Beit Hazahav in the First Quarter: Occupancy Lifts Revenue and Liquidity Still Exceeds the Bonds

Beit Hazahav gives a positive answer to one question in the first quarter and leaves the more important occupancy-quality question open. Operations at Beit Gil Hazahav in Tel Aviv continued to improve: revenue rose 18.2%, gross profit rose 20.3%, and operating profit rose 50.9%. The decline in net profit did not come from the home itself, but mainly from lower finance income after the large 2025 dividend and legal costs related to the Seven Stars transaction. A NIS 60.4 million decline in the cash line is also not a stress signal, because NIS 65.7 million moved into a daily money-market fund and remains part of the liquidity layer. The quarter therefore strengthens the view that the balance sheet is more comfortable than the cash line alone suggests. The active bottleneck is still occupancy quality: the quarter attributes operating growth to higher occupancy, CPI linkage, pricing and self-operation of the restaurant, but it does not split permanent residents from interim occupancy. In the next reports, the market is likely to test whether operating improvement turns into recurring cash, and whether the cash pool is used mainly for bond repayment and moderate dividends or for a new investment chapter.

Operations Advanced, Occupancy Quality Is Still Unsplit

The company is now almost a single-asset story: a sheltered housing home in Tel Aviv, alongside commercial space in the Beit Gil Hazahav complex. Since the sale of the UK activity in July 2024, there is no broad property portfolio or overseas nursing-home operation to diversify the risk. Shareholder value is built from occupancy, management fees and rent, resident payment tracks, deposits, the real-estate value and the liquidity left after the large dividend.

The quarter provides a clearer operating proof point than the year-end read. Revenue was NIS 13.3 million, compared with NIS 11.3 million in the comparable quarter. The company attributes the increase to higher occupancy in sheltered housing, CPI linkage, price increases and self-operation of the restaurant. That matters because the growth did not stay only in revenue: cost of revenue rose 16.5%, slightly below revenue growth, and gross profit rose to NIS 6 million.

The issue left open is the same one raised in the previous annual analysis and in the occupancy analysis: not all sheltered-housing occupancy has the same economics. A permanent resident under a deposit or entrance-fee track creates a different cash model than a temporary renter, short-stay resident or trial apartment. The quarter confirms that occupancy supports revenue, but it does not provide a split of permanent residents, trial apartments and interim solutions. It strengthens the direction, but does not yet close the quality-of-occupancy question.

Net Profit Fell Because Finance Income Was Lower

The potentially misleading number is net profit. It fell to NIS 1.8 million from NIS 2.2 million in the comparable quarter, even though operations improved. The gap sits below operating profit: finance income fell to NIS 0.6 million from NIS 2.2 million, mainly because deposit interest income declined after the roughly NIS 195 million dividend paid in May 2025. At the same time, finance expenses fell to NIS 0.9 million from NIS 1.4 million following the lower bond balance.

That means net profit is a weaker read of Beit Gil Hazahav's operating quality this quarter than operating profit and operating cash flow. Operations added NIS 0.9 million to operating profit, but finance income lost NIS 1.6 million. The company also recorded NIS 0.3 million of other expenses for the claim and counterclaim around the Seven Stars sale.

General and administrative expenses rose to NIS 2.1 million from NIS 1.7 million. Part of the increase reflects provision reversals in the comparable 2025 quarter and one-off costs related to privacy-law compliance. This is not evidence that the sheltered-housing operating model is eroding. It is a move from a quarter helped by higher finance income to a quarter in which operations have to carry more of the result.

Cash Moved Into a Money-Market Fund and the Bonds Are Still Covered

The important movement in the quarter is in the cash-flow statement. Operating cash flow was NIS 5.3 million, compared with NIS 4.4 million in the comparable quarter. After NIS 0.3 million of investment in fixed assets and investment property, operations left roughly NIS 5 million before movements in the liquid portfolio. This is a recurring operating-cash frame, not a full surplus-cash calculation after every future dividend and bond repayment.

Cash and cash equivalents fell from NIS 81.8 million at year-end 2025 to NIS 21.4 million at the end of March 2026, but that drop is mostly a movement inside liquidity. The company invested NIS 65.7 million in short-term financial assets, and management ties most of the investment cash flow to a daily money-market fund. The cash balance should therefore be read together with the money-market fund and trading securities.

In an all-in cash-flexibility frame after actual cash uses in the quarter, the NIS 3.5 million dividend paid on May 7, 2026 looks covered by quarterly operating cash flow after small maintenance and expansion investments. That does not replace the larger bond repayment ahead: NIS 49.35 million is classified as current maturities, and unpaid Series D bond principal is NIS 64.155 million. Still, the cash-to-financial-debt ratio is 158%, the company meets all covenants, and S&P Maalot affirmed the issuer rating at ilBBB+ and the bond rating at ilA- on May 27, 2026. That is an important external signal: the quarterly risk is not immediate refinancing stress, but what the company does with liquidity after the near bond maturity is handled.

Resident deposits are not accounting noise either. The balance rose to NIS 30.9 million from NIS 29.5 million at year-end 2025, and cash flow included a NIS 1.6 million increase in resident deposits. The liability is presented as current because residents have a contractual right to demand the deposit when vacating an apartment, but the model is based on resident turnover rather than all deposits being repaid at once. This is where the thesis remains tied to new-resident quality: deposits can be convenient funding, but they are also CPI-linked liabilities that become cash outflows when residents leave.

Conclusion

The first quarter improves the operating read of Beit Hazahav more than it changes the asset-value debate. Revenue and operating profit rose, operating cash flow improved, and the cash decline turns out to be an allocation into a daily money-market fund rather than a liquidity squeeze. Against a market value of roughly NIS 167 million, the company still looks like a case where the market is applying a discount for value accessibility and weak liquidity in the shares, not necessarily for the existence of the asset or immediate debt pressure.

The straightforward counter-thesis is still strong: the quarter does not provide the split that matters most in sheltered housing, permanent residents versus interim occupancy, deposit tracks versus monthly rent, and actual resident-deposit repayments. If the next quarters show that high occupancy is coming from more permanent residents, that operating cash flow stays near the current run-rate, and that bond repayment does not absorb the liquidity layer, the read strengthens. If the improvement remains mostly a revenue number without an occupancy-quality split, or if liquidity is directed to unclear investments before the near debt is handled, the discount to asset value will remain easier to explain.