Hagag Real Estate in the First Quarter: Fewer Developer Loans, Cash Depends on Collections and Project Surpluses

The first quarter at Hagag Real Estate improves the read on the issue that mattered most after 2025: sales quality. From January 1, 2026 through the report publication date, binding contracts were signed for about NIS 558 million including VAT, and the company’s own contracts totaled about NIS 472 million, almost entirely under linear payment schedules and with no developer-loan sales. That does not turn sales into immediate cash, because operating cash flow remained negative and the two-year source plan still depends on collections, inventory sales, surpluses from Somail and Yafo Saharon, Einstein, and a Shadal solution. The quarter therefore gives real credit to demand and sales terms, not a full approval of balance-sheet flexibility. Two post-balance-sheet developments, the Einstein 35 permit and the move to control Hagag Zim Real Estate, add assets and control, but also leave financing and execution work before that value becomes unrestricted cash. The next few quarters need to show actual collections, progress toward FIRST permitting and financing, and a clearer decision at Shadal.

Sales Came With Less Buyer Support

The company is a real-estate developer whose value creation runs through land, planning, marketing, execution, and delivery. As of the report approval date, it initiates and plans projects in Israel totaling about 4,500 housing units, including with partners, with an effective company share of about 3,100 units. In this model, counting sold apartments is not enough. The sale terms, cash timing, and how much of the economic price remains with the company matter just as much.

The marketing headline is high: from January 1, 2026 through the publication date, the company and Hagag Zim Real Estate marketed units totaling about NIS 1.013 billion including VAT, including registration requests and option agreements. The breakdown changes the read. Binding contracts during that period totaled about NIS 558 million, and in the quarter itself 65 units were signed for about NIS 306.5 million. Roughly NIS 455 million of the total marketing number still sits in the less binding layer of requests or options.

The more important datapoint is the sale terms. In the company’s binding contracts since the start of 2026, 82 housing units were sold for about NIS 469 million, plus two land units for about NIS 3 million. Of that roughly NIS 472 million, only about NIS 15 million was sold under 20/80 terms, no units were sold through developer loans, and about NIS 457 million was sold under linear payment schedules. Indexation waivers were granted on about NIS 139 million, equal to about 29% of 2026 sale contracts, while Amendment 9 to the Sale Law limits the permitted indexation base to 40% of the contract consideration.

That is a good answer to the checkpoint raised in the prior sales-quality analysis. In this quarter, the company did not return to developer loans, and 20/80 became marginal. The only warning sits in the FIRST note: six buyers can choose between a linear payment schedule and a developer-loan route. If they choose developer loans, those loans would increase to about NIS 47 million including VAT, while the contract consideration would increase by about NIS 7 million including VAT. That does not change the quarter’s read, but it shows that the product is still sold with some commercial flexibility.

Contracts Still Need to Become Collections and Project Surpluses

The reported numbers place a clear limit on the sales optimism. Revenue was NIS 175.2 million and net profit was NIS 15.4 million, but operating cash flow was negative NIS 54.3 million. That is an improvement from negative NIS 166.3 million in the comparable quarter, but the outflow still came from lower payables, buyer advances, and deferred income.

The relevant frame here is all-in cash flexibility after actual cash uses, not normalized maintenance cash generation. In the first quarter, financing cash flow of about NIS 65.1 million covered the negative operating cash flow and net investments. Cash rose to NIS 134.4 million at the end of March, but the liquidity review notes cash near the publication date of about NIS 55 million, and a NIS 33 million dividend was paid after the balance-sheet date.

The current risk is not immediate covenant proximity. The company says it complies with all financial covenants, the adjusted equity-to-balance-sheet ratio is about 31%, and the bond series are not in breach. The pressure is in the timing of cash sources versus cash uses. For the next two years, the board relies on about NIS 90 million from completed projects and remaining inventory, about NIS 95 million from land-right sales at Einstein 33a and Einstein 35, about NIS 650 million of surpluses from Somail 124 and Yafo Saharon, available credit lines of about NIS 60 million, and the ability to raise debt or equity. These are meaningful sources, but most depend on execution, pricing, collection, and bank release terms.

Shadal and Hagag Zim Leave a Funding Layer Open

Einstein 35 reduced one risk after the balance-sheet date by receiving a full building permit. In the agreements to sell 75% of the company’s commercial rights in Einstein 33a and Einstein 35 to Clal for NIS 385 million plus VAT, the buyer can cancel the relevant agreement if a full building permit is not received by June 30, 2026. At Einstein 35, that link closed. At Einstein 33a, the company has received the fee and levy account, and the permit can be obtained after payment.

Shadal is more complex. During the quarter, Had Master extended the principal repayment date on the credit facility from April 1, 2026 to June 30, 2026, received the permit-fee account required for permit issuance, and is examining conversion of part of the hotel rights into residential rights. The negotiations to sell the company’s project rights did not mature, partly because of the possibility of receiving additional residential rights. The asset may gain additional planning value, but until there is a binding sale or longer financing it remains dependent on time and money.

The second major move is the rise to control of Hagag Zim Real Estate. On April 14, 2026, the company agreed to acquire an additional 20% for NIS 72 million, plus an NIS 8 million control premium. Most of the consideration, about NIS 57 million, was paid by offsetting a loan previously extended to the sellers, and the remaining roughly NIS 23 million was paid at completion. The transaction was completed on May 27, 2026. After completion, the company holds 50% of the equity and 50.01% of voting rights, so Hagag Zim will be consolidated from the completion date.

Control adds a broad planning pipeline, but it also adds cash use. As part of the transaction, the company extended about NIS 43 million of owner loans to Hagag Zim, which were used to repay owner loans to Zim Holdings without a parallel repayment of the company’s own loans. As of March 31, 2026, Hagag Zim had equity of about NIS 29 million, down from about NIS 38 million at the end of 2025, and current liabilities exceeded current assets by about NIS 174 million, mainly because of short-term bank credit tied to projects classified as non-current assets. In the first quarter, the company’s share in Hagag Zim losses was about NIS 3.5 million. This is a pipeline with option value, not yet a stable cash source replacing the Tel Aviv projects.

Conclusion

The first quarter improves the sales read and leaves the cash read dependent on execution. There was no return to developer-loan sales, 20/80 was low, and indexation waivers were more limited within period contracts. That is good evidence that demand for the key projects, mainly FIRST and Bavli 3, is not wholly dependent on aggressive consideration deferral. The contracts still need to become collections and project surpluses, and the company still relies on future sources and accessible debt markets to move through the interim stage.

The next checkpoints are clear. FIRST needs to move from design-plan committee approval toward permit, financing, and execution. Einstein 33a needs to join Einstein 35 and remove the cancellation risk in the Clal transaction. Shadal needs a more stable financing route or a binding transaction, not another short extension that keeps the asset suspended. Hagag Zim needs to show that the new control brings project advancement, not only additional owner loans and excess short-term liabilities into the consolidated statements. If those four move forward without a renewed deterioration in sale terms, 2026 can become a year in which strong marketing starts reaching the balance sheet as cash. If they stall, the first quarter remains mainly evidence of demand, not evidence of cash flexibility.