Beit Bakfar in the First Quarter: Kfar Saba Becomes Income Property, the Development Wave Still Needs Funding
Beit Bakfar's first quarter looks strong at the net profit line, but most of the change came from the Kfar Saba reclassification and a Modiin fair value gain. NOI and FFO improved, yet the dividend and the move toward Beer Yaakov and Modiin bring the focus back to how quickly deposits and occupancy become available cash.
Beit Bakfar opened 2026 with a quarter in which assets advanced faster than cash proof. The Kfar Saba expansion was completed, received a completion certificate, moved into investment property, and began occupancy with about 80% of the units marketed. At the same time, Modiin received planning approval that added building rights and created an ILS 11.7 million fair value gain, while Beer Yaakov received an excavation and shoring permit. These are real milestones, but they do not yet answer the main economic question: whether Kfar Saba will generate NOI and incoming deposits quickly enough before Beer Yaakov and Modiin require hundreds of millions of shekels of investment. Net profit jumped to ILS 20.9 million, but a large part of that jump came from fair value, while FFO rose to ILS 10.0 million and cash after investments and the dividend already looks tighter. In protected housing, resident deposits are both a funding source and a liability, so the next quarters will be judged by occupancy, net deposits, and project-financing timing, not only by the profit line.
Company Overview
The company operates a protected housing network in Israel: four wholly owned campuses and one home operated near Kibbutz Ginosar. As of the report publication date it manages 975 housing units, after completing the Kfar Saba expansion, and is developing three additional projects in Beer Yaakov, Modiin, and Usha.
Its model sits between income-producing real estate and deposit financing. Maintenance fees and leasing create recurring revenue, but resident deposits fund part of growth and appear at the same time as current liabilities. Negative working capital is therefore not unusual for this sector by itself. Its quality depends on resident turnover, occupancy, and incoming deposits.
In the previous annual analysis, the open checkpoint was the shift from Kfar Saba as an investment site to Kfar Saba as a source of occupancy, NOI, and deposits. The first quarter closes the structural part of that gap: the project was completed and occupancy began. It does not yet close the economic part, because average occupancy at Kfar Saba was 77.5% and the asset generated only ILS 2.2 million of NOI.
Kfar Saba and Modiin Advanced Assets, Not Full Cash Proof
Kfar Saba is the quarter's central change. The ILS 225 million expansion moved from investment property under construction into investment property, and the fair value of the Kfar Saba asset rose to ILS 471.6 million. The comparison with the end of 2025 is misleading if read as a normal revaluation, because in December the expansion units that had been sold were not yet included in the income-property data. This is an asset moving from construction into operation, not only a value increase.
The positive side is clear: the company is no longer funding a construction site with no income, and the new units are beginning to enter the resident base. The part that still needs proof is occupancy pace. Kfar Saba ended the quarter with 176 occupied units, and the expansion needs to show over the next quarters that it lifts occupancy, deposits, and maintenance fees, not only balance-sheet value.
Modiin adds a different value layer. Approval of the local plan change, including an additional 9,531 sqm, led to an ILS 11.7 million fair value gain. That is a meaningful accounting contribution to quarterly profit, but it is not cash. It also arrives before an excavation and shoring permit and before full construction financing. Beer Yaakov has already received its excavation and shoring permit, so both projects move the company closer to the stage where planning becomes actual investment.
| Project | Current stage | Size | Estimated planning and construction cost | What still needs to happen |
|---|---|---|---|---|
| Kfar Saba expansion | Completion certificate and occupancy start | 92 units | About ILS 150 million in the presentation | Occupancy, deposits, and actual NOI |
| Beer Yaakov | Excavation and shoring permit | 249 units | ILS 240 million to ILS 260 million | Construction start and financing structure |
| Modiin | Plan approval and 9,531 sqm addition | 300 units | ILS 360 million to ILS 385 million | Excavation and shoring permit and financing |
| Usha | Deposited plan and closing conditions | Up to 335 units | About ILS 300 million at the joint entity | Closing conditions and planning effectiveness |
Deposits Support Cash Flow, the Dividend Tests the Cushion
Operating activity improved, but not at the same pace as net profit. Revenue rose to ILS 28.7 million, NOI rose to ILS 18.3 million, and representative real FFO rose to ILS 10.0 million. Against net profit of ILS 20.9 million, that gap matters: profit received a boost from the Modiin fair value gain, while operating profit under management's presentation rose to only ILS 10.8 million.
Cash flow from operations was ILS 26.7 million, but it again relied on deposits. The company received ILS 37.7 million of resident deposits and returned ILS 15.0 million to residents, so net deposits were positive by about ILS 22.7 million. That is a legitimate source in the protected housing model, but it is different from cash flow derived only from maintenance fees or NOI.
The right cash frame here is flexibility after the main cash uses. In the quarter, the company generated ILS 26.7 million from operations and invested about ILS 11.7 million in real estate and fixed assets. Before the dividend, that left a surplus of about ILS 15.0 million. After the ILS 30 million dividend paid in April, the quarter alone no longer covers those uses. The distribution is not an immediate problem, but it shows that liquidity is part of the thesis, not background.
Liquidity is still comfortable. At the end of March, the company held cash, short-term deposits, and securities of about ILS 219 million, versus bonds at a book value of ILS 95.9 million, and net financial debt to CAP was negative. Covenants are distant, with equity of ILS 1.23 billion versus a ILS 500 million immediate repayment threshold and a ILS 600 million dividend threshold. The ilA issuer rating affirmation with a stable outlook and the ilA+ bond rating also support the view that there is no immediate stress.
The next step depends on deposit-cycle quality. Negative working capital was ILS 368 million because resident deposits are presented as current liabilities, and the company estimates that deposit refunds in the 12 months after the reporting date will be ILS 45 million to ILS 55 million. If Kfar Saba occupancy progresses and incoming deposits continue to exceed refunds, the balance sheet remains comfortable. If the move to leasing, already about 68% of agreements in the quarter, reduces the deposit source too quickly, cash flow quality will look weaker even without immediate liquidity stress.
Conclusions
The first quarter strengthens the positive side: Kfar Saba is no longer only a project under construction, NOI and FFO are rising, and Modiin and Beer Yaakov advanced. But it still proves asset progress more than recurring cash power. Accounting profit looks strong, yet the part that will determine 2026 is Kfar Saba occupancy, net deposits, and how the company finances Beer Yaakov and Modiin.
The strongest counter-thesis is that the balance sheet is strong enough for the transition: ILS 219 million of liquid assets, negative net financial debt, distant covenants, and a stable rating. That is true in the short term. What can change the market read is the next proof sequence: higher Kfar Saba occupancy, positive net deposits even with more leasing, clear financing for the next projects, and distributions that do not run faster than cash flow after investments. If those move together, 2026 will look like a successful transition year. If one stalls, the first-quarter fair value gain will matter less than how much cash is really left to fund growth.
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