not because operating cash flow is weak, but because the company chose to accelerate expansion in the same period in which funding costs rose and new assets had not yet reached full economic run rate.

Negative working capital is not an immediate distress signal, but it is a clock

As of December 31, 2025, the company had negative consolidated working capital of NIS 664.7 million, versus NIS 516.6 million a year earlier. In the separate financial information, negative working capital stood at NIS 643.9 million. The board explains this through three items: current bond repayments, acquisitions and investments funded from internal sources and short-term lines, and the current classification of the HOPE TOWN project facility and other bank loans.

That explanation is reasonable. But it is still not a number that can be ignored. The company itself says the board reviewed funding sources, financing options and a two-year cash-flow plan. In other words, even without a going-concern flag, this is plainly a company whose next year depends on actively managing rollovers, lease-up and the conversion of bridge financing into a steadier structure.

Debt and covenants: wide headroom, rising economic cost

The good news is that the company is far away from covenant stress. Series D bonds require adjusted equity of at least NIS 275 million, adjusted equity to net balance sheet of at least 25%, and net financial debt to net CAP of no more than 75%. As of December 31, 2025, adjusted equity stood at NIS 1.213 billion, the ratio was 49.2%, and net financial debt to net CAP was 44%.

The main Israeli bank facility also looks comfortable: tangible equity of NIS 1.213 billion against a NIS 130 million minimum, a 49.1% tangible-equity ratio against a 25% minimum, DSCR of 3.4 against a 1.15 floor, and LTV of 23.3% against a 100% cap.

This supports the argument that the issue here is not breach risk but economics. The company can stay comfortably within covenants and still be pressured if refinancing comes at a meaningfully higher cost, if HOPE TOWN ramps more slowly than expected, or if new assets take more fit-out capital and more time than planned.

The bond layer itself also matters. At year-end, Series D had NIS 539.94 million in par value outstanding, a carrying amount of NIS 424.35 million and a 4.1% nominal coupon. The rating stood at A2.il with a stable outlook. That is a reassuring external signal, but not one that cancels out the sharp increase in actual financing cost.

Forecasts and Forward View

This is a bridge year, not a breakout year. 2025 was the year in which the company created the conditions for a step-up. 2026 will be the year in which it has to prove that the step-up does not stay only in appraisals and the balance sheet.

There are four checkpoints that will determine the market's read over the next 2 to 4 quarters:

• HOPE TOWN needs to move from roughly 60% occupancy toward a level that supports long-term income-property financing.
• The Martin Gehl 7 asset needs to move from fit-out grace period into full rent contribution.
• Kiryat Shlomo and the other related-party-leased assets need to preserve occupancy and economics through the next renewal cycle.
• The new cost of debt needs to stabilize at a level that does not erase the added NOI.

The fourth quarter is worth isolating. In that quarter the company recorded net profit of NIS 48.4 million and comprehensive income of NIS 26.1 million, but nearly all of the acceleration came from a NIS 38.5 million fair-value gain. Net financing expense in the quarter was still NIS 15.2 million. So even at year-end, the number that stood out at the top of the income statement was still valuation, while the real test lower down remained funding. That is a good guide for how 2026 should be read as well: less "how much value went up," more "how much value locked into cash flow."

The good news is that the company does have a real contractual base. Future minimum non-cancellable lease receipts rose to NIS 1.515 billion. In Europe, under the no-option-assumption case, fixed signed revenue stood at EUR 24.3 million for 2026, EUR 23.0 million for 2027 and EUR 21.2 million for 2028, with EUR 164.3 million from 2030 onward. So there is a real lease base. The problem is that not every contract sits where the pressure sits, and not every contract immediately becomes free cash flow for creditors.

The next year can go down two very different paths. In the constructive path, HOPE TOWN advances in occupancy, Martin Gehl starts contributing, and short-term funding is replaced with a longer and less painful layer. In the weaker path, the new assets continue to progress but not fast enough, financing cost stays elevated, and the company keeps showing a gap between portfolio growth and only modest FFO improvement.

Risks

The first risk is concentration that did not disappear with growth. Kiryat Shlomo remains the key Israeli asset, and it depends on two tenants from the same broader control group. Beyond that, rental and management revenue from related parties reached NIS 48.3 million in 2025. As long as that ecosystem functions, it provides stability. If something changes in control structure, capital-allocation priorities or group business needs, that stability becomes a source of dependence.

The second risk is refinancing. The company holds quality assets, but it ended 2025 with low cash, very negative working capital and a short-term debt layer that requires constant management. The fact that it raised NIS 150 million of commercial paper after the balance-sheet date and extended the HOPE TOWN facility reduces immediate pressure, but it also confirms that the company still has to work debt markets and banks actively.

The third risk is appraisal sensitivity. Across the wider portfolio, a positive 1% change in cap rates would reduce the value of income properties by about NIS 198 million in Israel and by about EUR 72 million in Europe. At Kiryat Shlomo specifically, the 2025 valuation of NIS 425 million is based on a 6.25% cap rate, and under the appraiser's sensitivity table a 5% increase in the cap rate would reduce value to NIS 404.9 million. That is not a disaster scenario. It is a reminder that part of the value still rests on market assumptions, not only on hard contracted rent.

The fourth risk is European office exposure. Europe as a whole looks stable, but office occupancy stood at just 78% at year-end 2025. As long as the hotels remain full and retail recovered to 93% occupancy, this does not threaten the whole system. Still, if one of the company's main recurring FFO engines depends on Europe, the office gap cannot be ignored.

The fifth risk is governance and related-party exposure. After the controlling shareholder's death, control moved into a shared-control structure among the heirs, while a material part of the company's leases, tenant base and related-party arrangements remains tied to that same control environment. This is not an immediate operating issue, but it can affect the pace of decisions, lease renewals and capital allocation.

Conclusions

Shlomo Real Estate ends 2025 with a broader asset base, a wider contractual lease platform and very comfortable covenant headroom. But the right read of the year is not "there are assets." It is "are the new assets mature enough to fund themselves and the debt layer sitting above them." That is the difference between accounting value and accessible value.

Current thesis: 2025 was a year of platform building. 2026 has to become a year of cash-flow and financing proof.

What changed versus the older reading: the focus moved from whether the company knows how to create properties and fair value to whether it can convert them quickly enough into NOI, FFO and longer-duration debt at a reasonable price.

Counter-thesis: one can argue that the concern is overstated, because the company sits on good assets, maintains wide covenant headroom, broadened its long-lease base and was still able to raise financing after the balance-sheet date.

What could change the market read in the short to medium term: the pace of lease-up at HOPE TOWN, the shift of Martin Gehl 7 from concept to rent, and whether financing expense remains at 2025 levels or starts to stabilize.

Why it matters: because Shlomo Real Estate is a classic case where good property quality by itself is not enough. The real question is how quickly value turns into debt-service capacity and genuine flexibility.

What needs to happen over the next 2 to 4 quarters is fairly clear: HOPE TOWN needs to lift occupancy and move into long-term financing, the new Petah Tikva office asset needs to begin full rental contribution, and Kiryat Shlomo needs to prove that it remains an anchor beyond 2026 rather than only a well-appraised asset. What would weaken the thesis is any combination of slower lease-up, funding cost above plan, or softer renewal economics in the related-party-heavy lease base.