Bonei Hatichon in the First Quarter: Sales Returned After Quarter-End, but Debt Still Sets the Pace

The first quarter of Bonei Hatichon reinforces the picture already visible at the end of 2025: the projects have real gross profit, and there is fresh evidence that sales did not stop, but the value still has to pass through a dense layer of financing, pledges, and working capital. Gross profit rose to NIS 15.2 million and gross margin rose to 16%, despite lower revenue. The problem is that net finance expenses almost doubled versus the comparable quarter and pushed the company to a NIS 7.8 million loss. After the balance-sheet date, another 74 units were sold, including 62 at Kiryat Moshe in Rehovot, and that matters more than the decline in sales inside the quarter itself. Still, these sales are not yet free cash, while inventory increased, customer advances fell, restricted deposits rose, and the bond schedule still absorbs a large share of Kiryat Ono surplus. That makes 2026 less a crisis year and more a proof year: whether new sales become advances and project financing, and whether Ae and B release surplus after the bank and bond layers.

Company Orientation

Bonei Hatichon is a residential development and urban-renewal company. Its economics are not measured only by apartment sales or quarterly gross profit, but by the full path: signed contracts, construction progress, buyer advances, bank project financing, surplus release, and finally cash that remains above the debt layer. The company has a broad project pipeline, but its active near-term engine sits in a smaller group of projects: Kiryat Ono Ae and B, Beer Yaakov, Raziel Netanya, Bnei Ephraim, Brenda, Rembrandt, and newly reported sales at Kiryat Moshe.

This quarter continues the issue raised in the previous annual analysis: the problem was not the absence of project profit, but how much of that profit would reach shareholders before financing costs and project pledges consumed it. At the end of March, the company had 1,340 units in active projects, of which 835 were sold and 505 remained in inventory. Expected remaining revenue from these projects totaled about NIS 2.28 billion, with expected gross profit of about NIS 512.5 million. That number looks large, but it does not all arrive at the same level or at the same time. Part of it is in low-completion projects, part depends on future sales, and part is already pledged or earmarked for bond service.

Operations Improved and Financing Absorbed the Gain

Quarterly revenue fell to NIS 94.9 million, down about 19.5% from NIS 118.0 million in the comparable quarter. The number of units recognized in the financial statements fell only from 30 to 28, so the revenue decline alone does not signal a sharp activity slowdown. The more important change is project mix and the stage of each project.

Gross profit rose to NIS 15.2 million from NIS 11.7 million, and gross margin rose to 16% from 10%. Operating profit also rose to NIS 7.4 million, from NIS 4.8 million. That is the quarter’s bright spot: before financing, project activity improved. Ae contributed NIS 27.1 million of revenue and NIS 5.8 million of gross profit, B contributed NIS 11.7 million of revenue and NIS 2.5 million of gross profit, and Raziel Netanya entered the income statement with 18 recognized units, even though the project is only 8% complete.

The gap opens at finance costs. Finance income fell to NIS 2.5 million, while finance expenses rose to NIS 20.0 million, including NIS 3.7 million tied to combination transactions. The result was net finance expense of NIS 17.5 million, compared with NIS 9.3 million in the comparable quarter. A NIS 2.6 million improvement in operating profit was not enough, and the net loss widened to NIS 7.8 million.

This does not make the quarter weak in every layer. Gross profitability looks better. But for a leveraged developer, gross profit that does not quickly become cash and surplus is not enough. Over the next quarters, the equity and bonds are likely to be judged less by gross profit alone and more by whether finance costs stop consuming the operating progress.

Sales Returned, Surplus Still Has to Be Released

Inside the quarter itself, sales were weak: 19 free-market units for NIS 57.0 million, versus 40 units and NIS 103.8 million in the first quarter of 2025. But from April 1 through shortly before the financial statements were approved, another 74 units were sold for NIS 166.3 million. Together with the quarter, the company reached 93 units and NIS 223.3 million from the beginning of 2026 through shortly before publication.

