Gilad May in the First Quarter: Debt Rises Before the Pipeline Releases Cash

Gilad May looks better in the first-quarter income statement, but less comfortable once the analysis moves to cash, debt, and project timing. Revenue rose to NIS 32.8 million, operating profit rose to NIS 3.8 million, and net profit almost doubled to NIS 1.8 million, but operating cash flow was negative NIS 135.5 million after the Nof HaGalil land purchase. This does not automatically mean a liquidity problem, because the company meets its covenants and the board concluded that existing sources and expected project surpluses are sufficient for the next two years. Still, it sharpens the point left open in the previous annual analysis: the pipeline is growing faster than cash has actually reached the public-company layer. Modiin is close to completion, Netanya received an excavation and shoring permit, and Netivot continues to sell, but Nof HaGalil, Safed, and the northern transactions add funding layers before the older projects close the gap. The current read is therefore mixed and cautious: real operating progress is visible, but each new step also adds another capital requirement. Over the next four quarters, the market will not measure only quarterly net profit. It will look for Modiin surplus release, external sales momentum in Netanya and Netivot, and evidence that the northern moves do not consume the remaining cash flexibility.

Gilad May is a residential developer and construction contractor, but its economic model is not small. It buys land, advances planning and permitting, finances inventory, sells apartments, and recognizes revenue by progress. In this type of company, accounting profit can move long before cash reaches the company, and the projects themselves are both the source of value and the source of debt.

The right monitoring framework has three layers: how many apartments were sold, how much of the project has actually moved into execution, and how much cash remains accessible to the company after debt, project finance, guarantees, and payments to authorities. The first-quarter numbers show that clearly. Sales and construction activity are profitable, but the Nof HaGalil acquisition increased long-term land inventory to NIS 114.9 million and long-term loans to NIS 103.9 million. The company has no active listed equity line, so there is no daily share-price layer that can quickly absorb good or bad news. The real focus is on the bonds, covenants, and the ability of projects to release cash on time.

Profit Improved, Cash Did Not

Quarterly revenue rose 19.6% year over year, from NIS 27.4 million to NIS 32.8 million. The increase came from an unusual mix: apartment-sales revenue fell to NIS 20.6 million, while construction-services revenue jumped to NIS 12.1 million, mainly from work on the Ramot Yoram project in Netivot held through the associate. The quarter therefore looks stronger than the direct development activity alone.

Gross margin slipped slightly, from 24.8% in the comparable quarter to 23.2%, but operating profit rose 33.7% to NIS 3.8 million. Net profit rose to NIS 1.8 million, partly helped by NIS 571 thousand in equity-method profit. That is progress, but not a deep change in the model. Net finance expenses were NIS 2.1 million, and cash interest paid reached NIS 9.9 million, far above net profit.

The more important number is cash flow. Before the long-term land purchase, operating activity had already used NIS 30.7 million. After the Nof HaGalil land purchase, negative operating cash flow reached NIS 135.5 million. Financing cash flow of NIS 111.4 million closed much of the gap, but cash fell from NIS 32.2 million at the end of 2025 to NIS 10.6 million at the end of March.

Two cash frames need to stay separate. At the existing-business level, gross profit and operating profit improved. But on an all-in cash flexibility basis, meaning after land purchases, interest, repayments, and new financing, the company exited the quarter with less cash and more debt. Those are not the same picture.

The company meets all its financial covenants, which is more reassuring than the cash-flow line. Equity stood at NIS 113.6 million at the end of March, the Series B debt-to-collateral ratio was 63.6%, and the Series C debt-to-collateral ratio was 72.3% versus an 80% ceiling. But covenants are not a substitute for accessible cash. Accounting working capital was positive at NIS 99.3 million, while the 12-month working-capital measure was only NIS 10.8 million, down from NIS 18.5 million at the end of 2025. That is why the board had to discuss warning signs after negative operating cash flow, even though it concluded that this does not indicate a liquidity problem.

