G T Real Estate in the First Quarter: NOI Improves, Short-Term Debt Still Sets the Pace

G T Real Estate did not report a weak quarter, but it did report a quarter that brings the discussion back to the right place: NOI is moving up, the assets are working, and cash looks better, yet the financing bottleneck has not gone away. Rental and property-operation revenue rose to NIS 7.3 million and property operating profit rose to NIS 6.3 million, so the operating start to 2026 is much stronger than the comparable quarter. Still, FFO under the Israel Securities Authority approach remained negative at NIS 0.8 million, the comprehensive loss was NIS 2.4 million, and the working-capital deficit widened to NIS 129.2 million. Cash rose to NIS 14.1 million, but that increase mainly relied on NIS 24.8 million of net new short-term credit, not on internal surplus after investments, interest and repayments. The quarter therefore answers only half of the question left open at the end of 2025: Ofakim and the other assets are already lifting NOI, but the company still has to show that this improvement moves into FFO, available cash flow and longer-term debt. The Dimona land acquisition and the post-balance-sheet review of a new Series B bond sharpen the same point. 2026 is not only a leasing year. It is a year in which the company has to turn assets and collateral into stable financing without putting too much additional pressure on the short-term debt layer.

The Assets Are Working, But Financing Still Drives the Read

G T Real Estate is an Israeli income-producing real-estate and commercial-development company. As of the report date it held, alone or with partners, 14 commercial and logistics centers totaling roughly 129.6 thousand square meters on a 100% basis, of which 6 income-producing centers are leased to about 100 tenants. This is not mainly an earnings-multiple or dividend story. Its economic machine combines income-producing assets, development projects, bank debt and bonds, and fair-value gains or improvements that are supposed to become cash flow later.

For a leveraged income-property company, debt and refinancing are normal. They are part of the sector model. What is abnormal at G T Real Estate is timing: development assets and new assets are beginning to expand NOI, but the short-term financing layer is growing faster than the company can show clean recurring profit and available cash flow. Since the company became a bond company and reporting issuer in July 2025, the practical market reading runs through debt and collateral. The story is measured by how quickly asset value becomes registered collateral, long-term debt and cash left after interest, development and repayments.

This context matters because of prior coverage. The 2025 annual analysis argued that Ofakim lifted NOI but financing still drove the story. The follow-up on short-term debt isolated the question of whether construction-loan facilities would move into longer-term financing during 2026. The first quarter gives a partial answer: income-producing activity looks stronger, but short-term debt did not decline. It rose.

NOI Improved, But Recurring Profit Is Still Not Clean

The positive side of the quarter is clear: the assets are generating more. Rental and property-operation revenue rose to NIS 7.3 million from NIS 5.1 million in the comparable quarter, up about 42%. Property operating profit rose to NIS 6.3 million from NIS 4.6 million, up about 37%. Same-property NOI also rose 5.5%, so not all of the improvement came only from an added asset or opening effect.

The problem is that the NOI improvement still does not move cleanly into recurring profit. Operating profit fell to NIS 2.2 million from NIS 2.6 million in the comparable quarter, because general and administrative expenses jumped to NIS 3.2 million and the company also recorded a NIS 0.9 million fair-value loss on investment property. Net finance expenses actually declined to NIS 3.8 million from NIS 6.1 million, but that was not enough to move the quarter into comprehensive profit.

This is where FFO matters more than accounting profit. Under the ISA approach, FFO was negative NIS 0.8 million. Under management's AFFO approach, it was positive NIS 2.6 million. The gap between the two readings is not just technical. It means the activity is beginning to show NOI power, but has not yet created an unambiguous recurring profit base after more conservative adjustments, overhead, financing and the company's share in losses of its associate. For a company that continues to develop assets and rely on financing, that is the difference between an asset that works and a company that already has comfortable room to maneuver.

Cash Rose Because Short-Term Credit Rose

The datapoint that can mislead a fast read is cash. Cash and cash equivalents rose from NIS 2.1 million at the end of 2025 to NIS 14.1 million at the end of March 2026. At first sight, that looks like meaningful relief. In practice, all-in cash flexibility after the quarter's actual cash uses, before new short-term credit, was negative by roughly NIS 12.9 million: operating cash flow of NIS 4.0 million did not cover NIS 12.7 million of net investment activity, NIS 2.7 million of interest paid and about NIS 1.4 million of debt and lease repayments. The gap was closed by NIS 24.8 million of net short-term bank loans.

