Gav-Yam in the first quarter: NOI is moving, but 2026 still depends on leasing and funding

Gav-Yam opened 2026 with a quarter that strengthens the operating business, but does not remove the two follow-up questions already visible at the end of 2025: how quickly the development pipeline will turn into actual NOI, and how smoothly the company can refinance debt in a crowded year. NOI rose 13% to NIS 202 million, Same Property NOI rose 7% to NIS 188 million, and management-method FFO rose 10% to NIS 114 million. Those are strong numbers for an income-producing real estate company, especially with occupancy still around 97% and new quarterly leases representing NIS 43 million of annual rent. But net profit attributable to shareholders fell to NIS 156 million, because fair-value gains no longer provided the same tailwind as in the comparable quarter. At the same time, the company raised roughly NIS 876 million gross and extended credit facilities, so part of the 2026 pressure has been pushed forward, yet principal maturities through year-end still stand at NIS 1.745 billion against NIS 855 million of liquid means and NIS 515 million of credit lines. The Yavne sale and the Tera land acquisition add an important strategic layer: the company is replacing an income-producing asset with a larger Tel Aviv development option, but one that consumes cash before producing NOI. This quarter is therefore a transition test: the existing portfolio is working, the debt market remains accessible, and the next proof points are ToHa2 and Matam East 3 leasing plus the ability to preserve flexibility after acquisitions, capex and dividends.

The Business Works, But Net Profit Is Less Clean

The company operates roughly 1.3 million sqm of income-producing properties, mainly high-tech parks, offices, logistics and industrial space in Israeli demand centers. This is an income-producing real estate machine with a large development layer. The existing assets provide the base of NOI and FFO, while development is supposed to lift the earnings base over the coming years. The bottleneck is not demand in the existing portfolio, but the speed at which space under construction turns into signed leases, occupancy and cash.

The quarter proves that the portfolio is still holding price. In the first three months of the year, the company signed 56 leases covering roughly 50 thousand sqm, with annual rent of about NIS 43 million and an average real rent increase of 4.0%. Against that, net profit is less strong: profit attributable to shareholders fell to NIS 156 million from NIS 169 million, mainly because fair-value gains fell to NIS 97 million from NIS 165 million.

That gap actually improves the quality of the read. Rental revenue, NOI and FFO are moving up, while net profit is down because of lower revaluation gains. Within the NIS 97 million fair-value gain, NIS 60 million came from the Yavne sale and NIS 37 million from progress over time in two projects under construction. So the quarter is better operationally than it looks in accounting profit.

The jump in ISA-method FFO, from NIS 84 million to NIS 116 million, also needs a careful read. Part of the improvement comes from the CPI environment: the known CPI fell 0.1% in the quarter, versus a 0.3% rise in the comparable quarter. For FFO that includes linkage differences on debt principal, that makes the comparison easier. The conservative conclusion is that the business improved at a low double-digit pace, not that recurring earnings jumped 38%.

The Pipeline Advanced, But Open Income Is Still Concentrated

In the previous annual analysis, the key checkpoint was development leasing, not the quality of the existing assets. The first quarter gives a partial answer. O2 Herzliya is expected to be completed in the second quarter of 2026, with NIS 47 million of expected annual rent and all space already marketed. The data center shell at Matam Park also has high commercial certainty: NIS 11 million of expected annual rent, 100% marketed and expected completion in the first quarter of 2027.

The open part remains concentrated in two places. ToHa2 is the largest asset in the pipeline, with the company's share of expected annual rent at NIS 150 million, 43% marketing and NIS 67 million of income already attributed to marketed space. That means roughly NIS 83 million of annual income in the project still depends on future leases. Matam East 3 is smaller, but its certainty level remains low: NIS 34 million of expected annual rent, 27% marketing and NIS 11 million of income already marketed.

This is why 2026 is a proof year. The company expects 2026 NOI of NIS 825 to 845 million, shareholder-attributable NOI of NIS 660 to 680 million, and management-method FFO attributable to shareholders of NIS 450 to 460 million. Longer term, it presents normalized shareholder-attributable NOI of NIS 840 to 860 million in 2027 and NIS 940 to 960 million in 2028. That forecast can materialize, but it depends on projects under construction entering the portfolio and on leasing not stalling in the largest projects.

