Acro Group in Q1: NIS 93 million left out of profit does not solve the cash test

Acro Group reported a quarter that moved forward more on paper than in cash. The loss attributable to shareholders widened to NIS 12.4 million, but the number that did not enter the income statement is the important one: the Gan HaHashmal land was valued at NIS 400 million, and the company said that adopting that value in the first-quarter financials would have created a NIS 93 million pre-tax revaluation gain. That strengthens the asset-value story, but not cash, and it arrived together with a NIS 206 million bank loan, a VAT bridge loan, and negative cash flow after land purchases. The merger with Israel Canada advanced after shareholder and Competition Authority approvals, but it has not closed. Sales are also not a clean number: contract count was almost unchanged, but sales value and average price declined, and some transactions relied on no indexation, improved payment terms, or developer loans. The quarter therefore does not prove a change in the quality of the company’s economics. It proves that there is value in the assets, and reminds investors that this value still needs to pass through sales, collections, surplus releases, or the merger before it reaches shareholders.

Business Map: A Lot Of Value, Much Of It Still Far Away

The company is a residential developer with urban renewal and income-producing real estate activity. Its economic engine is not one quarter of apartment sales, but a large pool of projects that mature over several years: 63 development projects with about 12,900 housing units, of which about 8,520 units reflect the company’s effective share, and 33 urban renewal projects with about 8,247 units and about 5,578 units by its share. Alongside that is a layer of income-producing assets and commercial projects, including seven main assets totaling 128,000 sqm gross and about 52,000 sqm by the company’s share.

The number that draws attention is NIS 5.25 billion of future gross profit not yet recognized. But most of it is not close to the income statement or the cash balance: NIS 3.08 billion of that amount relates to projects whose marketing is planned to begin in 2028 to 2031. That continues the point made in the previous annual analysis: the future gross-profit inventory is meaningful, but it does not by itself solve the surplus-release, cash-flow, and financing question.

The implication for investors is clear: the company has an asset base that can support a higher value, but a large part of it still depends on planning, marketing, construction, and financing. It is not a liquid asset that shows up in cash tomorrow morning.

Sales Are Active, But Terms Are Less Clean

In the first quarter the company signed 34 contracts versus 35 in the corresponding quarter, so transaction count barely changed. But contract value including VAT declined to NIS 149 million from NIS 174 million, down 14.4%, and the average apartment price fell from NIS 5.0 million to NIS 4.4 million. The company also reported 32 transactions after quarter-end and through the report publication date, but 19 of them are purchase requests totaling NIS 98 million including VAT, and the company states that there is no certainty they will become binding agreements.

This is where sales quality matters. Out of NIS 149 million of signed contracts in the quarter, NIS 47 million, or 32%, included a no-indexation benefit. Deals totaling NIS 20 million were signed with improved payment terms, and deals totaling NIS 12 million included developer loans. All deals with improved payment terms or developer loans also included a no-indexation benefit. In other words, the company is still selling, but in some cases it is giving up indexation, deferring payments, or helping finance the buyer.

Six contract cancellations in the quarter, totaling NIS 29 million including VAT, add to the caution. One canceled unit was resold during the period, but the mix of cancellations, non-binding purchase requests, and improved payment terms means demand exists while part of it still needs commercial support. That does not erase the project backlog, but it makes it harder to treat sales as evidence of a full recovery.

Gan HaHashmal: Unrecognized Value Came With Debt

The sharpest event in the quarter is the acquisition of the Gan HaHashmal land in Tel Aviv. In March 2026 the company paid the remaining consideration for the tender win, acquiring land with existing rights, subject to permits and approvals, for three buildings that will include 120 housing units, commercial areas, and office space. The tender price was NIS 255.3 million, plus NIS 4.6 million of development costs and NIS 15.6 million of purchase tax.

An external valuation as of March 31, 2026 valued the asset, including the inventory component, at NIS 400 million. The company wrote that adopting that value in the quarterly financials would have created a NIS 93 million pre-tax revaluation gain, but chose not to do so because only a short time had passed since the tender win and because the gap between the tender price and the appraised value was material. The first-quarter accounting loss therefore does not include the full asset optionality, but that optionality still needs more support from comparable transactions, planning progress, or new business circumstances.

The other side is financing. The Gan HaHashmal acquisition was financed mainly by a NIS 206 million bank loan, a VAT bridge loan, and company equity. The consolidated balance sheet shows the cost: short-term bank credit rose by NIS 196 million, and long-term bank credit rose by NIS 128 million. The quarter’s all-in cash picture was negative: operating cash flow before land purchases was negative NIS 50 million, and after land purchases and investments in land inventory it was negative NIS 141 million. Investing cash flow was negative NIS 128 million, and the company funded the gap through positive financing cash flow of NIS 293 million, mainly bank borrowings.

At the parent-company level the picture is more comfortable, but not free of pressure. Solo cash rose to NIS 309 million from NIS 293 million at the end of 2025, against current bond maturities of NIS 242 million. Solo operating cash flow was positive NIS 1.6 million, and investing cash flow was positive NIS 14.7 million, mainly from net repayments of loans from investees. That is progress compared with the concern raised in the analysis of the parent-company layer, but it is still an improvement in managing layers, not a broad cash surplus from the core activity.

Conclusion: The Merger Advanced, Cash Still Needs To Arrive

The merger with Israel Canada can shorten the distance between asset value and shareholders. The deal terms provide for 40% cash and 60% Israel Canada shares, based on agreed values of NIS 3.1 billion for the company and NIS 6.9 billion for Israel Canada. April brought shareholder approvals and Competition Authority approval, and the company reported that it was not aware of bondholder objections following the trustees’ March inquiry.

The deal still depends on a tax ruling, a merger certificate, TASE and ISA approvals, and lender approvals if required. The deadline for the conditions is September 10, 2026, with extension options. As long as the deal remains open, shareholders are exposed both to the company’s standalone value and to Israel Canada’s share price, because part of the consideration is paid in shares.

The company complies with its bond covenants, and short-interest data also show pressure easing: short balance declined from 449,000 shares at the end of January to 149,000 shares in early May, and SIR declined from 6.73 to 1.69. These are signs of relief, not proof that the cash test is over. The next proof points are signed contracts on more normal terms, additional support for the Gan HaHashmal value, surplus releases or disposals that reduce debt reliance, and completion of the merger conditions. Without them, the value potential remains real but farther from the cash account.