Yozmot in the First Quarter: Beit Habad's Valuation Supports the Covenant Before Projects Return Cash

Yozmot ended the first quarter of 2026 with net profit of NIS 8.3 million, but that profit rests mainly on one asset: Beit Habad 3 in Tel Aviv, which was recorded at NIS 70 million and generated a NIS 15.3 million fair-value gain. That revaluation helped bring the adjusted equity-to-balance-sheet ratio for Series A back to 22.52%, slightly above the 22.5% interest-step threshold, after the ratio had fallen to 20.95% at the end of 2025. The development business advanced, revenue rose to NIS 18.3 million and several projects received or moved closer to permits, but cash did not move at the same pace: operating cash flow was negative NIS 20.6 million and customers and accrued income increased to NIS 18.8 million. The quarter therefore does not prove that the backlog is already funding itself. It shows that the company received an accounting equity layer and an important collateral asset while the projects still require funding. Released Series B proceeds after project conditions were met help, and the Tshuva transaction adds a broad project pool, but it also moves Yozmot into a phase where investors need to see how much cash goes into the joint company before projects return surplus cash. The next quarters will be decided by buyer collections, surplus releases from projects, keeping the Series A ratio above the threshold without another material revaluation, and clearer disclosure on the joint-company funding need.

Yozmot is a residential real-estate developer focused mainly on urban renewal in Israel, with about 50 projects and about 2,758 units for sale. This is a business in which value is created slowly: resident signatures, planning, permits, bank financing, sales, execution, collection and surplus release after project debt is repaid. Accounting profit can therefore arrive well before cash reaches the company, especially when a large part of buyer payment is deferred to later stages.

In the first quarter, the company added another engine: income-producing real estate. The acquisition of Beit Habad 3 in Tel Aviv made the asset the company's only income property as of the report date, and the company began reporting it as a separate segment. The asset includes commercial space and a 25-room hotel. It matters less because of current quarterly rent and more because of its balance-sheet value. Yozmot is no longer only a backlog-and-permits story. It is also a company where one asset can change the bond equity ratio.

Beit Habad's Value Pushed Series A Back Above the Threshold

Yozmot reported first-quarter revenue of NIS 18.3 million, compared with NIS 7.0 million in the corresponding quarter. Gross profit rose to NIS 5.3 million, and net profit was NIS 8.3 million. The number that explains most of the swing to profit is not only apartment-sale pace. It is the NIS 15.3 million fair-value gain at Beit Habad. Without that revaluation, headquarters costs, finance expenses and tax would have left the quarter much less convincing from a profit perspective.

Beit Habad's value comes from two sources. The asset's value in current use was estimated at NIS 29.9 million, mainly commercial space and the existing hotel. The balance-sheet value is NIS 70 million, and it also rests on future planning, highest-and-best use, additional rights and assumptions such as NIS 38,000 per built commercial square meter, NIS 1.5 million per hotel room, NIS 57,500 per built residential square meter, a 0.84 risk coefficient and capitalization rates of 6.75% to 8%. The asset therefore supports the covenant through expected betterment, not only through rent.

In cash-flow terms, the asset is still small. In the first quarter, it generated rental income of NIS 256 thousand and NOI of NIS 140 thousand. The hotel operation agreement also does not immediately produce full rent: the company is party to an agreement with a related company of the controlling shareholders, at base rent of NIS 85 thousand per month plus VAT, with a rent relief period in the first three months. The NIS 153 thousand relief will return to the company only if the hotel operation earns more than NIS 200 thousand in its first year.

The importance of the revaluation is visible in the bond metrics. Equity attributable to shareholders was NIS 30.1 million at the end of the quarter, and total equity was NIS 39.7 million. For bond covenant purposes, adjusted equity reached NIS 86.5 million because it also includes NIS 46.8 million of shareholder loans. The adjusted equity-to-balance-sheet ratio for Series A reached 22.52%, only slightly above the 22.5% interest-step threshold. At the end of 2025, the ratio was 20.95%, which triggered an annual 0.25% interest addition during the breach period, amounting to about NIS 31 thousand. The first quarter moved the ratio back above the threshold, but the cushion is narrow.

The Series A debt-to-collateral ratio sharpens the same point. The ratio was 72.33%, below the problematic 100% level but above the 70% threshold required for a series expansion. Beit Habad helps the bond layer, but it does not immediately create full flexibility. For that threshold to look more comfortable, the company needs to increase equity and collateral, reduce debt, or show that projects are returning real cash.

