Netanel Menivim in the First Quarter: Ariel Revaluation Profit Does Not Fix Beit Gaon Rent Collection

In the first quarter of 2026, Netanel Menivim gives only a partial answer to the question left open after 2025: the debt structure looks cleaner and profit returned, but cash still depends on assets that are not yet producing stable rent. The company reported net profit of NIS 5.9 million, compared with a NIS 4.4 million loss in the comparable quarter, but without an NIS 8.8 million fair-value gain in investment property it would have remained at a pre-tax loss of roughly NIS 1.1 million. Ariel became the main source of the accounting improvement, after a jump in value to NIS 31.4 million on planning potential, but that value still needs approvals, permits and execution. Beit Gaon, the asset that was supposed to shift in 2026 from restructuring to rent collection, contributed NIS 1.23 million of rental income in the quarter, yet the May 2026 rent payment of NIS 930 thousand was not paid on time and made the proof point more complicated. At the same time, the working-capital deficit fell to NIS 41.0 million from NIS 63.8 million at the end of 2025, mainly because of refinancing in Holon, but the company still needs to refinance about NIS 24.0 million around Hag’dud Ha’Ivri and another NIS 27.1 million around HaMishtala and Ariel. The quarter therefore improves the accounting picture and the maturity profile, but it still does not prove that the planning and hotel layer has become an independent cash source.

Company Overview

The company is a relatively small income-producing real estate company, but it is not only a holder of ordinary rental assets. The operating base includes four rental properties: Lot 111 in Holon, Tamar Park in Rehovot, Beit Gaon in Tel Aviv, and an office and retail building in Ariel. Alongside those assets are a building under construction in Tel Aviv, land in Holon and Tel Aviv, a holding in Baggio Enterprise, and agreements or options to acquire additional land.

The economic engine here combines assets, revaluations and leverage. The income-producing assets are supposed to generate rent that supports the debt, but a meaningful part of the upside sits in land and planning rights that still need to become permits, construction, leasing or sales. In this type of company, accounting profit is only the starting point. The more important question is how much of that value is accessible to shareholders through rent, stable financing or disposal, and how much remains tied to appraisals and short-term credit.

The move to quarterly reporting adds a useful monitoring layer. From 2026, the company no longer qualifies as a small corporation because the par value of its bonds exceeds NIS 200 million, and it is also committed to quarterly reporting to Series A bondholders. For a company with a market cap around NIS 90 million, a balance sheet of NIS 675.8 million and equity of NIS 175.2 million, the first full quarterly report matters: investors can now see faster whether asset value is turning into cash, or mainly increasing on paper.

Profit Came From Revaluation, While Beit Gaon Still Needs Cash Proof

The headline number is the shift to NIS 5.9 million of net profit, but this was not a quarter in which the operating layer alone covered the financing structure. Rental and management-fee revenue rose to NIS 7.25 million, up 7.7% year over year. Gross profit rose to NIS 6.21 million, but after general and administrative expenses and before fair-value gains, the business produced about NIS 5.24 million. Against net finance costs of roughly NIS 6.32 million, pre-tax profit before revaluations was negative by about NIS 1.1 million.

Ariel explains the gap. The company acquired the leasehold rights in land at 6 Uri Brown Street in Ariel in early 2025 for about NIS 20 million plus VAT, financed with a NIS 14.7 million loan at prime plus 1.1%. The current asset is an office and retail center of about 897 square meters, with expected annual rental income of only about NIS 650 thousand. In March 2026, the special planning and building committee in Ariel recommended approving a new detailed plan that, subject to approval, would allow the existing center to be demolished and replaced with about 14,360 square meters: about 4,000 square meters for retail and employment, and above them about 10,360 square meters for residential use.

The fair value of Ariel rose to NIS 31.4 million, from NIS 21.6 million at the end of 2025, and the company recorded a fair-value gain of about NIS 9.7 million on the asset. This is a real value point, but it also explains why the quarterly profit needs caution. The current income of the asset is still relatively small, and the new value depends on planning potential, approval by the higher planning council, a building permit, construction costs and developer profit. The value uplift is already in profit, but the path to actual rent or sale proceeds is still long.

Beit Gaon Moved Into Revenue, Then Collection Became Disputed

In the previous 2025 analysis and the Beit Gaon follow-up, this asset was the central 2026 proof point. The reason was simple: Beit Gaon already had a new lease, but the end of 2025 still did not show cash rent collection that repaired the issue. The first quarter moves the story one step forward, and then immediately adds a new yellow flag.