This does not mean the company is breaching covenants. It is not. It still shows accounting headroom against the bond covenants: equity of NIS 152.9 million, an equity-to-assets ratio of 28%, a debt-to-collateral ratio of 70%, and an NOI-to-liability-value ratio of 8.68% versus a 7.5% threshold. But covenants are not the quarter's main issue. Financing timing is.

The consolidated working-capital deficit rose to NIS 129.2 million, from NIS 105.9 million at the end of 2025. Short-term credit and current maturities of long-term loans rose to NIS 129.3 million, from NIS 104.5 million. Management still says the short-term debt mainly reflects the classification of construction-loan facilities for development projects and investment property, and that financing agreements are expected to be signed after construction completion and receipt of Form 4 in the coming years. That may be a reasonable reading, but it still requires execution. As long as short-term debt grows before the longer-term financing is signed, the NOI improvement buys time. It does not fully solve the issue.

Dimona And Series B Add Assets, But Also Require Funding

The quarter includes two capital movements that show where 2026 is heading. The first is Dimona. The company acquired, together with Yochananof and in equal shares, land in Dimona totaling 19,261 square meters designated for commerce and employment. Under the commercial understandings, the retail partner is expected to lease a commercial unit in the project for one of its stores. That is an important detail: a project with a retail partner and a potential future tenant looks stronger than vacant land, and the increase in investment property under construction mainly reflected the Dimona land acquisition of NIS 15.5 million.

Still, Dimona is not 2026 cash flow. It is a development asset. It adds optionality, expands the project pipeline, and strengthens the company's southern exposure, but it also consumes capital before contributing to NOI. This is where created value must be separated from accessible value: the land and partner can improve the growth story, but creditors and shareholders will see the contribution only if the project is financed, built, leased and begins to produce income.

The second movement came after the balance-sheet date: the company is reviewing an issuance of Series B bonds, which, if issued, would be secured by liens over the company's rights in G T Center Eilat, Zion Square in Jerusalem and G T Center Ofakim. This is not completed financing, but it is a clear signal that the company is trying to open another debt layer on existing assets. On the positive side, if the market accepts the new series on reasonable terms, it could help extend duration and lower short-term pressure. On the other side, another series pledges more central assets, so it is not a free solution. It will be judged by debt cost, collateral ratio and whether the proceeds reduce the short-term debt layer rather than simply continue to fund development.

Strip remains a small but important warning signal. The prior Strip analysis treated the Series A coupon step-up not as a collapse in property value, but as friction between an asset with value and collateral that was still not legally perfected. The current quarter did not close that issue: the Series A coupon is 3.66% because by the end of 2025 the undertaking to register a first-ranking mortgage over Strip in favor of the trustee had not yet been registered with the Israel Land Authority. The additional amount is not large, but it is a reminder that G T Real Estate's financing question is not only how many assets it owns. It is also how quickly the company closes the legal and banking details that let those assets lower debt cost.

Conclusion

The first quarter improves the operating read on G T Real Estate, but it does not change the financing conclusion. NOI is rising, the income-producing assets are stable, and Ofakim is starting to look like part of the operating base rather than only an opening event. On the other hand, FFO under the ISA approach is still negative, available cash flow after investments, interest and repayments still depends on new short-term credit, and the working-capital deficit grew. The current read is therefore operationally positive, but still cautious on financing.

The strongest counter-thesis is that most of the short-term debt is tied to projects and assets that can be refinanced once construction stages are completed and the assets are moved into longer-term facilities, and that Series B can give the debt market a more orderly route during 2026. If that happens, the first quarter will look in hindsight like a transition stage in which NOI moved ahead of financing. But the proof points for the next few quarters are clear: signing long-term financing for projects, the terms of Series B if issued, completion of the Strip collateral registration, and continued improvement in FFO without another increase in short-term debt. Until then, the market is likely to read every NOI improvement through one simple question: are the assets already reducing financing pressure, or are they mainly giving the company more time to resolve it?