Customers, Inventory and Construction Liabilities Absorbed the Profit

The gap between profit and cash is the important part of the report. Operating cash flow was negative NIS 20.6 million in the first quarter. Cash fell from NIS 41.2 million at the end of 2025 to NIS 11.4 million at the end of March 2026. This is not only the result of the Beit Habad purchase, which appeared in investing cash flow. It also reflects a development business that still needs funding until customers pay and projects release surplus cash.

Customers and accrued income rose to NIS 18.8 million, from NIS 13.6 million at the end of 2025. The business reason matters: in projects such as Horowitz 39 and Kaplinski 21, revenue was recognized according to progress, while some buyer receipts were lower than the revenue recognized. Current contract liabilities declined to NIS 679 thousand, and construction-service liabilities declined to NIS 46.4 million. Taken together, the report recognizes progress, but some of the cash is still with buyers or inside the bank-financing mechanism.

The tool that explains part of the gap is the 80-20 mechanism and contractor loans to buyers. The company reports that about 15 buyers, about 50% of signed sale agreements, use such a mechanism. The loans are generally capped at up to NIS 1 million per transaction, and the interest the company pays on them is about 4.7%, compared with bank project-financing cost of about 7%. For the company, this can be a useful tool for reducing bank-financing drawdowns and accelerating sales. For cash-flow quality, it defers part of collection to a later date and gives the company a financing cost that begins before the full cash is received.

The release of Series B proceeds eases funding, but here too it is necessary to separate released cash from free cash. In the first quarter, current trust deposits fell to NIS 59.4 million, mainly because the company completed the conditions for releasing funds in the Kaplinski 20, Ussishkin 11 and Margolin 31 projects, and about NIS 19.3 million was transferred to the company. After the balance-sheet date, following the satisfaction of conditions in the Ussishkin 5-7 project in Netanya, another NIS 25.9 million was released, after which all net Series B proceeds had been released to the company. This is an important liquidity improvement. It also reminds the reader that this source is tied to specific project progress, and does not replace buyer collections, sales or project surpluses.

The Tshuva Transaction Enlarges the Option and the Funding Need

After the balance-sheet date, Yozmot received two events that move the backlog forward: a building permit for Kaplinski 38 in Rishon Lezion on April 16, 2026, and a building permit for Ussishkin 5-7 in Netanya on May 20, 2026. Ussishkin also has a financing agreement of about NIS 100 million, at prime plus 0.78%. These are not side headlines. In a development company, a permit and bank financing are the move from potential value to a business that can start construction and return cash.

The broader event is the completion of the joint company with Yitzhak Tshuva on May 28, 2026. Yozmot holds 50% of the joint company, which concentrates about 20 urban-renewal projects, mainly in Netanya. The company's estimates refer to the joint company's share of about 867 housing units for sale, alongside about 11 thousand square meters of commercial space and about 79 thousand square meters of office space for sale. This adds a growth layer that did not appear in the 2025 report in the same form.

The less comfortable side sits in the funding terms. Under the agreements, Yozmot will fund the joint company's activity that is not funded from its own sources or from the project companies, and its shareholder loans bear interest of prime plus 2%. If Yozmot provides funding beyond its share, it is supposed to recover it from project profits, and in certain cases through assignment of the other party's rights to payments from the joint company. That mechanism gives the company contractual protection, but it still requires cash in the interim. In the first quarter, the company already recorded an additional NIS 6.3 million related to cost reimbursement and the Tshuva transaction principles.

The Tshuva transaction is therefore not only backlog expansion. It changes the company's cash-consumption pace over the coming year. If the projects secure financing and advance quickly, the joint company can materially expand the activity base. If the path to financing, permits and sales is longer, Yozmot will have to fund another interim layer while Series A remains close to the equity-ratio threshold and the existing projects still do not return enough cash.

What Needs to Happen Over the Next Quarters

Yozmot's first quarter is better than a read-through from the 2025 report, but it is still not a quarter in which the development business proves cash-flow independence. Beit Habad created profit and moved the Series A ratio back above the interest-step threshold, and the building permits and released Series B proceeds improve execution capacity. At the same time, negative operating cash flow of NIS 20.6 million, the increase in customers and accrued income, and the broad funding commitment in the Tshuva joint company mean the profit still rests more on assets and financing than on collection.

Over the next 2-4 quarters, the read will improve if customers and accrued income stabilize or decline, if projects such as Kaplinski and Ussishkin begin releasing surplus cash, and if the Series A ratio remains above 22.5% without another large Beit Habad fair-value gain. It will weaken if the company needs to increase shareholder loans to the joint company before project financing is in place, or if 80-20 mechanisms keep expanding the gap between recognized revenue and collection. The positive case is that Beit Habad bought the company balance-sheet time until projects begin returning cash. That case needs proof in the cash balance, not only in the asset value.