Rami Levy Real Estate in the First Quarter: FFO Improves While the Development Pipeline Still Consumes Cash

Rami Levy Real Estate did not report a weak operating quarter. On the contrary: total NOI rose to NIS 27.8 million, management FFO rose to NIS 17.5 million, and rental and apartment-sale revenue improved year over year. But the first quarter also sharpens the issue left open after the previous annual analysis: the company now has a stronger balance sheet after the IPO, yet it has not shown that its development pipeline funds itself. Profit attributable to shareholders fell to NIS 5.4 million, mainly because of an approximately NIS 35.5 million loss on the securities portfolio, while operating cash flow was negative NIS 37.9 million because of investment in apartment inventory and higher receivables. That makes 2026 look less like a breakout year and more like a proof year: income-producing assets need to keep producing FFO, the residential projects need to show a credible sales pace, and the IPO proceeds need to turn into execution rather than remain only a comfortable funding layer.

The Income Base Holds, While the Securities Portfolio Erased Net Profit

The company runs two different engines. The first is income-producing real estate in Israel, mainly retail, logistics, industrial, office, and other assets, including equity-accounted investees. The second is residential development, where value is built through land, permits, sales, construction, and financing. In the first quarter the first engine delivered what an income-real-estate company should deliver: rental revenue rose to NIS 22.3 million from NIS 19.2 million in the parallel quarter, with the company attributing the increase to contract updates, higher tenant sales, indexation, and the opening of assets in Ofakim and Pardes Hanna.

The more important point is that the improvement also reached metrics that strip out revaluation. Total NOI, including the company's share in associates, rose to NIS 27.8 million from NIS 24.5 million. Same-property NOI rose to NIS 19.0 million from NIS 15.9 million. Management FFO rose to NIS 17.5 million from NIS 12.5 million. These numbers are not enough by themselves to justify the whole growth story, but they weaken the argument that the quarter rests only on property revaluations or on the IPO.

This contrast is the right starting point for the quarter. The asset activity appears stable and improving, but the bottom line is less clean. Operating profit rose to NIS 45.6 million from NIS 40.3 million, while profit before tax fell to NIS 8.0 million. The gap opened almost entirely below operating profit: net finance expenses reached NIS 37.6 million, compared with NIS 7.9 million in the parallel quarter, mainly because of an approximately NIS 35.5 million securities loss. The traded securities portfolio stood at NIS 190.0 million at the end of March, compared with NIS 225.9 million at the end of 2025, and includes a 10.95% stake in Discount Investment Corporation.

The implication is not that the quarter was operationally poor. It is that the company still carries a layer of volatility that is not classic income-producing real estate. In the 2025 profit-quality analysis, the problem worked in the opposite direction: market gains and revaluations expanded profit far beyond FFO. In the first quarter, the same layer worked against the company. FFO adjusts back the financial-instrument loss and therefore rose, while profit attributable to shareholders fell to NIS 5.4 million.

That matters because the market can measure the company in two very different ways. A net-profit-only read makes the quarter look as if the business deteriorated. An FFO-only read risks ignoring that the securities portfolio is a real asset moving both equity and reported profit. The more reasonable interpretation sits between the two: the income-producing core improved, but as long as the securities portfolio is large enough to erase a material part of quarterly profit, net profit will remain less stable than NOI.

The IPO Cleaned Up the Controlling Shareholder Layer, But Did Not Create Internal Cash Flow

January 2026 was a major financing event. The company completed an IPO of shares and warrants for net proceeds of about NIS 514 million, repaid about NIS 237 million of balances owed to the parent company, the controlling shareholder, and related parties, and repaid about NIS 147 million of the Vision project loan. At quarter-end it held NIS 194.5 million in cash, equity rose to NIS 2.74 billion, and leverage stood at 17% of total assets, including a minority loan. At the balance-sheet level, this was a de-risking quarter.

Still, a cleaner balance sheet is not the same as cash generation. All-in cash flexibility, meaning cash after operating activity, investments, and actual repayments before financing inflows, still does not look like a self-funded engine. Operating cash flow was negative NIS 37.9 million. The main explanation is approximately NIS 28 million of investment in apartment inventory under construction, compared with about NIS 10 million in the parallel period, and an increase in receivables due to an approximately NIS 12 million VAT refund balance. Investing activity consumed another NIS 50.4 million, mainly purchases and investments in income-producing real estate of approximately NIS 55 million.

