Rent It in the First Quarter: Rental Income Is Improving, but Growth Still Depends on New Equity

Rent It opened 2026 with a quarter that strengthens the operating side of the story, but still leaves the funding question unresolved. The income-producing portfolio is working better: all three material income-producing properties were fully occupied, average rents rose in each one, and the quarterly loss narrowed to NIS 243 thousand from NIS 2.5 million in the comparable quarter. That is a real change from a year in which the company looked like a young REIT with good assets but limited ability to turn NOI into profit and cash available to shareholders. Still, the cash improvement did not mainly come from the assets. It came from Migdal's equity placement and from a quarter in which actual investment into Netanya was very limited. This quarter does not turn the company into a mature harvesting REIT. It turns 2026 into a more focused proof year: Netanya must become an income-producing asset without a material cost overrun, Ashdod must close without an overly heavy dilution layer, and NOI must keep growing faster than finance costs and external management fees. The market received a positive signal, but not yet full proof that the value created inside the properties is already accessible to shareholders.

Company Overview

Rent It is a residential REIT in Israel. The model looks straightforward: own long-term rental apartments, benefit from high occupancy and CPI-linked rent, and over time distribute the cash left after maintenance, financing and management fees. In practice, the company is still young, leveraged, externally managed, and in a phase where much of the value depends on completing assets and adding more capital.

The existing portfolio is no longer only a pipeline story. Carmiel, Kiryat Gat and Modiin are the three material income-producing properties, while Netanya is the material property under construction. In the first quarter of 2026, the three income-producing properties reached full occupancy, and average rent rose in all three compared with the end of 2025. That is the positive side: rental demand and property-level operations are holding, and rental income is already rising faster than in the comparable quarter.

The active bottleneck sits above the assets. The company trades at a market value of roughly NIS 343 million, compared with equity of NIS 372.2 million, so the market is still not assigning a full premium to the assets. The reason is not only general concern around rates or real estate. It is practical: financial debt remains high, most of the relevant debt layer is CPI-linked, external management fees still take a meaningful share of operating profit, and Netanya and Ashdod still require capital before they can contribute cash.

The continuity with the previous annual analysis matters here. The question then was whether the rental engine that already worked could pass through the financing and management layers. The first quarter gives a partial answer: yes, the rental engine improved. No, the capital layer has not yet been tested under full investment conditions.

The Assets Work, but Cash Is Not Yet Solved

The first quarter looks much cleaner than the comparable period. Rental and management fee income rose to NIS 6.256 million, up 15.3%, and profit from property rental and operation rose to NIS 5.419 million, up 10.7%. Property operating costs rose faster than revenue, so the property operating margin declined, but operating profit still rose to NIS 3.274 million. Net finance costs fell 32.6% to NIS 3.518 million, and the net loss narrowed by about 90% to NIS 243 thousand. This is already a near-breakeven quarter, but still not net profit.

Modiin is the property pulling the quarter forward. Modiin's quarterly NOI was NIS 2.576 million, compared with NIS 3.829 million for all of 2025, because the asset began contributing more fully only during last year. Carmiel and Kiryat Gat also showed better average rents and higher actual yields. This is not an accounting jump from fair-value gains. No fair-value gains were recorded on the income-producing assets during the quarter.

The constraint is that the portfolio still does not leave much surplus after the layers above it. Management fees to the management company totaled NIS 1.227 million, and another NIS 189 thousand was recorded as share-based payment to the management company. Together, that is NIS 1.416 million for the quarter, about 26% of profit from property rental and operation. That is less heavy than in the comparable quarter, but still material enough to explain why stronger NOI does not fully pass through to net income.

Cash Grew Mainly From Migdal's Placement

Liquidity looks much better at the end of March 2026. Cash and cash equivalents rose to NIS 74.849 million, with another NIS 1.027 million in short-term deposits. Equity rose to NIS 372.2 million, and working capital turned positive at about NIS 65 million, compared with negative working capital of about NIS 171 million in the comparable quarter.

