Hachsharat Hayishuv in the First Quarter: MLP Funds Growth While Parent-Level Working Capital Remains Negative

Hachsharat Hayishuv opened 2026 with a quarter that partially confirms the direction set at the end of 2025: Nimrodi Tower is now fully leased, MLP keeps expanding its leased space and raised long-term European debt, and the urban-renewal arm is moving several large projects into execution. Net profit recovered to NIS 41 million after a loss in the parallel quarter, but this is not yet a clean jump in parent-level recurring earning power. Part of the improvement came from real-estate revaluations, apartment deliveries in Poland, and fit-out reimbursement fees at Nimrodi, while net finance expenses jumped to NIS 94 million and the solo working-capital deficit remained NIS 549 million. MLP's bond raise filled the consolidated cash balance and reduced bank debt inside the European platform, but it does not by itself answer how much accessible cash reaches the parent after debt, minorities, and continued investment. The next few quarters need to show whether 100% leasing at Nimrodi converts into more normal NOI, whether MLP can keep growing without widening the value filters, and whether Hachshara Renewal can move Ramla, Bavli, and other projects from early execution into sales and cash collection. Until that happens, the quarter strengthens the asset-quality case more than it solves the parent-level cash-access question.

The Business Map Keeps Tilting Toward MLP And Nimrodi

Hachsharat Hayishuv is no longer just an Israeli income-producing real-estate company. Economically, it is a real-estate holding company with three main layers: income-producing assets in Israel, mainly retail and offices, European logistics parks through MLP, and Israeli residential development through Hachshara Renewal. The Polish residential development layer adds timing volatility through deliveries, while debt and minority interests determine how much of the value ultimately belongs to the parent's shareholders.

The first quarter gives two positive operating signals. At MLP, leased space rose to about 1.338 million square meters, compared with about 1.245 million square meters at the beginning of the year, and occupancy is close to 97%. At Nimrodi Tower, all rentable space held by the company, about 51 thousand square meters, had been leased by the financial-statement approval date. Those were open checkpoints in the previous annual Deep TASE analysis: whether growth at the European platform and leasing at Nimrodi would continue, and whether that progress would start narrowing the gap between asset value and accessible cash.

There is an important filter. MLP is held indirectly at 41.3%, although it is consolidated in the accounts, and Hachshara Renewal is held at 71.7% after the private placement completed in February 2026. Consolidated revenue, asset value, and NOI therefore do not automatically equal simple value for Hachsharat Hayishuv shareholders. They pass through minority interests, corporate debt, continued investment needs, and distribution timing.

Profit Recovered Before Recurring Earning Power Became Clear

Net profit was NIS 41.1 million, compared with a NIS 22.6 million loss in the parallel quarter. NOI moved much less, from NIS 108 million to NIS 112 million, while total profit from real-estate operations rose from NIS 111 million to NIS 124 million. The main swing in the bottom line was the move from a NIS 75.2 million investment-property revaluation loss in the parallel quarter to a NIS 51.2 million revaluation gain this quarter.

In Israel, profit from rental properties rose only from NIS 46 million to NIS 48 million. Inside that figure sits the important Nimrodi detail: the tower's revenue included about NIS 16 million of fit-out reimbursement fees, compared with about NIS 8 million in the parallel quarter. These are contractual payments tied to tenant fit-out costs borne by the company, so they are part of the cash stream, but they are not the same as ordinary base rent that repeats without upfront tenant investment. Once the tower is fully leased, the next proof point is how much NOI remains as those reimbursement fees gradually decline and how much is replaced by regular rent.

At MLP, rental revenue abroad rose to NIS 113 million from NIS 99 million, and profit from rental properties abroad rose to NIS 63 million from NIS 60 million. Growth came from more income-producing space and from the annual HICP-linked rent update, which added another 2.1% from February 2026. That is real operating progress, but its impact on the bottom line was not clean: the same currency structure that supported a roughly NIS 46 million fair-value gain on foreign assets also hurt finance costs, mainly because the zloty weakened against the euro and because MLP's bond balance increased.

Israeli Development Has Moved, Profit Has Not Arrived

Urban renewal delivered more operating milestones than profit in the quarter. Construction works began in January 2026 at Ramla Ben-Gurion and Bavli Tel Aviv. Borochov Jerusalem received approval for plan validation after objections, Beit HaKerem received a decision to deposit the plan subject to conditions, and Bar-Lev Tel Aviv received a conditional permit in May 2026. These steps move projects closer to execution, but they are not yet equivalent to sales, collection, and accessible profit.

