Eshel Hayarden in the First Quarter: Mavo'ot Dromim Moves Toward Sales, but Cash Still Depends on Project Finance
Eshel Hayarden opened 2026 with a smaller loss and real progress at Mavo'ot Dromim: project finance, excavation permits, and binding post-balance-sheet sales. Still, operating cash flow remained negative, the financing terms require sales and a full permit, and most of the value is still inside projects, collateral, and funding structures.
Eshel Hayarden moved in the first quarter of 2026 from a stage where Mavo'ot Dromim was mostly expensive financed land into a stage with project finance, defined opening conditions, and binding sales after the balance-sheet date. That is a real change because it connects the largest asset in the backlog to an execution path and reduces part of the risk highlighted in the previous annual analysis. But the change has not yet reached the company's cash box as free cash: operating activity used NIS 2.1 million, the rise in cash came from financing activity, and the project finance agreement itself includes sales thresholds, a full building permit, and a profitability floor that may require additional equity if margins erode. First-quarter revenue fell 60.8% because older construction-service projects ended, but the revenue base is starting to move toward apartment sales in Nofit and equity-method profit rather than only engineering management and supervision services. This is a better opening to the proof year, not the proof itself. Over the next few quarters the company has to show that Mavo'ot Dromim moves quickly from sales to eligible buyers into collections inside the project account, that KAVA keeps advancing rather than remaining only an investee-company profit, and that the new funding is more than a debt-source reshuffle.
Company Overview
Eshel Hayarden is an Israeli residential development and construction company, but at this stage it is less a recurring earnings company and more a leveraged project platform moving between land, permits, sales, and project finance. Its economic engine is not the quarterly revenue line by itself. The real engine is the ability to turn land inventory and investee-company projects into sales, recognized profit, and eventually surplus cash that can reach the bond-issuer level.
The company does not trade like a regular listed equity with an active market-cap screen, so the analytical screen is closer to a bondholder screen: asset quality, working capital, covenant headroom, and what can reach the company before debt maturities. That is also what makes the first quarter relevant. The NIS 0.4 million net loss is not large, but it sits next to a much larger change in the financing structure of Mavo'ot Dromim and in the project map.
The project map shows the story clearly: the company has 3,831 residential units in its portfolio, but only 321 units are in projects under construction. Another 1,734 units are in projects expected to start construction within 12 months from the report date, and 1,776 additional units sit on approved-zoning land where the expected start is further out. The paper value is large, but most of it still depends on finance, sales pace, permits, and execution timing.
Mavo'ot Dromim Is Now More Binding
Mavo'ot Dromim is the asset that changes the quarter. In January 2026 the company received permits for excavation, shoring, and foundation works in the 207-208 compound, while in the 203-205 compound it received approval of Appendix G4 and is waiting for excavation, shoring, and foundation permits. Following that progress, the company reclassified the project from non-current land inventory to inventory under construction within current assets. This is not only an accounting move. It marks a move from land waiting for a permit into a project starting to enter execution.
In March 2026 the company signed a project finance agreement with an institutional lender for the unified project, which includes 783 residential units and commercial space. The agreement includes a Sale Law guarantee facility of about NIS 1.5 billion and a credit facility of up to NIS 250 million, through November 30, 2029. The lender's zero report estimates project revenue at about NIS 1.535 billion, project costs at about NIS 1.360 billion, and expected profit at about NIS 175 million, before VAT.
Those numbers matter, but the opening conditions matter just as much. To open the financing stage, the company needs pre-sales of 75% of the discounted-price inventory and 5% of the free-market inventory, actual equity investment of 10% of project costs, a lawful building permit, and registration of customary collateral. The required equity has already been invested, but the full permit and additional sales still determine timing. Until then, the company can issue vouchers and collect buyer payments into the project account, but surplus withdrawals will come only after debts and obligations to the lender are repaid.
After the balance-sheet date, 166 binding sale agreements were signed at Mavo'ot Dromim for about NIS 233.1 million before VAT, and about 67 additional registrations may mature into contracts in the coming quarter. This is no longer only a forecast. It is a first signal that the project has begun to meet real demand. Still, 166 contracts represent about 26.5% of the 627 discounted-price units, and about 21.2% of the unified project's 783 total units. To move into full financing, the company needs more pace.
The yellow flag is the profitability floor. The project finance agreement requires project profitability not to fall below 11% of cost, and if it does, the company must inject additional equity to restore that profitability level. In a large residential project beginning execution during a period of delays, labor shortages, and changing costs, that clause connects execution directly to liquidity. Mavo'ot Dromim is advancing, but the lender is already defining the margins within which the company has to operate.
