Airport City in the First Quarter: NOI Improves While Buybacks Tighten Liquidity

Airport City opened 2026 with a partial answer to the question left by 2025: the income-producing core is beginning to look better, while capital allocation is becoming more demanding. NOI from income-producing properties rose to NIS 214.7 million, above each quarter in 2025, mainly because operating expenses fell rather than because revenue jumped. That moves part of the improvement from appraisals and planning rights into the properties themselves. Still, the quarter did not make the story clean: net profit fell to NIS 129.4 million, AFFO attributable to shareholders fell to NIS 141 million, and cash declined by NIS 645.8 million after debt repayments and treasury share purchases. The company does not look balance-sheet stressed, with ilAA ratings, roughly NIS 12.3 billion of unencumbered assets and wide covenant headroom, but the buyback is becoming a major cash use that requires NOI, debt-market access and liquidity to work together.

Company Overview

Airport City is an income-producing real-estate company with a development and residential layer, but its economics are still driven mainly by property NOI, asset value and access to debt markets. Debt, bond refinancing and fair-value movements are normal for this model. What is unusual this quarter is the combination: NOI is improving exactly when the company is using cash more aggressively through buybacks and debt repayment.

The business map explains why the profit headline is not enough. Offices remain a large bucket, with fair value of about NIS 3.1 billion and quarterly NOI of NIS 56.5 million, but occupancy there is only 78%. Storage and industry at 99% occupancy, commerce at 91%, nearly full parking and gas-station occupancy, and transport centers at 90% offset that weakness. Europe remains a specific weak point: occupancy is 60%, mainly because leases ended in two properties and the consolidated company is working to sell them.

The previous annual Deep TASE article on Airport City, published at /en/analysis/1546, asked whether 2026 would show real NOI growth rather than mostly accounting profit and revaluations. The first quarter gives a better answer, but not a complete one. Operating improvement is visible, yet it still has to hold for several quarters and reach cash after all actual uses.

NOI Improved, but Profit and Cash Are Still Mixed

The first trigger: NOI from income-producing properties rose 4% to NIS 214.7 million. Revenue from rental and property management rose only 1% to NIS 254.6 million, so the improvement came mainly from lower expenses. Rental, operating and property-management costs declined to NIS 39.9 million from NIS 45.1 million. This is not a growth breakout, but it is a sign that existing assets can produce more operating profit without strong top-line growth.

The second trigger: the buyback became a central cash-flow item. In January and February 2026 the company bought 2.741 million shares for roughly NIS 164 million. By the report approval date it had used about 70.74% of the enlarged NIS 400 million plan, and on May 24, 2026 the board approved another plan of up to NIS 100 million. The company continues to prefer shareholder capital return even after a quarter in which cash fell sharply.

The third trigger: transport assets received a planning signal, not a solution. In April 2026 the National Infrastructure Committee approved advancing the plan to relocate public-transport activity from the Tel Aviv Central Bus Station, initially to an interim terminal on Mikveh Israel land for about 20 years. Implementation still depends, among other things, on legislative amendments, with no certainty on timing. The transport-asset issue discussed in /en/analysis/3558 remains open: the value is alive, but it has not yet moved into a cleaner pricing and cash-access mechanism.

The first quarter is stronger at the income-property level than it looks in the income statement. Total NOI reached NIS 214.7 million, compared with NIS 207.1 million in the parallel quarter and NIS 205.1 million in Q4 2025. This is the proof point missing at the end of 2025: improved operating profit from the assets, not only fair-value gains.

Two layers stop the quarter from becoming a clean positive read. Selling, general and administrative expenses rose to NIS 20.5 million, partly because of a higher doubtful-debt provision. Other expenses reached NIS 12.3 million, mainly a provision for failure to meet hotel-construction performance obligations. As a result, operating profit fell to NIS 192.1 million even though gross profit rose.

The third layer sits in financing and tax. Net finance expenses rose to NIS 28.5 million from NIS 7.4 million in the parallel quarter, and pre-tax profit fell to NIS 163.6 million. Taxes jumped to NIS 34.2 million, compared with only NIS 6.7 million in the parallel quarter, which benefited from a tax benefit related to assessments for 2022-2023. That is why net profit fell to NIS 129.4 million despite the NOI improvement.

FFO and AFFO sharpen the same point. FFO under the Israel Securities Authority approach fell to NIS 138 million, and AFFO under management’s approach fell to NIS 144 million. Attributable to shareholders, FFO was NIS 136 million and AFFO was NIS 141 million, compared with NIS 182 million and NIS 175 million, respectively, in the parallel quarter. The improvement in income-producing real estate is real, but it is not yet enough to offset the financing line, taxes and non-routine expenses.

Buybacks Make Liquidity the Checkpoint

The relevant cash frame here is all-in cash flexibility: how much cash is left after operating cash flow, interest, investments, debt repayments, buybacks and other actual uses. On that basis, the first quarter was weak, even though it did not create liquidity stress. Operating cash flow was NIS 153.4 million, and interest and dividends received added NIS 39.7 million. Against that, the company repaid NIS 563.3 million of long-term liabilities, paid NIS 56.2 million of interest, bought NIS 164.1 million of treasury shares, invested NIS 27.7 million in investment property and fixed assets, and bought about NIS 45 million of securities net.

This is not a distress reading. Cash at quarter end was still NIS 1.25 billion, alongside NIS 610.8 million of trading securities and roughly NIS 12.3 billion of unencumbered assets. Covenants are distant: net financial debt to adjusted NOI is about 5.51 versus a ceiling of 15, and all bond series are rated ilAA.

The point is different: in a quarter with no bond-issuance proceeds, buybacks and repayments were funded from cash accumulated earlier. That is reasonable for this balance sheet, but it raises the proof bar. If the company keeps buying shares, NOI and recurring cash flow need to improve, or the debt market needs to remain open on terms that do not erode earnings quality too much.

The next few quarters are a bridge between NOI proof and cash proof. The first question is whether quarterly NOI of NIS 214.7 million is a new run rate or a correction after weaker 2025 quarters. The second is whether office occupancy, only 78%, improves without deeper commercial concessions.

The third question is funding cost. The weighted effective CPI-linked interest rate on the company’s bonds is about 1.87%, and the weighted effective shekel rate is about 4.98%. Based on the implied yields of series 13 and 14, refinancing NIS 100 million of debt would increase annual finance expenses by about NIS 3 million. That is not threatening at this scale, but when buybacks become a recurring cash use, even incremental funding cost matters.

The plan to relocate public-transport activity from the Tel Aviv Central Bus Station can become more meaningful only if it moves from planning advancement to a clear execution path. At this stage it mainly preserves an option. In transport assets, as in planning-related revaluations, economic value is created in the balance sheet before it becomes accessible in cash.

Conclusions

The first quarter improves the read on Airport City, but it does not solve it. NOI is rising again, which is the most important sign after a 2025 report that leaned too much on revaluations and planning rights. On the other hand, net profit, AFFO and cash declined, and the buyback makes liquidity and refinancing terms a larger part of the story.

The current conclusion is that the company remains balance-sheet strong, but the thesis now depends less on "many assets and a strong rating" and more on whether the income-producing core can fund capital returns by itself. The strongest counter-thesis is that this critique is too strict: the company has high cash, unencumbered assets, distant covenants and a debt market that knows it well. What will change the market reading is a combination of three things: NOI that keeps rising, improving office occupancy, and a buyback pace that does not require large debt issuance to preserve the same flexibility.