Netanel Group in the First Quarter: Modiin Starts Bringing Cash, Funding Still Sets the Pace

Netanel Group gives investors better evidence in the first quarter of 2026 that permits are starting to turn into sales and buyer cash, but not yet evidence that the company has moved beyond the funding layer that still constrains the story. Modiin is the important progress point: the building permit was received, 69 housing units were sold by the end of March, and advances from apartment buyers rose to NIS 42.1 million, mainly due to receipts from that project. At the same time, the revenue jump to NIS 144.0 million does not by itself prove a clean run-rate, because about NIS 95 million came from the New York land disposal, a transaction that actually created a gross loss of about NIS 14 million. Cash increased to NIS 127.3 million, but the increase came mainly from NIS 84.4 million of financing cash flow, including the Leumi Partners private placement and new loans. The quarter therefore closes part of the monitoring list from the prior annual analysis, mainly around Modiin, but not the central question: whether sales and project surpluses can start reducing pressure on a balance sheet that still carries high debt, meaningful interest expense and limited headroom above distribution constraints.

Company Snapshot

Netanel Group is a residential developer. Its economics are not measured only by profit recognized in the income statement, but mainly by its ability to move projects from permit to sales, from sales to collection, and from collection to surplus releases from banks and partners. In this model, leverage, project equity, bank financing, sales pace and payment terms matter at least as much as the number of housing units.

At the start of the quarter, the company still carried the same constraints flagged in the prior annual coverage: permits that had to become execution, sales that had to become cash, and an equity-to-balance-sheet ratio that had to move further away from the pressure area. The first quarter improved part of that picture. The company reports involvement in planning and construction of about 2,944 housing units, of which its share is about 2,079 units. Projects under construction and marketing include 684 units, of which 327 had been sold by the end of March. Planning-stage projects include another 2,260 units, with 1,626 units in the company’s share.

The number that matters most is Modiin. In the Kramim neighborhood project, the building permit was received in February 2026, and the company sold 69 units by March 31 out of 88 units in the project. Of the project total, 70 units are marketed under the Mehir Matara track and 18 units are marketed under free-market prices and terms. After receiving the permit, the company signed sale agreements totaling about NIS 129 million including VAT for 64 of the 70 Mehir Matara units, and by the report date it had also received four free-market registrations totaling about NIS 25 million including VAT.

That progress matters because it changes the quality of the story compared with the end of 2025. Previously, it was easy to read the company as a large planning pipeline still waiting for permits, financing and cash collection. Now there is at least one major project where permit, marketing and receipts are beginning to connect. Still, the quarter does not yet show clean profitability or a clear decline in leverage. It shows part of the pipeline moving into a more practical stage, together with a reminder that the practical stage demands capital, credit and patience.

Revenue Jumped, Profitability Did Not

Quarterly revenue reached NIS 144.0 million, compared with NIS 38.9 million in the parallel quarter. That is a roughly 270% increase, but the source changes the interpretation. About NIS 95 million of revenue came from the sale of the West 54 land in New York. In other words, most of the revenue increase came from an asset disposal rather than normal progress in Israeli residential projects.

This does not mean the operating quarter was weak. In projects under construction and marketing, the company sold 81 units from the beginning of the year through the end of March, including 69 in Modiin. From April 1 through the report approval date, it sold another 12 units totaling about NIS 24 million in the company’s share. But accounting revenue this quarter is not the best way to understand activity quality, because it mixes project sales with an asset realization that hurt profit.

Gross profit turned into a gross loss of NIS 5.6 million, compared with gross profit of NIS 7.7 million in the parallel quarter. The main reason is the New York land sale: the transaction closed at USD 30 million, but its gross-profit impact was a loss of about NIS 14 million, and its comprehensive-income impact was a loss of about NIS 6 million. At the same time, the project table for projects under construction and marketing shows positive gross profit of about NIS 5.1 million in the reporting period from sold units according to construction progress.

That gap is the important read. Reported profit and loss looks worse because of the U.S. disposal, but even without that disposal the company still needs to show that Modiin, Beitar, Bartonov and the rest of the portfolio can produce repeatable gross profit. The NIS 25.0 million net loss is not only a one-off disposal story: net finance expenses almost doubled to NIS 13.4 million, and selling and marketing expenses rose to NIS 4.1 million as marketing and execution advanced.

Cash Improved Through Modiin and Funding

Cash flow from operations was positive NIS 3.0 million, compared with negative NIS 84.2 million in the parallel quarter. That is a meaningful change, but it needs to be broken down. On the positive side, advances from apartment and land buyers added NIS 33.5 million to cash flow, and the balance-sheet line rose to NIS 42.1 million from NIS 8.6 million at the end of 2025. The company attributes the increase mainly to receipts from the Modiin Kramim project. That is real progress against one of the core monitoring points from the previous year.

