Donitz in the First Quarter: Sales Are Moving Faster Than Revenue Recognition and Cash

Donitz opened 2026 with a quarter that provides a better demand proof, but still not a cash proof. The company sold 106 apartments during the quarter and another 35 apartments or purchase requests by shortly before the report was published, while it also began recognizing revenue from Maccabi Jaffa Phase B after receiving full building permits. This is exactly the direction the market needed to see after the previous annual analysis, where the key question was whether the backlog would move from marketing into revenue recognition and surplus releases. Still, most of the quarter sits in an interim layer: 69 apartments were sold in TRES Karol and Park Tel Aviv Block 3, projects where the conditions for revenue recognition have not yet been met, and the gross margin before amortization of purchase-price allocation fell to 18.7%. Operating cash flow was negative at NIS 72.0 million, mainly because of inventory, payables and financing, and the activity was funded in practice through a bond expansion and bank credit. The quarter therefore improves visibility for 2026, but the current read remains cautious: execution is advancing and sales are real, but shareholder value will be tested by the pace at which those apartments become recognized revenue, surplus releases and usable cash.

Sales Are Strong, But Not All Sales Have the Same Quality

Donitz is a residential developer, and in practice it operates as a conversion machine that turns land, signatures and urban renewal into revenue and surplus cash. That sounds simple, but in this sector the gap between a signed sale and free cash can be long: a permit, bank financing, evacuation, construction, IFRS 15 revenue recognition and finally surplus releases all need to line up. The relevant number is therefore not only how many apartments were sold, but which project they were sold in, where that project stands, and what is still needed before accounting profit reaches the cash account.

Shortly before publication, the company was promoting a pipeline of about 27,000 apartments across 55 projects and land plots, including 18 projects with approved zoning plans for about 8,500 apartments and about 3,000 apartments that had received building permits or committee resolutions for permits across 10 projects. That asset layer is large relative to current revenue, but in the first quarter only a small part of it sits close to the income statement. That gap is both the opportunity and the constraint: if the advanced project layer starts to unlock, profitability can look different; if not, the company will continue to consume funding before the backlog proves itself.

The headline number in the quarter is 106 apartments sold for a total of about NIS 218 million, including VAT and partners' shares. By shortly before publication, the number rose to 141 apartments, including purchase requests, for a total of about NIS 315 million. That is a much better sales pace than the comparable quarter, when 24 apartments were sold, and it came alongside the start of marketing at Park Tel Aviv Block 3.

But the quality of the sales is uneven. Of the 106 apartments sold, 57 were in Maccabi Jaffa Phase B, where full building permits allow the company to begin recognizing revenue for all signed contracts. Another 14 apartments were sold in TRES Karol and 29 in Park Tel Aviv Block 3, and those two projects still do not meet the conditions for revenue recognition. The commercial headline is therefore stronger than the immediate accounting contribution.

The profitability line also requires caution. Revenue rose to NIS 55.3 million from NIS 34.2 million in the comparable quarter, and reported gross profit rose to NIS 8.5 million from NIS 5.2 million. But before amortization of the excess purchase cost created by the Elad acquisition, the gross margin was 18.7%, down from 20.2% in the comparable quarter and 28.9% in 2025. The explanation mainly sits in Maccabi Jaffa, where affordable-housing apartments are a meaningful component and carry a lower gross margin than the company's other projects.

That is the key point about growth quality. Part of the revenue increase comes from construction services to partners in Maccabi Jaffa Phase B, where the company is entitled to cost reimbursement plus 7.5%. That is real revenue, but it is not the same as a regular apartment sale with a full developer margin. In addition, the average selling price in the project table is presented excluding VAT and without neutralizing any financing component, if one exists. The next few quarters will therefore not be judged only by apartment sales, but by how many of those apartments become recognized revenue, at what margin, and at what economic cost of sale terms.

Cash Still Funds the Interim Period

The first-quarter loss narrowed to NIS 2.2 million from NIS 3.6 million in the comparable quarter, but that is not the number that explains financial flexibility. In this type of quarter, the relevant frame is cash flexibility after all actual cash uses: operating cash flow was negative at NIS 72.0 million, investing activity consumed another NIS 13.6 million, while financing activity brought in NIS 94.8 million net. Before net debt raising and credit inflows, operations and investments consumed about NIS 85.6 million.