The numbers explain why this layer still needs a careful read. Revenue from Israeli residential development fell to NIS 17.5 million, compared with NIS 74.9 million in the parallel quarter, and the segment moved from a NIS 7 million profit to a NIS 2 million loss. The business explanation is simple: in 2025 the Pichman project in Holon and the Lissin project in Tel Aviv were completed, while the new projects are still in early construction and sales stages. The backlog is progressing, but near-term accounting profit still belongs to older delivered projects or to projects abroad.

In Poland, residential development abroad contributed a NIS 14 million profit after recognizing profit from the sale of 98 apartments in the Aura Ozorow stages 1 and 2, Aura Mokotow, and Aura Warsaw projects. That helped the quarter, but it also shows that this segment is volatile according to deliveries, final notarial deeds, and full payment collection. The more important 2026 signal is not another strong Polish quarter. It is whether Hachshara Renewal can move its Israeli projects into a phase where works, sales, and financing terms support profit rather than only backlog.

Cash Flexibility Still Depends On Credit Lines And Asset Sales

At group level, the cash position looks much stronger than at the beginning of the year. Consolidated cash and cash equivalents rose from NIS 243 million to NIS 603 million, mainly after MLP issued EUR 350 million of bonds at a 4.75% annual coupon due in 2031. Operating cash flow was NIS 88.6 million, versus NIS 60.1 million in the parallel quarter. Against that, the group invested NIS 209.2 million in investment property, property and equipment, and other assets, mainly at MLP and Nimrodi.

All-in cash flexibility after actual cash uses tells a less simple story: consolidated operating cash flow did not by itself cover investments, and the cash increase came mainly from NIS 471.8 million of net financing inflow. Sources included NIS 1.274 billion from MLP's bond issuance, NIS 30.3 million of long-term loans, and NIS 29.2 million of equity issuance at a consolidated company. Uses included NIS 151.1 million of bond repayment and NIS 680.6 million of long-term loan repayment, mainly at MLP. This strengthens the European platform and extends debt, but it also highlights that growth still requires significant financing.

At parent level, the gap is sharper. Solo operating cash flow was NIS 40.6 million, investing activity used NIS 52.2 million, and financing activity contributed NIS 16.2 million. Solo cash rose only to NIS 56.5 million, while a NIS 60 million dividend was declared and paid after the balance-sheet date. The dividend therefore does not yet appear as a cash use in the quarter's cash-flow statement, but it is a near-term cash use that shows parent-level distributions rely on credit access, asset monetization, and future cash flow, not only on quarterly profit.

The same gap appears in the liquidity disclosure: the company has a NIS 549 million solo working-capital deficit. The board does not view this as a liquidity problem and points to NIS 57 million of cash at the company, a positive cash-flow forecast for the next 24 months, NIS 525 million of unused committed credit lines, about NIS 408 million of unencumbered Israeli real estate, direct holdings in MLP and Hachshara Renewal with a combined market value of about NIS 728 million for the company's share, and expected proceeds from assets the company is preparing to sell. Covenants are not tight: Series 21 LTV is 60% versus an 85% ceiling, and Series 25 LTV is 57% versus the same ceiling. The issue is not a near covenant breach. It is the quality of the sources funding the transition period.

What Needs To Be Proven Next

The first quarter strengthens the assets, not the full value-access chain. At MLP, the next step is to see whether the roughly 217 thousand square meters under construction, of which about 120 thousand square meters are already leased, convert into revenue without another unusual increase in leverage or currency sensitivity. At Nimrodi, full leasing needs to show up in more stable base rent and NOI, not only in continued contribution from reimbursement fees. In urban renewal, projects need to move from works commencement and conditional permits into sales, collection, and financing that covers the cost of capital.

The strongest objection to the thesis is that the market may be right to apply a discount to the holding layers: quality assets, comfortable covenants, and a positive rating outlook do not remove the fact that value still passes through minorities, a growth platform that consumes capital, a solo working-capital deficit, and dependence on asset sales. The counterpoint is that if MLP keeps increasing NOI and leased space, Nimrodi shows more normal income after full occupancy, and Hachshara Renewal begins recognizing profit from new projects without deeper commercial concessions, this quarter may later look like the start of a year that stabilized the thesis. For now, the right read is real operating progress that arrives before the parent-level cash layer is fully resolved.