Together with negative investing cash flow of NIS 50.4 million, the company consumed about NIS 88.3 million before financing cash flow. Positive financing cash flow of NIS 253.4 million more than covered that gap and increased the cash balance by NIS 165.1 million. This does not point to liquidity stress. It says the quarter's improvement came mainly from an external financing source, not from activity that is already releasing cash. Working capital was positive by NIS 292.5 million, and the board states that the company's financial position is solid and that it has no liquidity or financing difficulty. But the thesis now depends on a different question: will apartment inventory and projects under construction begin returning cash at a pace that reduces reliance on external funding, or did the IPO mainly buy a more comfortable execution window?

The Development Pipeline Is Moving, But the Sales Pace Is Still Limited

The Vision project is where the tension between growth and financing is clearest. Financial completion, excluding land, rose to 45% from 42% at the end of 2025, and the remaining cost to completion fell to NIS 425.8 million. But the sales pace is still low: 2 contracts were signed in the quarter, 24 apartments had been sold cumulatively by the end of March, and the marketing rate was only 7%. No additional contracts were signed after the balance-sheet date through the report date.

The point is sharper because of the financing clause. The dedicated credit facility for the Vision project is about NIS 380 million, of which about NIS 90 million had been drawn after repayment. The credit agreement includes a covenant relating to the apartment sales pace, and the company says it is in contact with the lender regarding compliance with this covenant, while also stating that it is meeting its obligation to the lender. This is not a breach, but it turns the sales pace from a marketing metric into a financing variable.

Nof HaReches is moving differently. Financial completion rose to 52%, expected completion remains August 2027, and the marketing rate is 17%, but no new contracts were signed during the quarter. In Prime Jerusalem, Holyland, financial completion is still lower at 12%, and the marketing rate is 5.8%. There, 2 contracts were signed during the quarter and one more after the balance-sheet date, while the company also received building permits after the report date and signed with an execution contractor. That is real progress on the execution front, but it is not yet proof of a sales pace that changes the cash profile.

The urban-renewal layer has also grown, but for now it remains an option rather than a mature economic asset. The company presents several projects in early planning stages, while also making clear that until all tenants sign and all closing conditions are fulfilled, it has no rights in the underlying land. It also explains that a project is considered feasible only when there is consent from more than 67% of rights holders and an approved city plan, and that the table includes projects that do not yet meet that definition. Urban renewal can become a long-term engine, but it does not close the 2026 cash question.

The NOI path presented by management remains ambitious: NIS 114 million in 2026, NIS 131 million in 2027, NIS 166 million in 2028, NIS 211 million in 2029, and NIS 239 million in 2030. The first quarter almost supports the 2026 run-rate, as total NOI of NIS 27.8 million is close to an annual pace of about NIS 111 million. The step-up after 2026 depends much more on project progress, permits, sales, and financing, not only on the existing income-producing portfolio.

What Will Decide the Next Read

The first quarter did not turn the company into a proven residential-development story, but it also did not weaken the income-producing real estate business. The assets continue to deliver gradual improvement, FFO is moving up, and the IPO reduced the friction with the controlling-shareholder layer and strengthened equity. On the other hand, net profit is still heavily affected by the securities portfolio, and the development activity consumes cash before it releases it. The next checkpoint is therefore not another property revaluation, but the combination of three things: continued growth in NOI and FFO, new sales in the projects where marketing is still low, and operating cash flow that is not fully absorbed by inventory and receivables.

The fair counter-thesis is that a company with 17% leverage, substantial cash after an IPO, a broad asset portfolio, and a land bank can afford quarters in which cash is absorbed by construction. That is partly true. But with a market value that already reflects future growth, the market is likely to demand evidence that this growth is moving from permits, land, and revaluations into sales, FFO, and cash flow. If Vision and Holyland show a better contract pace in the coming quarters, and the company keeps raising NOI without unusual volatility in the securities portfolio, the first quarter will look like a healthy transition stage. If the sales pace remains low and working capital keeps consuming cash, the IPO will look more like a necessary funding layer and less like the starting point for an independent growth engine.