Mivne in the First Quarter: Construction Risk Fell, but Occupancy and Dividends Need Faster NOI

Mivne did not report a quarter that settles the debate around the company. It reported a quarter that makes the debate much more precise. Construction risk came down: the Hasolelim project and the life-sciences asset in Haifa moved into the income-producing layer, investment property under construction fell from NIS 1.95 billion to NIS 232 million, and the company had already handed over 115 apartments at Hasolelim as well as about 47 thousand sqm to the anchor office tenants. But that move has not yet produced a step-change in NOI. Occupancy in Israel fell to 92%, and excluding the assets completed during the quarter it would have been 93.7%, which means the legacy portfolio is stable while the new assets still have to fill up and start working harder. Net profit fell to NIS 148 million, mainly because apartment and land-sale revenue and fair-value gains were lower, but operating property metrics moved in the opposite direction: NOI in Israel rose to NIS 202 million and AFFO rose to NIS 153 million. After the prior annual analysis, the question is no longer whether the company completed a meaningful part of the pipeline, but how quickly completion becomes recurring income, cash flow, and distributable capacity. The NIS 75 million dividend declared for the first quarter turns 2026 into a proof year: the distribution pace fits the AFFO line, but it will look comfortable only if Hasolelim, the new assets and the office portfolio begin adding NOI without bringing leverage back to the center of the story.

Company Snapshot

Mivne is a large Israeli income-producing real-estate company, with a broad portfolio of offices, industrial and logistics assets, retail properties and rental housing. It also owns residential development activity and land reserves, but this quarter should mainly be read through the income-property machine: asset value, occupancy, NOI, cost of debt, and the ability to return cash to shareholders without weakening balance-sheet flexibility.

In Israel it owns 556 income-producing properties with about 1.7 million sqm above ground, leased to about 2,915 tenants. Including associates, the expanded portfolio reaches 568 properties and quarterly NOI of NIS 202 million in Israel. That diversification hides an important split between uses: industrial and logistics remains the highest-quality cash layer, with 97.5% occupancy and NIS 89.7 million of quarterly NOI. Offices have become the largest use by value, but occupancy there is only 80.9%.

A company like this creates value when an asset that consumed capital during construction moves into recurring rent, lifts NOI, supports value and enables refinancing and distributions. Debt, development and assets under construction are not a problem by themselves in income real estate. The issue begins when the accounting completion of an asset arrives before occupancy and cash flow, and in the first quarter Mivne is exactly at that stage.

Assets Left Construction, but Not All Are Working Yet

The most unusual number this quarter is not net profit. It is the asset reclassification. Investment property under construction fell from NIS 1.95 billion at the end of 2025 to only NIS 232 million at the end of March 2026. At the same time, the value of income-producing offices in Israel jumped from NIS 4.63 billion to NIS 6.34 billion. This is not a routine mix shift, but a transfer of large assets from a capital-consuming stage into a stage where they are supposed to start generating NOI.

The problem is that the balance-sheet move is running ahead of the operating proof. Occupancy in Israel fell to 92.0% from 92.7% at the end of 2025, and excluding Hasolelim and the life-sciences project in Haifa, whose construction was completed during the quarter, occupancy would have been 93.7%. In other words, the older assets do not look weaker. The new assets are the ones lowering reported occupancy until they fill up.

The early portfolio table explains why this matters:

Offices account for 43% of income-producing property value in Israel, but they contribute less NOI than industrial and logistics. That can change if the new space is absorbed quickly. If not, value has already moved into the income-producing layer while the cash flow arrives more slowly.

At Hasolelim, the picture is now less theoretical than before. The residential towers received a completion certificate on March 2, 2026, and by publication date the company had handed over 115 apartments to buyers. In residential, 248 contracts had been signed out of 360 units, or 67% of the project, but only four new contracts were signed during the quarter and no additional contracts were signed by the publication date. In offices, Fattal Workspace and Switchup expanded the leased area to about 35,800 sqm and 266 parking spaces, with average annual rent and management fees of about NIS 66 million during the first lease period, and the company had already handed over about 47 thousand sqm of project space to the tenants. That average consideration excludes the company's participation in fit-out works, so Hasolelim has moved to handover but not yet to stabilized NOI.