But the distinction between cash generated by the portfolio and cash injected into the company is essential. On an all-in cash flexibility basis after actual cash uses during the quarter, operating cash flow was only NIS 824 thousand after NIS 2.707 million of interest paid. Real estate investment was only NIS 1.217 million, while deposits released NIS 3.872 million. The major cash increase came from Migdal's equity placement, which brought in NIS 38.953 million net.

Migdal entered during the quarter through an allocation of 5.934 million shares for about NIS 39.9 million, at roughly NIS 6.72 per share. At the end of March it held about 16.74% of the company's share capital. This is positive for the capital structure because it adds cash and a significant institutional shareholder ahead of an important investment year. It also shows that the company still needs external equity to move into the next phase, rather than relying only on internally generated cash from the assets.

Debt remains central. Total non-current financial liabilities were about NIS 535.9 million, compared with cash and short-term deposits of about NIS 75.9 million. The company complies with the financial covenants of both bond series, with equity of about NIS 372 million and an equity-to-assets ratio of about 40%, but Kiryat Gat already shows a loan-to-value ratio of about 69% against a 70% ceiling. That is not a breach and does not by itself indicate immediate pressure, but it shows that the margin of safety is not uniform across the financing layers.

Netanya and Ashdod Still Define 2026

Netanya is the clearest proof point for the coming year. The cumulative project cost rose during the quarter from NIS 172.8 million to only NIS 174.2 million, and the budget completion rate moved from 79.5% to 79.8%. The expected completion date remained December 31, 2026, and the remaining expected investment stayed at NIS 42 million. In other words, the quarter did not really move the project from waiting stage to cash-flow certainty.

The cost backdrop can make this harder. The construction input index rose 5% in 2025, and during the first quarter of 2026 through the report date it rose by about 1.6%. The company states that this increase may lead to an actual budget overrun versus the planned cost of Netanya and weigh on funding sources. That matters because Netanya is supposed to be the next asset that increases NOI, but for now it is also where construction cost can consume part of the new equity.

Ashdod adds a different layer of complexity. On March 25, 2026, the deadline for satisfying the closing conditions in the acquisition of project rights was extended to June 1, 2026. On May 12, 2026, subject to completion, the parties agreed to cancel the original investment agreement and amend the seller loan agreement. The seller may invest the loan amount in a public offering under the offering terms. If the seller does not invest the full remaining principal, the company will have the right to require the seller to invest the balance in a private placement by May 31, 2027, at a per-share price reflecting a 30% discount to a price derived from the company's equity.

The implication is not merely technical. This mechanism can help close the transaction without immediate full cash outflow, but it also postpones part of the cost of capital and may create dilution on unattractive terms for existing shareholders. Ashdod can still become a growth engine, but the first quarter says it should be read as a path with open financing and equity terms, not as an asset that has already moved into NOI.

There was also a useful technical step in Modiin: the rights in the property were registered in the company's name in May 2026, and a mortgage was registered in favor of the trustee for bondholders of Series B. That reduces operating risk around the collateral package, but does not change the broader question: how quickly the expanded portfolio can generate surplus after debt, indexation and management fees.

Conclusion

The first quarter of 2026 strengthens the cautious positive read: Rent It is no longer merely promising a rental portfolio. It is operating assets at full occupancy, raising rents and reducing its loss to near zero. That is the part the market may read more favorably in coming reports, especially if Modiin continues to produce NOI at the pace shown this quarter.

The part that remains unresolved is shareholder access to that value. Cash during the quarter came mainly from new equity, not from a large asset-level surplus. Netanya barely moved during the quarter even though the expected completion date remains the end of 2026, and Ashdod now includes a mechanism that can turn the seller loan into future equity at a meaningful discount. The current conclusion is that the income-producing portfolio is improving faster than before, but 2026 still looks like a funding proof year rather than a harvesting year. To improve the read, the company must show three things over the next 2-4 quarters: investment progress and completion at Netanya without a material cost overrun, Ashdod closing with reasonable financing and dilution terms, and operating cash flow staying positive even as actual investment rises. A delay at Netanya, a higher completion cost or an Ashdod deal that closes through heavy dilution would weaken the interpretation.