Geshem Lamishtaken in the First Quarter: Woltstone Was Repaid and the Bonds Now Depend on Project Surpluses

Geshem Lamishtaken repaid the remaining Woltstone principal after quarter-end, so the immediate risk has moved from that debt line to the project surpluses that need to reach the parent company. Reported profit was weak: revenue fell to NIS 147.8 million and net profit was only NIS 1.5 million. The quarter still adds a more important proof point: operating cash flow turned positive at NIS 42.3 million, mainly through lower inventory and lower contract assets from customers. That cash did not all remain free, because restricted cash, interest, and bond repayments absorbed almost all the improvement. At the same time, more units moved into construction, permits and occupancy forms arrived, and Kiryat Ata gained a partner that reduces the direct equity requirement while leaving guarantees and floating-rate debt. For a bond company without an active traded equity line, the market read will run through the bonds, covenants, and actual parent-level access to project cash. The next two to four quarters will show whether the roughly NIS 40 million of surpluses expected by the end of 2026 and another roughly NIS 100 million in 2027 are real cash sources, or targets that still depend on too many financing arrangements, sales, and deliveries.

Revenue Fell Before the Next Cycle Entered the Numbers

Geshem Lamishtaken is a residential developer and bond issuer. Its economics come from land, planning, project financing, marketing, construction, delivery, and finally surpluses pulled from project accounts. Expected project gross profit is therefore not enough. The important question is how much reaches the parent after banks, interest, partners, guarantees, and collection timing.

The group holds rights in about 33 development projects in Israel, with roughly 10,052 housing units to build, including partners' share. The company's share is 8,542 units. The previous annual analysis pointed to financing cost as the factor setting the company's pace, and the Woltstone and bond-layer analysis flagged the multi-layer debt structure. The first quarter updates that continuity: part of the short debt was repaid, and the test has moved to project cash timing.

The revenue decline mainly reflects timing. Most projects under construction reached completion or near-completion stages, while Migdal HaEmek A received a permit and began construction only in the first quarter. Revenue therefore fell 30% from the parallel quarter, but gross margin increased to 14.9% from 13.7%.

Sales were not empty. During the quarter, the group signed 44 housing-unit sale contracts, including 32 free-market units, for net consideration of NIS 118 million. The company's share was NIS 109 million. After quarter-end it signed another 34 housing-unit sale contracts for NIS 54.4 million, of which the company's share was NIS 43.7 million. One agreement was cancelled during the quarter for NIS 1.7 million, and no sale agreements were cancelled after quarter-end through close to publication. The visible cost of contractor-loan promotions was also moderate: cash interest paid to mortgage banks was about NIS 0.1 million, compared with about NIS 0.5 million in the parallel quarter, and there was no significant financing component under accounting rules at quarter-end.

Operating Cash Flow Covered Uses, It Did Not Build a Wide Cushion

The cash frame here is flexibility after all actual cash uses in the quarter: operating cash flow, restricted cash movement, interest, leases, and debt repayment. Operating cash flow itself was strong, but interest appears in financing activity and restricted cash increased.

The sources of improvement are clear. Inventory of buildings under construction fell by NIS 52.9 million, and contract assets from customers fell by NIS 9.7 million. This is collection against revenue recognized earlier and project progress, not a sudden new profit source. On the use-of-cash side, restricted cash and deposits increased to NIS 61.8 million, financing activity used NIS 23.0 million net, and interest paid totaled NIS 18.8 million.

The result is that cash and cash equivalents were NIS 47.5 million, almost the same as at the end of 2025. Consolidated working capital improved to NIS 89 million and 12-month consolidated working capital was NIS 26 million, but solo 12-month working capital was negative NIS 17 million. The board does not view that as a liquidity problem, based on forecast cash flows and possible sources. For bondholders, this is not a footnote. It means project surpluses need to reach the parent on time.

Woltstone Was Repaid and the Bonds Depend on Project Surpluses

Woltstone is no longer the same open question from the end of 2025. The company paid NIS 25 million on January 1, 2026, and after quarter-end paid the remaining loan principal of about NIS 39 million on April 1, 2026. At the same time, on March 31 it repaid NIS 30.2 million of Series A principal and interest.

Public debt remains expensive. Series A was down to NIS 20 million par value at quarter-end, while Series B increased to NIS 100 million par value after the February 2026 expansion. Both series are unrated, unlinked, and carry fixed rates of 9.14% for Series A and 9.53% for Series B. The covenants do not look close to an immediate breach: company equity excluding minority interests is NIS 140.9 million, and the bond-deed equity-to-balance-sheet ratio is 12.5% versus an 8.5% threshold. For Series B, the thresholds rise from the end of 2026 to NIS 110 million of equity and a 10% equity-to-balance-sheet ratio.

The funding source the company points to for the next stage is project surpluses. In the remaining nine months of 2026 it expects roughly NIS 40 million of surpluses to be pulled. In 2027 it expects about NIS 100 million, of which roughly NIS 21 million is intended for Series A principal and interest repayment. If those amounts arrive on time, expensive debt has an internal cash source. If they are delayed, Series B becomes a more expensive bridge until the projects produce cash.

Permits, Deliveries, and the Kiryat Ata Partner Will Set 2026

The total backlog remained 10,052 units, but its composition improved. Units under construction increased to 1,179 from 969 at the end of 2025, while units in planning declined to 1,426 from 1,636. After the quarter, a full permit was received for 25 units that still lacked one, and the company expects all units in planning to receive full permits during 2026.

Project milestones also support the move toward execution. In March 2026, apartment deliveries began in the Hadassim project after an occupancy form was received for two buildings with 85 units. That same month, occupancy forms were received for Geshem BeHomot, with three buildings and 75 units, and Geshem BeMaayanot, with four buildings and 103 units. In Kiryat Gat, a bank financing agreement was signed for a total framework of NIS 748 million, including NIS 75 million for land financing, NIS 50 million for construction financing, and NIS 623 million of Sale Law guarantees and other guarantees.

In Kiryat Ata, the Osha project moved after quarter-end into a structure with a partner that will hold 50% of the project company. The project company is expected to repay the company NIS 15 million paid for the option, and the partner is expected to provide or arrange all funding required to advance the project, including amounts above NIS 163 million of third-party financing until the project financing agreement. On April 16, 2026, the project company acquired the land using a bank credit line of about NIS 149 million and a mezzanine loan of about NIS 42 million. That reduces direct equity demand, but the company and the partner guarantee the senior debt, and the controlling shareholders guarantee the mezzanine layer.

There is also partner execution risk. In Geshem Im Alot HaShahar, partner Alot HaShahar entered a stay-of-proceedings process in January 2026. The lender said that no cause for immediate repayment had arisen at this stage, and the other financing parties said the event does not affect the facilities provided to the group. The company estimates that the project asset value covers the lender debt. Even if that proves correct, the event is a reminder that cash depends not only on buyers, but also on partners, project financing, and the ability to continue a project without burdening the whole group.

The current read is that Q1 is a transition quarter with real financing and execution progress, but the proof is still ahead. Woltstone was repaid, operating cash flow turned positive, and projects are moving toward deliveries and permits. What is still missing is accessible cash at a pace that replaces expensive debt. The counter-thesis is that pressure has already eased: the company meets covenants, continues selling, and operating events support improvement. What could change the market read in the coming quarters is a delay in project surplus receipts, another increase in financing costs, or another partner event that requires cash or guarantees. The market is likely to measure the company through deliveries, collection, actual surpluses, and the opening of new projects without rebuilding short debt.