Norstar in the First Quarter: The Equity Cushion Expanded, Cash Still Depends on G City

The first quarter of 2026 changed the starting point for Norstar Holdings, but it did not solve why the stock still reads like a leveraged holding company rather than a simple income-real-estate exposure. Shareholders' equity rose from NIS 1.305 billion at the end of 2025 to NIS 1.724 billion at the end of March, mainly because of the completed CTY tender offer and G City's buybacks. That is a real change versus the previous parent-layer analysis, where equity looked too close to the level that constrained capital flexibility. Still, the new value did not become parent cash: the separate financial information shows only NIS 1 million of cash, and the quarter's movement was mainly loans from consolidated companies against bond repayment. The bottleneck moved from the equity number itself to a sharper question, whether dividends, disposals and debt management below the parent can upstream enough cash before the 2027 to 2028 debt window. The quarter gives creditors a better answer, but equity holders still need proof that value created inside G City can move up one level.

The Company Is a Parent Layer, Not a Normal Property Company

Norstar Holdings is a holding company. It has no meaningful standalone operating activity, and the asset that determines almost everything is its stake in G City, which operates urban income-producing real estate, mixed-use assets, retail, offices and rental housing. At the end of March 2026, the company held about 93.1 million G City shares, or about 52.7% of its share capital, with a book value of about NIS 2.324 billion. After the balance-sheet date, following additional buybacks by G City, the stake rose to about 54.7%.

This is not the economics of an income-producing property asset. It is the economics of a controlling shareholder sitting above a real-estate platform. Value is created below the parent, through assets, disposals, buybacks and dividends. Risk is measured above it: how much cash actually reaches the parent, what the maturity schedule looks like, and how much of the core asset is pledged or used as financing support. G City's numbers matter, but they are not enough on their own. The key is what reaches the parent layer.

Equity Rose Faster Than Cash

The important quarterly change is not the smaller loss attributable to shareholders, NIS 4 million versus NIS 128 million in the comparable quarter. The important change is that parent-layer equity rose by NIS 419 million in one quarter. The company's share of the gain from the CTY tender offer was about NIS 310 million, while G City's buybacks added about NIS 79 million during the quarter and another NIS 35 million after it.

The right cash frame here is all-in cash flexibility after actual cash uses, not normalized profit and not asset value. In Norstar Holdings's separate financial information, operating cash flow was negative by NIS 2 million. The company received NIS 50 million net from loans from consolidated companies and used the same amount to repay bonds. After that movement, parent cash stood at NIS 1 million.

The company-and-wholly-owned-subsidiary view says the same thing. Total bonds and financial-institution liabilities stood at NIS 628 million at the end of March, and net financial liabilities stood at NIS 600 million after financial assets. NIS 507 million of that debt, about 81%, is concentrated in 2027 and 2028. There is no 2026 maturity and bond covenants look relatively distant, but the question has moved forward: how the company reaches 2027 with more accessible cash, not only more accounting equity.

Value Is Created Below, and the Route Up Still Runs Through Financing

G City's operations improved in some layers, but they do not explain the sharp equity increase by themselves. Net operating income, NOI, declined to NIS 354 million from NIS 385 million in the comparable quarter, an 8.1% decrease. The decline mainly came from exchange rates and assets sold during the past year, partly offset by 5.4% growth in same-property income. The existing assets are improving, but the portfolio is smaller and more focused.

In FFO, a commonly used adjusted operating cash-flow measure in income real estate that is not accounting operating cash flow, the picture is better. G City's management-basis FFO rose to NIS 125 million from NIS 69 million in the comparable quarter. The split matters: FFO from income-producing real estate rose from NIS 78 million to NIS 101 million, while special financing activities moved from a negative NIS 9 million to a positive NIS 24 million.

The CTY move shows the gap between value created and cash accessible at the parent. G City completed a March 2026 tender offer for about 50 million CTY shares for about EUR 190 million. After special CTY dividends received in April, totaling about EUR 164 million, the net economic cost fell to about EUR 26 million. This is a strong value-capture move: the CTY stake rose to about 86.4%, G City's equity rose by NIS 619 million, and Norstar Holdings's share of the increase reached about NIS 310 million.

But the move is not a free-cash event for parent-level shareholders. The transaction reduced G City's expanded-solo leverage by about 2.3%, but increased the consolidated leverage ratio of Norstar Holdings and G City by about 2.7%. Before the tender offer, G City signed a financing agreement of up to EUR 195 million for CTY share purchases, of which about EUR 85 million was drawable at the reporting date. Equity rose and FFO should benefit, but the value still has to pass through dividends, disposals and debt management.

The filing gives creditors more comfort than equity holders. Net interest-bearing debt to consolidated balance sheet stood at 67.1%, versus a covenant allowing up to 82.5% for three consecutive quarters. The group had liquidity and immediately drawable unused credit lines of about NIS 2.8 billion, but only about NIS 0.1 billion was at the company and wholly owned subsidiaries. Short interest as a percentage of float fell from 6.13% at the end of February to 2.96% in mid-May, but remains above the 1.29% sector average. Skepticism eased, but did not disappear.

Orion also shows that asset disposals do not always fully detach the risk. After the balance-sheet date, G City increased by EUR 9 million the guarantee it provided in connection with Orion's currency-hedging transaction, and approved a commitment to provide a loan if Orion is required to pay Polish tax amounts for 2021 and 2022. This does not change the main thesis, but it sharpens the quality of disposals: value can rise while parent support, guarantees and tax risks remain.

Conclusion

The first quarter strengthened Norstar Holdings where it looked weaker at the end of 2025: equity increased, covenants look more comfortable, and CTY moved from uncertainty to a meaningful equity contribution. But it did not change the key checkpoint for shareholders. The parent still does not have a large cash account, and the debt of the company and wholly owned subsidiaries is still aimed mainly at 2027 and 2028.

2026 is a financing transition year. For the market read to improve over the next few quarters, at least one of three things needs to happen: a larger and more regular dividend from G City, disposals that reach debt repayment or the parent cash account, or early and comfortable refinancing of the 2027 to 2028 debt. The counter-thesis is strong: if CTY continues to improve its debt map and NIS 1.862 billion of assets held for sale become transactions, the current market value may look conservative against equity and NRV. Until that happens, the quarter says something precise: Norstar Holdings got more time and more equity, but not yet more free cash.