Profit Fell, Recurring Property Quality Improved Modestly

Anyone who reads only net profit will see a sharp decline: NIS 148 million in the first quarter of 2026 versus NIS 212 million in the comparable quarter. That is not clean weakness in rental operations. Revenue from apartments and land fell to NIS 38 million from NIS 171 million, because the comparable quarter mainly included revenue from Hasolelim and the Megureit transaction of about NIS 151 million, and fair-value gains on investment property fell to NIS 39 million from NIS 132 million.

The income-producing activity itself looks better, but not dramatically better. Total NOI rose 1.0% to NIS 209 million, NOI in Israel rose 2.1% to NIS 202 million, and Same Property NOI in Israel rose 2.7% to NIS 201 million. The increase in Israeli NOI came from about NIS 7 million of new leases and rent increases on renewals, plus about NIS 5 million from indexation, offset by about NIS 3 million from higher maintenance costs and about NIS 2 million from vacated areas. This is a portfolio that continues to move forward, not a portfolio showing a sharp jump.

AFFO rose to NIS 153 million, up 4.6% year over year, and this is the positive side of the story. But it should be read together with its definition. FFO under the Israel Securities Authority approach was NIS 155.6 million, while management's approach also neutralizes income and expenses from CPI indexation of debt principal and exchange-rate differences. In a quarter with a negative known CPI index, that adjustment does not flatter the quarter, but it is a reminder that AFFO is not accounting operating cash flow and is not distributable cash by itself.

The Dividend Is Already Moving, Cash Still Has to Keep Up

The distribution policy is no longer a future headline. The board approved a NIS 100 million dividend for 2025, paid on May 4, 2026, and adopted a 2026 distribution policy of up to 50% of annual AFFO through dividends or buybacks, as long as net financial debt to CAP does not exceed about 50%. On May 25, 2026, it approved another NIS 75 million dividend for the first quarter.

The NIS 75 million dividend looks moderate against quarterly AFFO of NIS 153 million, almost half of the quarter, but all-in cash flexibility after actual cash uses is less clean. Operating cash flow was NIS 247 million, against about NIS 185 million invested in investment property, development property and fixed assets, and about NIS 139 million of bond and loan repayments. Cash rose to NIS 1.37 billion, partly because the shareholder dividend had not yet been paid during the quarter and because there was a net realization of short-term investments.

This is not a liquidity problem. At publication date the company had cash and unused credit facilities of about NIS 1.9 billion, unencumbered assets of about NIS 12 billion, and it complied with all financial covenants. But the distribution rests on a combination of AFFO, liquidity, an open debt market and occupancy progress. In a quarter where large assets are only beginning to work, an additional dividend raises the need to see NOI and cash from completed assets arrive faster.

The full-year outlook remains ambitious but not unreasonable: NOI of NIS 930 million to NIS 950 million and AFFO of NIS 650 million to NIS 670 million in 2026, compared with NIS 858 million and NIS 613 million in 2025. The first quarter delivered NIS 209 million of NOI and NIS 153 million of AFFO, so a simple annualized pace is still below the upper end of the outlook. Sde Dov and the Petah Tikva data center are important future options, but not the cash-flow source for the coming year.

The first-quarter conclusion is cautiously positive: Mivne has already moved through an important part of the path from construction to occupancy, and income-property operating metrics are still rising. The main bottleneck is the speed at which completed assets become recurring income and cash after investments and debt. If reported occupancy rises, Hasolelim contributes to NOI, and distributions stay near half of AFFO without leverage moving up, 2026 will look like a successful proof year. If office occupancy remains low and distributions move faster than NOI, the market may read this quarter as a balance-sheet transition that arrived ahead of the cash flow.