Follow-up to Issta Assets: Sela Issta is still increasing the cash exposure
In Q1 2026, Sela Issta did not start returning cash to its shareholders. Instead, the loans provided by Issta Assets increased, while the main project appendix still showed zero surplus withdrawals by March 31, 2026.
The first quarter does not break the Sela Issta value story, but it pushes out the more important proof point: the move from inventory, financing and expected gross profit into cash returning to the parent. Issta Assets already received better proof on the logistics side this quarter, so this follow-up isolates the part of the balance sheet that is still working against it. Sela Issta ended the quarter with a NIS 2.9 million loss and negative operating cash flow of NIS 20.5 million, even though cash consumption improved from the parallel quarter. At the same time, loans provided by the company to Sela Issta rose to NIS 928.5 million, from NIS 885.9 million at the end of 2025. The project appendix shows very large potential surplus balances in Katamon, Tel Hashomer, Haifa Southern Gateways and Havatzelet Hasharon, but the five main projects had not withdrawn any surplus by March 31, 2026. The current read therefore leans negative on the annual cash-conversion test: Sela Issta advanced certain projects, but it has not yet begun releasing the parent company's cash exposure. The reversal point should be easy to measure in the coming quarters: owner loans stop rising, a first surplus withdrawal appears, or the purchase-tax ruling starts showing up in cash.
The Loans Increased After the Risk Was Already Flagged
The prior analysis on Sela Issta owner loans flagged the issue at the end of 2025: Issta Assets owns only 50% of Sela Issta, but it finances a much larger share of its equity layer. That point did not ease in Q1. Loans provided by the company to the investee rose by NIS 42.7 million, from NIS 885.9 million at the end of 2025 to NIS 928.5 million at the end of March 2026.
This is not just a balance-sheet movement. Sela Issta reported NIS 26.2 million of revenue from apartment sales and construction work, down from NIS 35.7 million in the parallel quarter, while gross profit fell to NIS 3.3 million from NIS 13.2 million. After NIS 4.1 million of net finance expenses, the quarter ended in a loss. In other words, the investee did not extract cash from the projects, and it also did not generate quarterly profit that could support a reduction in the exposure.
The all-in cash picture is even clearer than the income statement. Operating cash flow was negative NIS 20.5 million, versus negative NIS 27.9 million in the parallel quarter. That is an improvement, but not a change of direction. The increase in land inventory, buildings under construction and apartment inventory was NIS 70.8 million, and the decline in contract assets and receivables was not enough to make the quarter cash generative. This is the relevant cash frame here: the all-in cash picture after actual investment in inventory and projects, not normalized earnings before the construction funding need.
The Project Appendix Shows Surplus, Not Available Cash
The positive side did not disappear. Some projects have started marketing, and the project tables show large expected future surplus balances. But this number has to be read carefully: expected surplus to be withdrawn is not cash already in the bank. It still depends on execution, sales, bank accompaniment, costs and project completion. By March 31, 2026, the key line in all five main projects was zero: no surplus had been withdrawn.
| Project | Q1 sales and execution status | Expected surplus to be withdrawn, company share | Amounts withdrawn by March 31, 2026 |
|---|---|---|---|
| Katamon | 11 contracts in the quarter, 8.7% marketing rate, 15% financial completion | NIS 162.9 million | 0 |
| Tel Hashomer A | Marketing had not started, 0% financial completion | NIS 157.5 million | 0 |
| Tel Hashomer B | 15 contracts in the quarter and 8 after the balance date, 10.3% marketing rate, 21% financial completion | NIS 154.3 million | 0 |
| Haifa Southern Gateways | Marketing had not started, 0% financial completion | NIS 242.7 million | 0 |
| Havatzelet Hasharon | No signed sale contracts yet, 14% financial completion | NIS 83.3 million | 0 |
The table explains why Q1 is still not a cash inflection point. Katamon and Tel Hashomer B started moving, but the marketing rates are still low. Tel Hashomer A and Haifa Southern Gateways remain further away. Havatzelet Hasharon received meaningful project financing, but still had no sales contracts. The company-share expected surplus across the five projects is more than NIS 800 million, but in a quarter when owner loans increased, that figure remains mostly future potential.
Havatzelet and the Purchase-Tax Ruling Buy Time, Not Cash Repayment
Havatzelet Hasharon is the clearest example of the gap between financing progress and cash release. In January 2026, a project-financing agreement was signed: a monetary credit facility of up to NIS 185 million, performance guarantees of up to about NIS 3.7 million, and Sale Law policy facilities of up to NIS 508 million. By the financial-statement date, Sela Issta had already drawn NIS 143.3 million from the credit facility, at prime plus 0.45%, with principal due at the end of August 2028.
That advances the project, but it does not yet reduce Issta Assets' exposure. The financing enables continued construction and funding until sales, profit recognition and surplus withdrawals start working. As long as Havatzelet has no sale contracts, the financing is a necessary stage on the way, not proof that cash has returned.
The purchase-tax ruling also remains a trigger that has not yet reached cash. Sela Issta estimates that if the ruling stands and the arrangement with the tax authority is implemented, it is expected to receive a purchase-tax refund of about NIS 55 million, recognize pre-tax profit of about NIS 26 million for projects already recorded in profit and loss, and improve expected profitability by about NIS 29 million for projects not yet recorded in profit and loss. Two additional projects may add an effect of about NIS 15 million. But as of the reporting date, no effect had been recognized in the financial statements, so the event still does not reduce owner loans or release surplus.
The Next Test Is Short and Clear
The conclusion for the coming quarters is not that Sela Issta is structurally weak. It is that Sela Issta is still in the stage where value is built on the balance sheet before it returns to the parent. This can be a justified interim period if Katamon and Tel Hashomer B continue selling, Havatzelet moves from financing to sales, and the purchase-tax refund becomes cash or at least an accounting recognition. After Q1, however, the only hard evidence is that Issta Assets' loan exposure increased.
The proof point is not another table of expected gross profit. It is actual movement: owner loans need to stop rising, one project needs to begin withdrawing surplus, and the purchase-tax benefit needs to move from potential value to cash or recognized profit. Until that happens, Sela Issta remains an asset with large future surplus potential, but also with a funding requirement that continues to weigh on Issta Assets' cash test.
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