In the first quarter, the company recognized about NIS 1.23 million of rental income from Beit Gaon, after recognizing about NIS 3.40 million in 2025. The asset was delivered to the tenant on May 1, 2025, and the tenant is in advanced stages of adaptation and renovation work required to operate the hotel. Income has started to appear in the income statement, which is an improvement over a year in which the asset was mostly a source of uncertainty.

But the missing proof was not accounting recognition by itself. The May 2026 rent payment, totaling about NIS 930 thousand, of which the company’s share is 50%, was not paid by the tenant. The tenant claimed force majeure following Operation Shaagat Ha’Ari and hotel occupancy indicators that allegedly give it the right to demand a rent reduction under the lease mechanism. The company believes the claims have no merit and is acting to arrange payment. The partnership holds an autonomous bank guarantee equal to three months of rent, as well as a guarantee from the tenant’s parent company.

This does not mean Beit Gaon has failed. There is a lease, there are guarantees, and the company rejects the tenant’s claims. But the proof point has changed: the issue is no longer only whether the tenant completes adaptations and opens the hotel, but whether it pays full rent without turning the reduction and force-majeure mechanisms into a recurring dispute. If the dispute continues, Beit Gaon’s revenue will remain stronger in the income statement than in cash.

Holon Refinancing Bought Time, But Did Not Eliminate Short Debt

The working-capital deficit fell to NIS 41.0 million, a clear improvement from the end of 2025. A meaningful part of that improvement came from the Holon move: in March 2026 the company received a NIS 35.0 million loan at prime plus 1.95%, part of which was used to repay a NIS 28.0 million loan secured by the land. The new loan principal is due in one payment after three years, with interest paid quarterly.

That is positive because it replaces short debt with a structure that better fits the asset. But it does not solve the entire financing layer. At the end of March 2026, current liabilities were NIS 77.3 million against current assets of NIS 36.3 million. Within that, current bank and other credit stood at NIS 57.3 million, alongside NIS 6.6 million of current bond maturities and a NIS 3.0 million current loan from a related party.

The company itself points to what still needs to happen: refinancing about NIS 24.0 million of short-term credit secured by the Hag’dud Ha’Ivri project, and another NIS 27.1 million of short-term loans related to the HaMishtala project in Tel Aviv and the Ariel project, which are renewed from time to time. This is better than the end of 2025, but it is still not a position where immature assets finance themselves.

The cash frame here is all-in cash flexibility after actual cash uses: operating cash flow, investments, debt movements, interest and leases. The company generated NIS 2.8 million of operating cash flow in the quarter, but invested NIS 23.0 million, mainly in completing the Beit Shean acquisition, additions at Sayerim, Beit Gaon renovation work and advances in Yarkonim. Financing activity contributed a net NIS 17.2 million, mostly through new debt, and quarter-end cash fell by NIS 3.0 million to NIS 22.6 million. This was therefore not a quarter of broad cash surplus. It was a quarter in which the company continued to buy financing time while trying to move assets toward a more income-producing stage.

The Series A bond covenants also do not currently point to immediate stress. Equity was NIS 175 million, compared with a NIS 90 million minimum for acceleration and NIS 110 million for additional interest. Equity to total assets was 26.82%, compared with 16% for acceleration and 18% for additional interest, and LTV was 75.49% compared with an 82% ceiling. There is headroom, but the LTV is closer to its limit than the equity ratios are, so the values of the pledged assets and the ability to maintain income from them remain especially relevant.

Conclusion

The first quarter of 2026 is better than the 2025 year-end pressure implied, but less clean than the net profit alone suggests. Profit received a strong boost from Ariel, finance costs fell versus the comparable quarter, and the company refinanced part of its short debt. Still, the business before revaluations did not cover finance costs, Beit Gaon already entered a collection dispute, and quarterly investments were far larger than operating cash flow.

2026 needs to provide three proofs: collecting the May rent at Beit Gaon, moving Ariel and Holon beyond planning-stage value, and refinancing the short debt around Hag’dud Ha’Ivri, HaMishtala and Ariel. In Holon Lot 111, after quarter-end a decision was received to approve for deposit, subject to conditions, a plan adding about 4,500 square meters for retail and employment. The conditions need to be met within seven months, and the impact has not yet received an updated valuation.

The current read is that the company has moved from a pressure year into a proof year. The positive case will strengthen if Beit Gaon starts paying consistently, if the debt around Hag’dud Ha’Ivri, HaMishtala and Ariel is refinanced without unusual cost, and if the value creation in Ariel and Holon moves from approvals to rent, sale proceeds or more stable financing. The counter-thesis is that the market is still right to apply a deep discount to the assets, because a large part of the value depends on planning, collection and continued access to debt. In the short term, the market is likely to focus less on net profit and more on whether the Beit Gaon payment is resolved, whether short debt continues to decline, and whether fair-value gains start receiving cash backing.