Rothstein in the First Quarter: Sales Held Up, Cash Still Funds the Project Gap

The first quarter did not change Rothstein's story, but it reset the timetable. Sales did not stop, the company says the security and rate backdrop has not materially hurt the average sales pace so far, and the pipeline kept growing through projects, construction contracts, and urban renewal milestones. But the reported economics came back down: without the 2025 gains from disposals, loss of control, and large revaluations, net profit almost disappeared and pre-tax profit fell to only NIS 1.1 million. The active bottleneck is cash and time, not an immediate demand collapse or a covenant breach. Operating cash flow was negative, cash fell sharply, and the company reports a 12-month working-capital deficit even though reported total working capital is still positive. For now, 2026 is a proof year: not whether Rothstein has a backlog, but whether that backlog moves into deliveries, collections, NOI, and repeatable profit quickly enough to justify the expansion.

Company Setup

Rothstein is a residential developer with a growing layer of urban renewal, income-producing real estate, and construction execution. This is not just an apartment-sales income statement. The business runs through a long path from signed and planned projects to permits, financing, construction, sales, delivery, and surplus cash release. Along that path, accounting profit can appear well before cash, especially when project progress and buyer payment schedules do not move together.

That point matters after 2025. In the annual analysis, the unresolved issue was whether the high reported profit would become cash and recurring earnings. The first quarter still does not provide that proof: activity is moving, while quarterly profit almost vanished and cash flow is still consuming cash.

The economic map is straightforward. Residential development still carries most revenue, income-producing real estate adds a smaller but important rent and revaluation layer, and the construction arm is starting to matter through Rothstein Engineering. Above that sits the holding in Anshei Ha'ir, which is no longer consolidated and is now accounted for under the equity method. That means part of the urban-renewal value no longer appears through consolidated revenue, but through associate profit or loss, loans, excess cost, and future ability to upstream cash to the parent.

Profit Nearly Vanished, but Sales Did Not Break

The easy headline would be a sharp decline in revenue and profit. That is true, but incomplete. Revenue fell to NIS 84.3 million from NIS 197.8 million in the comparable quarter, and gross profit fell to NIS 20.7 million from NIS 55.3 million. Operating profit was NIS 12.3 million, while finance expenses reached NIS 17.9 million and finance income reached NIS 7.5 million. After associate losses and tax, group net profit was only NIS 65 thousand, and profit attributable to shareholders was NIS 129 thousand.

Part of the decline comes from a messy comparison base. The comparable quarter still included Anshei Ha'ir's revenue in the consolidated accounts, while from July 2025 it is shown as an associate. In addition, the first quarter of 2026 did not include disposal gains like those that lifted 2025. So the decline does not prove that the business is broken, but it does prove that the high 2025 profit was not a recurring quarterly base.

The segment split makes the point clearer. Residential development generated NIS 86.7 million of revenue and NIS 10.2 million of segment result. Income-producing real estate generated NIS 5.8 million of revenue and NIS 11.3 million of segment result, but that included NIS 6.5 million of fair-value gains. The income-producing layer is improving, including through Tnuvot, but it is not yet large enough to carry the company's finance costs and overhead on its own.

Payment Terms Still Filter Sales Quality

In the first three months, the company sold 75 apartments for roughly NIS 180 million, of which 57 apartments and roughly NIS 151 million were Rothstein's share. After quarter-end and through the report publication date, it sold another 22 apartments for roughly NIS 45 million, of which 16 apartments and roughly NIS 32 million were Rothstein's share. That prevents a simple conclusion that marketing has stopped.

But sales quality still needs filtering. In the project tables, the company says the average price per square meter is calculated after deducting financing benefits such as payment spreads, exemption from linkage, or contractor loans. In other words, even when the sale price looks stable, it is already presented after adjusting for the economic cost of customer support. That continues the issue raised in the sales-financing analysis: signed sales pace is not the same as cash quality.

The better signal is that some projects are moving forward. Beit Shemesh Phase B reached a 58% marketing rate and 10% engineering completion, with expected construction completion in 2027. Gaulim in Ramat Hasharon is still farther away: marketing is 11%, engineering completion is still 0%, and construction completion is expected in 2028. In the Mexico Jerusalem project, after quarter-end the company signed project financing, issued evacuation notices, and is preparing to start construction after evacuation. These are not free cash yet, but they shorten the path from a listed project to a project that can recognize revenue and release surplus cash.

The company also says that during 2026 and through the report date there was no material adverse change in the average sales pace, despite some impact on marketing channels from the security situation. That matters, but it is not enough to prove demand quality. The next reports need to show whether sales pace can hold without increasing the economic cost of financing benefits and payment deferrals.

