Levy in the First Quarter: Series T Bought Time, but Pledged Assets Still Drive the Cash Story
Levy opened 2026 with a NIS 4.5 million net loss and negative operating cash flow, while Series T proceeds were used mainly to repay debt. The quarter shows that the next improvement depends less on accounting progress in projects and more on apartment sales, a new tenant at Hayarkon 185, and financing that can extract accessible cash from already pledged assets.
Levy entered 2026 with an operating base that is still too small for the financing structure around it. Series T bond proceeds helped repay debt and shift the maturity schedule, but they did not change the fact that operations consumed NIS 9.1 million of cash in the first quarter and ended with a NIS 4.5 million net loss. The quarter is not a story of operating collapse: gross profit remained close to the parallel quarter, the French office assets are fully occupied, and the company still meets its main financial covenants. It is a story of a financed transition period: only one apartment was sold in the Auerbach project, the Hayarkon 185 asset still has no new signed tenant, and the company has no unpledged assets. From here, the practical question is whether the company can turn pledged assets into new financing and free cash before finance costs keep eating the gross profit. Until that happens, Series T bought time, not proof of recovery.
Company Background
Levy is a relatively small real estate company with two engines: residential development and construction in Israel, and income-producing assets in Israel and Western Europe. In the first quarter of 2026, development was still the larger revenue engine, with NIS 7.0 million out of total revenue of NIS 7.9 million. Income-producing assets contributed only NIS 0.9 million of revenue, but almost as much segment profit as development: NIS 815 thousand versus NIS 1.06 million.
That split matters because the company is not only a residential developer waiting for a better sales pace. It also holds assets that support its financing structure. The French assets are fully occupied with stable prices, but Hayarkon 185, the main collateral for Series H bonds, is still in negotiations with several tenants after the previous tenant left, with no new lease signed by the approval date of the financial statements. When that same asset is valued at roughly NIS 54 million and is the basis for a possible financing move, the missing lease is not a small operating detail. It affects the quality of the value the company is trying to convert into liquidity.
The residential side also does not yet provide strong proof. During the quarter, the company signed one apartment sale contract in the Auerbach project, and management attributes the slowdown to the interest-rate environment and broader weakness in residential demand in high-price areas. That is a reasonable sector context, but for a company with more than NIS 5 million of quarterly finance expenses, such a sales pace leaves the thesis dependent on financing and collateral release, not only on a future recovery in demand.
Series T Bought Time, Not Operating Cash Flow
The key move in the quarter was the use of Series T proceeds to repay prior debt. Series T was issued in December 2025 for NIS 74.5 million, with a fixed annual interest rate of 9.49%. In the first quarter, that cash mostly went to creditors: on February 26, 2026, the company repaid NIS 32.7 million of project-lender and bank credit, and on March 31, 2026, it repaid NIS 29.2 million of bond principal and interest. After the balance-sheet date, on April 1, 2026, it also repaid a NIS 10 million profit-participating loan.
That explains why cash barely moved even though the cash flow statement includes a large positive investing inflow. This was not cash generated by the business. It was a release of restricted cash and a debt movement. On an all-in cash-flexibility basis, after the quarter's real cash uses, the picture looks like this:
| First-quarter cash flow item | NIS million | Economic meaning |
|---|---|---|
| Operating cash flow | (9.1) | Operations still consume cash, mainly through projects, working capital, and interest |
| Investing cash flow | 62.1 | Mainly a decline in restricted cash drawn from the trustee account |
| Financing cash flow | (53.0) | Bond, loan, and project-finance repayments offset most of the release |
| Cash and cash equivalents at period end | 1.9 | No broad free cash cushion was created |
The board identified warning signs because of the working-capital deficit, loss, and negative operating cash flow, but concluded that there is no liquidity problem based on the company's expected funding sources. The more convincing part of that argument is that part of the solo working-capital deficit comes from intercompany loans that can be deferred. The less comfortable part is that the company explicitly states it has no unpledged assets. In other words, the next layer of financial flexibility is not sitting in the cash balance. It depends on refinancing existing collateral and securing new financing against it.
That is where Hayarkon 185 enters the analysis. To release the asset from the Series H bond lien, the company needs to deposit cash or provide a bank guarantee of NIS 25 million plus accrued interest. Management estimates that it can raise alternative financing against the asset of about NIS 40.5 million, roughly 75% of an appraised value of NIS 54 million, leaving about NIS 11 million for the company's cash balance after the deposit for Series H bondholders. That could materially improve liquidity, but for now it is still a financing move that has to be signed, against an asset that still lacks a new tenant.
The Business Still Does Not Cover the Cost of Debt
The quarter's paradox is that operations did not deteriorate dramatically, but they are still not strong enough to carry the debt load. Revenue fell to NIS 7.9 million from NIS 8.7 million in the parallel quarter, down about 8.7%. Gross profit barely changed: NIS 1.88 million versus NIS 1.93 million, and the gross margin even rose to 23.7%. The more important number appears after segment profit.
Combined segment profit from both engines was NIS 1.88 million. After NIS 1.66 million of unallocated expenses, operating profit was only NIS 215 thousand. Against that stood NIS 5.12 million of finance expenses, up about NIS 970 thousand from the parallel quarter, mainly because of temporary interest overlap around Series T. Finance income of NIS 603 thousand, mainly from a trustee deposit, softened the hit, but did not change the result: a NIS 4.3 million pretax loss.
This is not only an income-statement issue. Operating cash flow was negative even though the quarter included revenue recognition from project progress. Customers and receivables rose by about NIS 3.0 million, mainly in the Kitzis and Auerbach projects, while suppliers, provisions, and other payables declined by NIS 5.2 million in the cash flow statement. Part of the recognized revenue has therefore not yet become free cash, while the company continues to pay interest as the projects consume working capital.
The covenants were not breached, and that matters. For Series H and Series T, adjusted equity was NIS 21.5 million versus a NIS 12 million threshold, and the adjusted equity-to-balance-sheet ratio was 8.63% versus a 6% threshold. In France, the loan-to-value ratio was 47% versus a maximum of 58.7%, and the rent-to-interest ratio was 156% versus a 120% requirement. Still, covenant compliance is not a substitute for cash generated by sales, rent, and new financing. It says the clock is not yet at the edge, not that the business already generates enough cash on its own.
Conclusions
The first quarter for Levy looks like the report of a company that received breathing room from the debt market but has not yet proven that operations can support the new financing structure. The positive side is that Series T allowed the company to repay debt, reduce immediate pressure, and remain within financial covenants. The heavier side is that the improvement came from replacing funding sources and releasing restricted cash, while operating activity still consumed cash and residential revenue did not show a sales pace strong enough to change the picture.
The current read is mixed but still cautious: the company has assets, possible financing moves, and a stable income-producing base in France, but that value still has to become accessible cash at the company level. The positive counter-thesis is clear: if lower interest rates revive apartment demand, Hayarkon 185 gets leased, and the alternative financing closes on the terms management describes, the first quarter may later look like a transition period. Until that happens, the next proof points are simple and measurable: more sale contracts in Kitzis and Auerbach, a new lease at Hayarkon 185, financing that leaves real free cash after lien release, and a narrowing of negative operating cash flow. What will drive the near-term market read is not another small revenue movement, but whether the pledged assets actually become a liquidity source rather than another layer of expensive debt.
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