Earnings Improved, but Revenue Quality Still Needs Proof
The first quarter looks weak on the revenue line: only NIS 5.2 million, compared with NIS 13.2 million in the parallel quarter, down 60.8%. But the simple comparison is misleading. In 2025 the company was still benefiting from the Terasa and Ma'alot projects, where it acted as the execution contractor. Once those projects ended, revenue from engineering management and supervision services dropped from NIS 9.9 million to NIS 1.7 million.
The positive side is that gross profit moved from a NIS 0.2 million loss to a NIS 2.4 million profit, and the company reached operating profit of NIS 0.6 million compared with an operating loss of NIS 2.1 million in the parallel quarter. Apartment sales in Nofit contributed NIS 3.35 million of revenue against NIS 2.48 million of cost, a gross margin of about 26%. That is still too small to prove a full change, but it looks healthier than revenue held up mainly by service activity, management, and supervision.
The next proof depends on whether 2026 revenue comes from projects moving toward sales and delivery, rather than from service activity that tends to be volatile. Here the quarter begins to answer one of the open questions from the related-party quality analysis: engineering management and supervision services no longer hold up the revenue line the way they did in 2025. On the other hand, the quarter still does not provide a full split proving that the related-party circle has declined as a material factor across the profit and collection chain.
KAVA adds another proof layer, but the progress there is measured. In the main project, cumulative sold units reached 62 by the end of March, up from 60 at the end of 2025, and the marketing rate rose from 22% to 23%. Expected revenue from signed contracts reached NIS 131.8 million out of total expected revenue of NIS 581.6 million. Diurim, in which the company holds 50%, posted quarterly net profit of NIS 1.1 million, and the company's share of Diurim profit was NIS 0.5 million. That is progress, but not a jump. The question raised in the KAVA analysis remains nearly the same: how quickly profit at the project and investee-company level becomes accessible surplus cash for the public company.
Funding Buys Time, Not Free Cash Flow
Working capital looks much better: current assets exceeded current liabilities by NIS 83.6 million, compared with a deficit of NIS 284.8 million at the end of March 2025. That is a sharp improvement, but it has to be read together with the balance-sheet structure. Current bank credit fell from NIS 240.3 million at the end of 2025 to NIS 31.6 million, while current loans from others rose from NIS 62.3 million to NIS 297.1 million. A large part of the pressure did not disappear. It moved into another funding framework around project finance and projects.
All-in cash flexibility after actual cash uses is still limited. Operating cash flow was negative NIS 2.1 million, mainly because of supplier repayments and inventory growth. Investing activity used another NIS 8.9 million, mainly because of higher project-account deposits and a loan to investee companies. The increase in cash from NIS 15.1 million to NIS 22.6 million came from positive financing activity of NIS 18.5 million, not from the business itself.
The controlling shareholder is still part of the liquidity map. In March 2026 it transferred NIS 8.9 million to the company, and the debt balance for the Terasa project stood at NIS 9.1 million as of the financial-statement approval date. This is not necessarily a red flag because small developers often use owner support in transition periods. But here it does remind us that the move from financed projects to surplus cash in the company has not yet been completed.
The covenants do not point to an immediate crisis, but some layers have limited headroom. Equity as defined in the bond deeds stands at NIS 109.5 million versus a NIS 65 million requirement, and the equity-to-balance-sheet ratio is about 20.5% versus a 15% floor. By contrast, the collateral-to-debt ratio for Series B is 133.37% versus a 130% requirement. That is narrow headroom of 3.37 percentage points, mainly because Series B relies on pledged KAVA surpluses. KAVA's progress is therefore not only a future-profit story, but also a bondholder-comfort variable.
Conclusions
Eshel Hayarden's first quarter supports a cautiously positive read: Mavo'ot Dromim is no longer only a large land position weighing on the balance sheet, but a financed project with first sales and a path toward collections. That is the change the market and bondholders needed to see after 2025. But the company still has not proven that projects are releasing cash at the issuer level. Operating cash flow is negative, cash rose because of financing, and the Mavo'ot Dromim profitability floor together with narrow Series B collateral headroom keep project execution at the center.
The current conclusion is that the company has moved from a promise year into an execution year, but execution proof has only begun. If the 166 Mavo'ot Dromim contracts turn into meaningful collections inside the project account, if the additional registrations are signed, and if KAVA keeps moving toward accessible surplus cash, this quarter will look in retrospect like an important transition point. If sales pace stalls, execution costs pressure project profitability, or cash flow continues to rely mainly on financing and owners, the accounting progress will look less strong. Over the next 2 to 4 quarters, three numbers matter most: Mavo'ot Dromim signing pace, operating cash flow after investments and debt payments, and the Series B collateral-to-debt ratio.
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