Cash Is the Bottleneck, Not Covenants

Liquidity is the least comfortable part of the quarter. Operating cash flow was negative NIS 67.8 million, investing cash flow was negative NIS 11.3 million, and financing cash flow contributed almost no net cash. Cash and cash equivalents fell from NIS 137.9 million at the beginning of the year to NIS 58.5 million at the end of March.

The cash framing matters here. All-in cash flexibility checks what happened to cash after operating activity, investments, repayments, equity inflows, and buybacks. On that basis, the quarter was weak: cash fell by NIS 79.4 million. This is not normalized cash generation from the existing business. It is a check of what remained after the real cash uses of the period.

The company does not look close to a covenant breach. The adjusted equity ratio in the covenant table is 42.08%, and equity including minority interests is NIS 826.3 million, far above the thresholds in the bond series and bank agreements. The yellow flag is therefore not an imminent financial breach. The yellow flag is the need to extend credit, complete project financing, and turn sales and planned projects into surplus cash on time.

After quarter-end, the company issued NIS 30 million of commercial paper and extended the series so that total commercial paper reached NIS 90 million, due in May 2027. At the same time, it nearly completed a NIS 10 million buyback program, with about NIS 9.9 million bought back by the report publication date. The exercise of Clal options brought in about NIS 25.9 million during the quarter, so the company both received new equity and returned part of the capital to the market through buybacks. That signals confidence, but it also uses cash at a time when new projects require more funding.

More Backlog for 2026, but Also More Execution Obligations

Several post-quarter events expanded the activity pipeline. In Afula, the company signed agreements to acquire rights for about 500 apartments, including 200 apartments in a cash purchase transaction and 300 apartments in a combination transaction. Under the cash purchase, the company committed to pay NIS 66 million in four installments, with NIS 20 million paid at signing and deposited in trust. Assuming project completion, the company estimates revenue of about NIS 807 million and costs of about NIS 689 million. This can expand the backlog, but it starts with cash outflow and depends on plan approval, re-parcellation, and lot allocation.

The second event is the construction contract in Kiryat Malachi. Rothstein Engineering, a 75%-held subsidiary, signed an execution agreement for the Karmi Hanadiv project for about NIS 650 million, linked to the construction input index. The contract can turn the construction activity into a more meaningful revenue engine, but it is not the same economics as full project development. Cash will come according to milestones and work progress, and the company will provide customary guarantees. The result is more revenue visibility, together with execution responsibility and project working capital.

At Anshei Ha'ir, there was a step that improves value accessibility, but still inside the associate layer. An Anshei Ha'ir subsidiary signed with Menrav to sell 49% of the rights and obligations in the La Guardia 35-45 project in Tel Aviv for NIS 32 million, alongside reimbursement of about NIS 3.5 million of past investment and the transfer of 49% of Menrav's rights in two Ibn Gabirol projects. The company expects to record NIS 8 million to NIS 10 million of pre-tax profit in the second quarter from completion of the agreements. That is progress, but not every shekel immediately reaches the parent company's cash account, and the Ibn Gabirol agreements remain subject to conditions through December 31, 2026.

At the same time, Anshei Ha'ir still has not proved repeatable profit. In the first quarter it generated NIS 45.6 million of revenue, NIS 6.2 million of gross profit, an operating loss of NIS 0.3 million, and a net loss of NIS 4.6 million. Rothstein's share of the associate loss, after amortization of excess cost, was NIS 3.6 million. That reinforces the conclusion from the Anshei Ha'ir value-accessibility analysis: the value exists, but the road from that value to available cash for Rothstein's shareholders still runs through execution, profitability, and future distributions.

Conclusion

The current read on Rothstein is mixed, but sharper than after the annual report. On the positive side, sales pace has not broken, projects such as Beit Shemesh, Mexico, and Lod are moving closer to execution, Tnuvot and the income-producing layer are starting to contribute more, and the company is adding deals that can expand the revenue base in coming years. On the negative side, repeatable profit is still unproven, cash flow is negative, cash declined, and the company depends on continued access to credit and on turning projects into surplus cash.

The strongest counter-thesis is that the first quarter is mainly a timing bridge while the company builds a deeper backlog for 2027 and 2028. That is plausible, but it needs proof. In the next reports, the market will look for three signs: less need for financing benefits to maintain sales, improved operating cash flow or at least slower cash burn, and progress by Anshei Ha'ir and Tnuvot from accounting value to cash, NOI, or recurring profit. Without that, the broad backlog remains an important asset, but one that still requires funding before it pays back.