The near-term market interpretation will be simple: O2 has to start working, ToHa2 has to add leases at a pace that reduces concern around late 2026, and Matam East 3 has to show that its marketing rate is no longer a weak point. If those three move together, the first quarter will look like the beginning of a new NOI step-up. If not, part of the multi-year forecast will remain too dependent on future leasing.

Funding Got Oxygen, Tera Brings Cash Back Into Focus

The quarter resolved part of the financing concern. The expansion of Series H and Series L bonds brought in roughly NIS 876 million gross, with weighted duration of 4.9 years and weighted CPI-linked interest of about 2.4%. At the same time, the company repaid roughly NIS 683 million of bonds, extended bank credit facilities, and ended the quarter with NIS 855 million of liquid means and NIS 515 million of credit lines.

Still, the year is not closed. The presentation shows principal maturities of NIS 1.745 billion from April through December 2026. Against that, liquid means and credit lines total NIS 1.37 billion, before operating cash flow, before completion of the Yavne sale and before additional refinancing. If the Yavne sale closes and brings in NIS 393 million, the picture moves closer to arithmetic coverage of remaining 2026 principal maturities, but that transaction had not yet closed as of the report date.

The all-in cash flexibility view sharpens the point. Cash flow from operations was NIS 262 million, a strong figure helped by consideration received for additional rights in the Ramat Hanassi project and working-capital improvement. But during the same period, the company invested NIS 228 million in acquisition and construction of investment property, paid NIS 60 million of dividends to shareholders, NIS 49.9 million of dividends to non-controlling interests, NIS 31.1 million of interest and NIS 683 million of bond principal. Without the debt raise, operating cash flow alone would not have funded all cash uses. That is not a distress signal. It is a reminder that the growth model still relies on rolling debt.

This is where Tera enters the story. After the balance-sheet date, the company agreed to acquire land in Tel Aviv's Tera compound: a roughly 4.6-dunam site with approved building rights of about 85 thousand sqm for employment and residential uses, for around NIS 830 million plus VAT. Completion is subject to corporate approvals and completion of agreements by additional rights holders. This is not an acquisition of existing NOI, but a large development option in central Tel Aviv.

The contrast with Yavne explains the dilemma. The company is selling an asset in Yavne that generates about NIS 18 million of annual income for NIS 393 million, and recording roughly NIS 60 million of fair-value gain and NIS 45 million of net profit. Tera requires more than twice that consideration before income is created. It can become a high-quality value engine, but it also adds a cash use at a time when the existing project pipeline still requires NIS 1.36 billion of remaining completion costs.

Short-interest data fits that friction. As of May 1, 2026, short interest stood at 2.55% of float and SIR at 6.37 days, versus a sector average of 0.59% short interest to float and 1.827 cover days. That is not extreme shorting, but it is clear skepticism above the sector. The market is probably not disputing the quality of the existing assets. It is testing whether the company can convert development into income, refinance debt and execute a large acquisition without losing too much financing freedom.

Conclusions

The first quarter strengthens the company's operating side: occupancy is high, rents are rising in real terms, NOI and FFO are progressing, and part of the debt was successfully rolled in the capital market. That is a good starting point for 2026. But the conclusion is not that the story is solved. It has moved into a more measurable phase. The next evidence has to come from O2 delivery, additional leases at ToHa2 and Matam East 3, and continued debt-market access without a sharp erosion in the spread over asset yields.

The strongest counter-thesis is that the market is right to stay cautious: part of profit still comes from fair value, part of the pipeline is still unmarketed, and the Tera deal may add a large cash use before producing NOI. The read would improve over the coming quarters through a combination of three things: projects delivered on time, leases that reduce the open income in the pipeline, and refinancing that keeps assets unencumbered while maintaining a sufficient gap between asset yields and funding costs. Without that combination, the first quarter remains operationally good but strategically not clean enough.