Working capital is the main reason for the gap. Buildings under construction and land inventory consumed NIS 56.2 million in the cash-flow statement, while receivables and contract assets consumed another NIS 6.6 million. Customer advances added only NIS 6.0 million. This is a normal dynamic for a residential developer that advances projects before deliveries, but it becomes material precisely when the company reports a strong sales pace: as long as sales sit in projects not yet recognized as revenue, or in projects that keep requiring investment, profit does not release cash at the same pace.

Liquidity improved compared with the end of 2025, but it still depends on active funding access. At the end of March, the company and its subsidiaries held about NIS 33 million in cash, NIS 145 million of unused credit facilities at the company level and NIS 135 million of unused facilities at Elad. Around the approval date of the financial statements, cash and unused facilities at the company and Elad totaled about NIS 262 million. At the same time, the consolidated 12-month working-capital deficit was NIS 424.7 million, and the company explains it mainly by land inventory classified as long term but funded by credit with less than 12 months left to maturity.

The company does not look close to a covenant breach. Consolidated equity stands at about NIS 1.014 billion versus a NIS 620 million bond covenant and a NIS 500 million bank covenant, the equity-to-net-balance-sheet ratio under the bond deed is 47% versus a 20% minimum, and net financial debt to net CAP is 46% versus a 77% ceiling. At Elad, the comparable ratio is 60% versus an 82% or 85% ceiling. This is therefore not an immediate distress read. It is a company that can fund the interim period, but still has to prove that the funding turns into revenue and surplus releases rather than just higher inventory and debt.

Projects Are Moving, But Most Value Is Still Before Full Execution

The first quarter and the period after it delivered several real milestones. Maccabi Jaffa Phase B received full building permits for all relevant lots in January and March, and in May a bank financing agreement was signed for Phases B and C. At TRES Karol, evacuation notices were sent to all rights holders after the conditions precedent were met, with a demand to hand over possession within 90 days. At Beit Hakerem, 100% of rights-holder signatures were completed, and after the balance-sheet date the Minister of Interior approved the city-owned apartment. These are not just project headlines. They represent a gradual move from urban renewal as a pool of apartments into a project portfolio entering execution.

Still, not every milestone contributes equally to the next reports. Maccabi Jaffa has moved into a stage where revenue begins to enter the income statement, but part of the project carries a lower margin because of affordable-housing units. TRES Karol and Park Tel Aviv Block 3 are already generating sales, but not yet revenue. Beit Hakerem looks more meaningful in potential terms, but as of the end of March it still did not show an engineering completion rate, and expected completion is the fourth quarter of 2031. Misgav Am in Tel Aviv received a resolution approving deposit of a zoning plan subject to conditions, in a 126-apartment project including 48 evacuation apartments where rights holders for about 91% had signed, but that path still runs through additional planning conditions.

Two post-balance-sheet events sharpen the capital side. The first is the option exercise at Rothschild Menora, where the project company will buy the partner's stake for NIS 138 million plus VAT, so if the transaction is completed it will hold 100% of the rights. That could increase the company's share in a Tel Aviv project, but it also moves the company from 50% exposure to full exposure in a project that still needs funding, time and planning progress. The second is a 45-day exclusivity agreement to examine a share-exchange transaction with Dan Equity Real Estate. At this stage there is no certainty of a binding transaction, so there is no value to insert into a model, but the direction matters: after becoming a company with no control core, the company is already examining a move that could change its asset base and share base.

Corporate governance also remains part of the story. After JTLV's exit, the management agreement with A.S.A.Z ended immediately on May 1, 2026, three directors stepped down and three independent directors began serving. This does not change Maccabi Jaffa or Karol, but it does change the oversight layer above a company funding long-cycle projects. In a period when the backlog requires more credit, more project financing and more capital decisions, the dispersed ownership structure has to prove that it does not weaken capital discipline.

Conclusions

The first quarter of Donitz improves the starting point for 2026, but it does not close the gap identified at the end of 2025. Demand exists, the project layer is moving, and Maccabi Jaffa Phase B is beginning to enter the revenue line. On the other hand, representative profitability is still affected by project mix, a large part of sales is still outside revenue recognition, and cash flow continues to consume cash before projects release surplus.

At this point, the company is moving from a backlog year into an execution year, but the first quarter mainly proves the sales side, not the cash side. The strongest counter-thesis is that the balance sheet and covenants leave enough room, funding is available, and the project backlog will begin to appear in revenue later this year. That is possible, but for the market to read 2026 as a better year rather than only a more funded year, the next reports need to show three things: sales in TRES Karol and Park Tel Aviv Block 3 beginning to turn into revenue, less negative operating cash flow despite ongoing inventory investment, and Rothschild Menora or new capital moves that do not impair funding flexibility for the other projects.