The Projects Are Not at the Same Proof Stage

The quarter did not give one answer for the whole pipeline. Modiin is already close to completion and remains the nearest source of surplus cash. Netanya is progressing in permitting but is still far from execution completion. Netivot is selling but remains early in construction. Safed and Nof HaGalil still consume capital before meaningful sales. This spread matters: the company can show more sales and more projects, but not every sale and not every land acquisition immediately improves liquidity.

In Modiin, the project is closer to cash, but the interpretation should stay disciplined: this is the source expected to help cover the final Series B maturity in September 2026, not free cash for every new move. In Netanya, the permit progress is positive, but the project still includes 116 unsigned apartments and all commercial space. In Netivot, sales progress is real, but the company's share of associate profit was only NIS 571 thousand in the quarter, while credit and loans around the project remain large relative to the associate's equity.

Safed is the clearest example of the gap between a positive financing event and the execution burden that remains. The February 2026 financing agreement improves the ability to move the project forward, but the project table shows NIS 388.3 million in remaining cost to complete, versus NIS 335.7 million at the end of 2025, and marketing has not yet begun. That does not prove deterioration, but it does mean the new financing does not close the story by itself. It mainly moves the company into a phase where execution and sales need to justify the capital already tied to the project.

Nof HaGalil and the North Expand Optionality and Funding Needs

The Nof HaGalil land purchase is the event that changed the balance sheet in the quarter. The company added land for 536 apartments at a cost of about NIS 105 million including VAT, funded through an NIS 86.1 million bank loan at prime plus 0.7% and NIS 17 million secondary financing at prime plus 4.5%. The secondary financing includes an LTV cap of 95%, with a 2% interest step-up if a breach is not cured. The collateral package also includes personal guarantees by the controlling shareholder, and in the secondary financing also a company guarantee.

This move can expand the future pipeline, but it does not generate revenue in the short term. It increases land inventory, adds debt, and requires the company to meet financing terms before there is a project that is selling and generating surpluses. For a leveraged residential developer, that is not a problem by itself. It is part of the model. What makes the quarter important is timing: Nof HaGalil is added while Modiin is still expected to serve as a repayment source, Netanya is still early in execution, and Safed is still before marketing.

The northern urban-renewal entry also deserves monitoring, not because the amounts are already large relative to the balance sheet, but because of incentives and control. In March, the company received 50% of two Kiryat Shmona project companies and paid a remaining balance of NIS 225 thousand. After the balance-sheet date, it signed a transaction to acquire half of another company active in northern urban-renewal projects, and committed to provide that acquired company with financing to repay previous loans of NIS 9.2 million plus 7% interest, in staged payments. The company also signed a services agreement with a relative of the controlling shareholder, including monthly management fees and entitlement to 25% of the company's share in the profits of the Kiryat Shmona projects.

This is not an argument that the transactions are negative. They may open a future growth channel in a region where the company wants to expand. But for bondholders and readers trying to understand 2026, they add an execution layer, a financing layer, and a governance layer before the existing projects have released enough cash. That makes them central to the monitoring framework, not a footnote.

Conclusions

The first quarter did not make the company weaker, but it also did not close the questions left open by the annual report. The company generated higher net profit, advanced Modiin, received an excavation permit in Netanya, and showed sales in Netivot. On the other hand, it exited the quarter with less cash, more debt, 12-month working capital of only NIS 10.8 million, and new projects that require funding before they prove sales and cash flow.

The current conclusion is that 2026 still looks like a funded transition year rather than a clean breakout year. The positive case depends on surplus release from Modiin, a step-up in sales and execution in Netanya and Netivot, and progress in Safed and Nof HaGalil without cost or funding slippage. The counter-thesis is that the company is doing exactly what a residential developer should do: buying land, financing construction, and waiting for value release at the end of the project. The answer should arrive relatively quickly. If Modiin cash arrives on time and the new projects stay under control, this quarter will look like a reasonable preparation stage. If not, it will mark the point where the pipeline grew before the balance sheet was comfortable enough to carry it.