Carasso Real Estate in the First Quarter: The Bond Expansion Covered Negative Operating Cash Flow as Sales Slowed

Carasso Real Estate reported a quarter that strengthens the execution story in projects already under way, but does not close the demand and cash-access story. Revenue from land, apartment and construction-service sales rose to NIS 144.9 million and operating profit almost doubled to NIS 32.4 million, mainly because more projects reached revenue-recognition milestones. At the same time, the company sold only 37 apartments for NIS 140 million, compared with 69 apartments for NIS 231 million in the comparable quarter, so the accounting profit rests more on existing contracts than on a strong start for new demand. Operating cash flow was still negative at NIS 79.3 million, and all-in cash flexibility after the quarter's actual cash uses came mainly from the net NIS 341.6 million Series B bond expansion and the reduction of short-term credit. That move gives the company time and improves the debt timetable, but it does not replace collections, deliveries and sales on more normal terms. The proof points for the coming quarters are a further decline in customer concessions, continued moderation in inventory and land investment, and practical progress at Rivlal or in new projects such as JOMO.

Company Snapshot

Carasso Real Estate is a residential developer with an income-producing real estate layer that stabilizes part of the cash flow. It is not a pure income-property company. In the first quarter it held income-producing assets of about 99 thousand sqm at average occupancy of about 89%, alongside a residential project pipeline under construction and marketing. The income-property segment generated NIS 23.4 million in rent and maintenance revenue and NIS 18.5 million in NOI, with no major change versus the comparable period.

The economic engine in this quarter sits in development. At the end of March the company had 2,307 apartments for sale, of which 1,841 were in various construction stages, and 816 apartments already sold for about NIS 3.3 billion including VAT. This machine creates profit through construction progress and accounting recognition, but consumes cash through inventory, land, obligations to existing owners and payment gaps with buyers. Gross profit is therefore not enough. The key is whether new sales fund the pace, and whether customers pay fast enough to match the project load.

The yellow flag from 2025 is still relevant. The previous Deep TASE analysis on marketing models focused on sales quality, especially deferred payments, indexation exemptions and developer loans. The first quarter adds a new layer: the sales terms look somewhat less dependent on most of the payment arriving near delivery, but the sales pace fell and customer benefits are still visible in the numbers.

Profit Rose Through Execution While New Sales Fell

The central gap in the quarter is between the income statement and the new commercial pace. Development revenue is recognized according to previously signed sales and construction progress, so it can rise even when new sales in the current quarter are weaker. That is exactly what happened here.

Operating profit rose to NIS 32.4 million from NIS 16.9 million in the comparable period. Part of the improvement came from the natural advancement of projects such as CARASSO SUNN David Yellin 9, O-Ma-Mi E, Sderot Hayovel, Carasso Nia, Carasso Botanic and Holtzberg Bat Yam. Another part came from lower selling and marketing expenses, because new projects started execution in the comparable quarter.

The implication is that the profit quarter is not full proof of demand recovery. It proves that the company has enough projects under construction to recognize revenue, and that the gross margin did not erode in the quarter. It does not prove that new apartment inventory is selling faster or that customer payments are entering at a pace that can fund growth.

Sales Terms Shifted Away From Heavy Deferral, But Benefits Remained

The important number in the marketing models is not only how many apartments were sold. It is what the company received now and what was deferred to delivery. During the period, binding sales agreements were signed for 37 apartments totaling about NIS 165 million including VAT, plus about 240 sqm of commercial and office space for about NIS 2 million including VAT. Of the apartment sales, about NIS 45 million, or 27% of the total, were signed under favorable payment terms.

That is positive relative to the main concern from 2025: most new sales in the quarter were not signed in the track where the customer pays only 15% to 20% near signing and the rest near delivery. Customer benefits, however, did not disappear. In the linear payment track, which accounted for about NIS 120 million of sales, indexation exemptions totaled about NIS 30 million and developer-loan benefits totaled about NIS 12 million. In total, indexation exemptions were granted on about NIS 41 million, roughly 25% of the contracts signed.

This is mixed sales quality. Lower weight for a large payment near delivery reduces timing risk, but indexation exemptions and participation in developer-loan costs remain an economic price. In a quarter when the construction-input index rose 0.4%, the company can try to adjust selling prices to the terms it grants, but the protection is not complete. If selling prices do not stay strong enough, part of the benefits will reach margins or financing costs.

The cash-flow statement shows the same issue. The increase in contract assets with customers reduced operating cash flow by NIS 23.7 million, and investment in building inventory and land inventory reduced it by another NIS 43.9 million combined. Against that, customer-contract liabilities increased by NIS 12.3 million. In other words, there are advances and project progress, but they still do not cover the investments required to maintain the execution pace.

The Bond Expansion Changed the Debt Timetable, Not the Cash Source

This quarter requires separating two cash-flow frames. All-in cash flexibility after every cash use checks what remains after operations, investments, repayments and debt raises. It is not a test of normalized cash generation from the existing business. For Carasso, that flexibility relied on the debt market in the first quarter.

The Series B bond expansion generated net proceeds of NIS 341.6 million. At the same time, net short-term credit was repaid by NIS 284.6 million, so the quarter shifted a meaningful part of the pressure from short-term debt to long-term debt. That also explains the increase in current assets less current liabilities to NIS 742 million, compared with NIS 452 million at the end of 2025.

The covenants are not near immediate pressure. Net adjusted financial debt to net CAP was 62%, compared with ceilings of 78% for Series A and 75% for Series B. Consolidated equity was NIS 1.51 billion, well above the NIS 570 million and NIS 720 million requirements. Liquidity is also available: near the signing date of the reports the company had about NIS 100 million in cash and about NIS 280 million in approved unused credit facilities.

The point the market should not miss is that the quarter did not solve the cash source. It replaced short-term debt, preserved debt-market access and reduced the intensity of negative operating cash flow. Rivlal remains an asset with large planning value, but the negotiation to sell 49% of the rights ended in February without a binding agreement. JOMO moved to a heavier stage after the balance-sheet date, with a construction agreement with Electra Construction for about NIS 400 million plus VAT and indexation, alongside 6 apartments sold after the balance-sheet date and registration letters for 57 apartments totaling NIS 169 million with no certainty that they will become purchase agreements. These are important signals, but they increase the need to see financing, sales pace and actual collection.

Sales and Collection Will Set the Next Read

The first quarter strengthens the view that Carasso can move projects into revenue recognition and maintain a reasonable gross margin even in a weaker demand environment. It also shows that the debt market remains open for the company and that covenants leave operating room. The practical constraint is the pace at which customer cash enters relative to investment in inventory, land and new projects.

The current read is more positive than a quarter of severe cash burn, but still cautious. If sales rise in the coming quarters without a renewed increase in deferred-payment weight, and if operating cash flow moves closer to breakeven, the first-quarter debt expansion will look like efficient bridge financing. If revenue remains high while sales, indexation exemptions and contract assets keep absorbing cash, the market will read the profit as better accounting recognition rather than a stronger business-quality signal.