On the other side, customers and accrued income still consumed cash: the increase in that line reduced cash flow by NIS 15.0 million. Sales are beginning to bring advances, but part of the revenue and progress still does not enter the cash account at the same pace. In addition, the company paid NIS 13.8 million of interest and commissions during the quarter. That is not a side detail for a developer with NIS 930 million of prime-linked loans when the Bank of Israel rate stood at 3.75% at the report approval date.

All-in cash flexibility after actual cash uses improved in the quarter, but not because operating cash flow alone was strong enough. After NIS 3.0 million of operating cash flow and NIS 3.7 million of investment cash inflow, the large movement came from financing: NIS 84.4 million net. That included NIS 45.0 million of securities issuance proceeds, NIS 86.4 million of long-term loans, and repayments plus lower short-term credit that offset part of the inflow.

The Leumi Partners transaction explains a large part of the improvement, and also its price. The company issued 3.024 million shares at NIS 14.88 per share and received NIS 45 million, alongside three series of warrants. In addition, Leumi Partners provided a NIS 45 million five-year loan at a fixed annual interest rate of 8%, with principal due at the end of the term and semiannual interest payments beginning on June 30, 2026. That money extends the company’s runway, but it is not free: it dilutes shareholders, adds warrant rights, creates a financial liability for part of the warrants, and adds fixed interest into a structure that is already rate-sensitive.

Debt Still Sets the Market Read

The quarter-end balance sheet looks better at the cash level, but less comfortable when viewed through the ratios. Cash and cash equivalents rose to NIS 127.3 million, but total liabilities rose to NIS 1.62 billion, and bank and financial credit plus bonds remain the company’s center of gravity. Balance-sheet funding sources include NIS 930.2 million of bank and financial credit, NIS 484.7 million of bonds, and only NIS 304.4 million of equity.

The covenants do not point to a breach, but they do keep every operating quarter important. The equity-to-balance-sheet ratio was 18.7%, above the 16% interest step-up level and above the 15% immediate-repayment trigger after two consecutive quarters, but the bond distribution restrictions require the ratio not to fall below 17% after a distribution. Net financial debt to net CAP was 80.3%, compared with an 85% immediate-repayment ceiling and, for Series 15, a distribution restriction if the ratio rises above 82% after the distribution.

The placement and loan therefore cannot be read only as a vote of confidence. They also show the company’s need to buy time until projects release cash. In Beit Dagan, the company signed a conditional agreement to acquire an option for 202 units for a potential NIS 27 million consideration, subject to receiving an allocation financial specification from the Israel Land Authority within 18 months, with a possible 180-day extension. In Cyprus, the company acquired land in Larnaca for about EUR 11.5 million, carrying building rights of more than 10,000 square meters. These moves may expand the pipeline, but they also add capital requirements before they release surplus cash.

The governance layer is still unresolved. Internal control over financial reporting as of March 31, 2026 remained ineffective due to a material weakness in the related-party transaction process. The controlling shareholder injected the required funds and assumed expenses of about NIS 1.1 million, so the direct financial damage is small relative to the balance sheet. The issue is different: in a company where transactions, projects, partners, guarantees and financing move through several layers, identifying and approving related-party transactions is not a technical matter. Until the company shows a working fix over another reporting cycle, it will remain a trust constraint around project progress that would otherwise read cleaner.

What Must Happen Next

The first quarter improves the probability that projects are starting to move, mainly in Modiin, but it does not fully change the company-quality read. The positive story is that one project has moved from permit to sales and receipts, and the company entered the second quarter with a much larger cash balance. The negative story is that profitability was hurt by an asset disposal, finance expenses are still heavy, and headroom above bond and distribution constraints is not wide enough for a relaxed balance-sheet read.

Over the next two to four quarters, three things matter. First, Modiin advances need to prove they are not a one-time event, but the beginning of consistent collection that narrows the gap between sales and cash. Second, the expected Beitar Illit permits for about 184 additional units need to arrive and move the project from rights into execution. Third, the Leumi Partners cash and new loans need to buy enough time for lower relative leverage, not just enlarge the cash balance temporarily.

The strongest counter-thesis says the company has already crossed the hard point. It has many projects, Modiin proves demand, additional Beitar permits were received, and the cash balance jumped. That argument is more reasonable after this quarter than it was at the end of 2025. But it is still early. As long as much of the improvement comes from new financing and an asset sale that created a loss, rather than recurring project cash after interest and investment, the market is likely to keep reading the company through collections, covenants, permits and internal-control repair, not only through the number of units sold.