The important detail is the source. Kiryat Moshe in Rehovot alone accounted for 62 units and NIS 131.5 million after the balance-sheet date. That is evidence that one of the nearer urban-renewal projects is beginning to move from planning and marketing language into actual sales. Raziel Netanya adds another asset-base change: during the period, the project moved into construction inventory, with NIS 66.2 million of investments and NIS 8.2 million reclassified from land inventory. That is real progress, but also a funding need: a project that starts working increases inventory before it releases surplus.

The broad pipeline still needs to be read carefully. The company has 64 early-stage evacuation-reconstruction projects with 27,024 expected units and 13 TAMA 38/2 projects in Tel Aviv with 298 expected units, but these projects have not yet passed final economic feasibility and there is no certainty that all will proceed. The nearer layer is 10 urban-renewal projects that have completed zoning changes and are in detailed planning, with 4,400 total project units and 3,271 developer units. Even there, much of the data rests on internal estimates and expected start dates, not cash already sitting in the company.

Ae and B remain the most important profit engines. Together, the two complexes carry expected remaining revenue of about NIS 1.16 billion and expected gross profit of about NIS 324.7 million. They are also in real execution, with Ae at 49% completion and B at 47%. But looking only at gross profit misses the waterfall. Of NIS 292.3 million of surplus and deposits from these two sources, NIS 229.7 million is first directed to bond service.

This is not an immediate repayment problem. The surplus ratio for Series 21 stands at 155% versus a 120% required ratio, and the ratio for Series 23 stands at 136% versus a 110% required ratio. Equity to balance sheet, as defined in the trust deeds, stands at about 16.5%, above the relevant thresholds. But this explains why high expected gross profit is not the same as free cash for shareholders. First the company needs to sell, build, collect, repay banks, comply with pledges, and service bonds. Only then does the discussion about accessible surplus begin.

All-in cash flexibility after actual cash uses remained limited. Operating cash flow was negative NIS 45.6 million. That is far better than the negative NIS 116.0 million in the comparable quarter, but project activity still consumes capital before it returns it. Construction and apartment inventory rose by NIS 59.4 million, income receivable rose by NIS 12.7 million, land inventory rose by NIS 9.9 million, and customer advances fell by NIS 3.2 million. The decline in advances links the quarter to the sales-quality question, because the company attributes it partly to growth in 15/85 and 20/80 transactions.

On the financing side, the company received NIS 23.0 million net from bank credit and NIS 19.9 million from a share and warrant issuance. The private placement gives the company cash and time, but also adds potential dilution. Cash and cash equivalents fell to NIS 128.8 million at the end of March, from NIS 152.1 million at the end of 2025, while restricted deposits rose to NIS 35.7 million. Short interest also does not signal unusual market pressure: short interest was only 0.07% of float on May 20, far below the sector average of 0.66%. The debate is therefore not about a crowded short position, but about the funding quality of the transition year.

Conclusions

The first quarter leaves Bonei Hatichon in an in-between zone: activity is better than the net loss suggests, but cash flow is weaker than the gross profit suggests. The positive side is that gross profitability improved, Raziel entered execution, and the jump in post-balance-sheet sales, mainly at Kiryat Moshe, gives 2026 a better starting point than the January-March results alone show. The heavier side is that the improvement has not yet reached advances, released surplus, or reduced dependence on financing.

The current read is that the quarter strengthens the probability of operating improvement during the year, but it does not change the main bottleneck: cash still has to pass through customers, banks, and bondholders before it becomes accessible value for shareholders. The market interpretation can improve over the next quarters if sales continue at Kiryat Moshe and Kiryat Ono, advances or actual collections rise, and the relationship between pledged surplus and the debt against it improves. The read would weaken if deep negative cash flow returns, if 15/85 and 20/80 terms expand further, or if Ae and B surplus erodes. That means the market is likely to measure the company less by one quarter’s revenue line and more by whether post-quarter sales actually begin reducing the financing burden.