IES in 2025: The Land, the Desalination Option and the Cash Are There, but the Income Is Not Yet

Introduction to the Company

The core story at IES in 2025 is not a liquidity problem. It is a conversion problem. On one side, the company owns the Palmachim park, generated NIS 61.8 million of NOI, ended the year with NIS 542.4 million in cash, cash equivalents and financial assets, and carries almost no financial debt. On the other side, the big value drivers management is trying to build around desalination, power, data infrastructure and Airpark have still not turned into binding contracts and operating income.

Anyone looking only at the NIS 221.3 million net profit may think the breakout is already here. That would be a mistake. NIS 162 million of that number came from fair value gains on the land, and NIS 59.7 million came from net financing income, mostly the securities portfolio. In practice, all of the company's external revenue in 2025, NIS 63.8 million, still came from the investment property segment alone.

What is working today is Palmachim. The existing interim uses keep generating rent, pricing improved, NOI moved higher, and the balance sheet gives management time. What is still missing is the step that turns this asset from land with rights and options into land that actually produces infrastructure cash flow or an active aviation business.

That is why IES should not be read as a standard yielding real estate name, and not yet as a live infrastructure operator either. It is better understood as a company with one real income-producing asset today, a large liquid securities portfolio, and a strategic option on Palmachim and Airpark. 2026 looks like a regulatory and commercial proof year, not a harvest year.

The Economic Map as It Actually Stands

This is the heart of the story. The operating business is improving, but not nearly fast enough to explain the headline result on its own. Today the result is still being carried by revaluation and by the financial portfolio.

Events and Triggers

Palmachim moved from pure valuation language into negotiations, but it has not crossed the line yet

First trigger: In July 2025, IES signed a non-binding memorandum of understanding with Palmachim Partnership. If completed, the company would hold 50% of the concession vehicle and 50% of the operating vehicle of the desalination plant for a new concession period estimated through 2054. Competition approval arrived in September 2025, and on 31 December 2025 the deadline for a detailed agreement was extended to 31 March 2026. That is real progress, but it is still not a contract.

Second trigger: At the same time, Park Palmachim's right to buy the entire existing desalination plant did not disappear. The company is still trying to enforce that route legally, but the proceedings were stayed by agreement until 31 March 2026 as part of the understanding with Palmachim Partnership. In other words, the company currently holds two open paths, a 50% partnership route or a 100% acquisition route, but neither path is closed.

Third trigger: On 31 December 2025, the company received a letter from the chair of the special desalination tenders committee, stating that the Ministry of Finance and the Water Authority were advancing a government decision to authorize a national infrastructure plan for the refurbishment of Palmachim A, the expansion at Palmachim B and a small power plant of up to 250 MW. According to that letter, the intention was to bring the issue to a joint discussion no later than the end of the first quarter of 2026. That is an important outside signal, but it is still not a government decision.

Airpark moved forward, but it is still an option

Fourth trigger: In May 2025, Airpark received a signed development agreement from the Israel Land Authority relating to the completion of the 101A parcel, covering about 311 dunams. In December 2025, a building permit application was approved and a permit was granted subject to conditions. Those are real milestones. They still do not make Airpark a revenue engine.

Fifth trigger: Even after the planning progress, the company itself says the project still depends on completed rights and possession, partners, financing, grants, additional permits and skilled personnel. The land has moved forward. The business has not yet crossed the same line.

Sixth trigger: In November 2025, IES signed a framework agreement with an international company based in Florida for acquisition, teardown and trading in civilian aircraft spare parts. That is interesting because it shifts the story a little closer to transactions rather than presentations, but each actual transaction still requires a separate binding annex.

Ashkelon is off the table, so the focus returns to Palmachim

Seventh trigger: On 25 December 2025, the company ended its participation in the tender for the Ashkelon desalination plant upgrade and expansion after its extension request was denied. This is not a balance-sheet event, but it matters strategically. It sharpens the fact that IES's real desalination route now runs through the assets it controls rather than through an outside tender win.

The buyback says management sees a gap, but it does not solve the underlying issue

Eighth trigger: The company bought back NIS 39.1 million of treasury shares in 2025. On 12 March 2026 it also approved a new buyback program of up to NIS 25 million, funded from internal resources and running for one year. That is a clear signal on perceived discount, but it is not evidence that the Palmachim and Airpark options have already become operating businesses.

Efficiency, Profitability and Competition

What improved in the business that already exists

The operating picture at Palmachim improved even without the revaluation. Rental and maintenance revenue rose to NIS 63.8 million from NIS 55.2 million in 2024, which means about 15.6% growth in the running business. Same-property NOI rose to NIS 61.8 million from NIS 51.1 million, while maintenance expense fell to NIS 2.5 million from NIS 3.1 million.

This is a pricing and operating story. On pricing, the company points to higher real rents in new and renewed agreements as well as CPI linkage in existing contracts. On operations, park maintenance costs came down. There is no new large project volume behind this. It is better monetization of the land that is already active.

Tenant concentration also helps clarify the picture. The four largest tenants together generated 56% of rental income: 18%, 13%, 13% and 12%. The company does not name most of them, but one of them is clearly the desalination plant, contributing NIS 8.2 million and 13% of rental income. That identity matters. This is not just another logistics tenant. It is an asset tied directly to Israel's national water system.

What is less clean in the profit line

This is the main yellow flag. The company booked NIS 162 million of fair value gain on investment property in 2025. On top of that, NIS 61.1 million of financing income included NIS 56.1 million of gains from securities investments. So while profit from ordinary activities reached NIS 211.4 million, the reader still needs to separate current earning power from value that has been re-measured.

The more interesting point is that the company explicitly says the valuation methodology for the desalination-designated land was updated in 2025, moving from an income approach to an indirect comparison approach. That does not make the valuation illegitimate. It does mean that the 2025 jump did not come only from better field economics. Part of it came from a change in how the land is translated into value.

That is also why the auditors highlighted investment property fair value as a key audit matter. When the gap between what the land generates in cash today and what it receives in accounting value based on planning and option value widens, the reader has to be more demanding about earnings quality.

The gap between NOI and net profit is exactly where caution is needed. NOI reflects what the land is producing today. Net profit already includes what management and the valuer believe the land may produce later, plus what the securities portfolio delivered this year.

The real competition is not against another landlord

In conventional investment property terms, IES is not a large market player. The company itself says its share in the market is not material. So the competition that matters is not whether another industrial park near the center of the country is offering space at a slightly different price. The real competition is for three other resources: government attention, planning time and partner confidence.

At Palmachim, the advantage is the unique land position and the connection to water, gas, electricity and coastal infrastructure. At Airpark, the advantage is an approved plan and a location next to Ovda. In both cases, though, the bottleneck is not standard market supply. It is the ability to turn physical advantage into a closed project. The competitive question is therefore not just who owns attractive land, but who can move through regulation, financing and execution without stalling.

Cash Flow, Debt and Capital Structure

The cash framing I use here is all-in cash flexibility. That is the right frame for IES because the key question is not how attractive the accounting result looks. The key question is how much time and capital the company has to wait for Palmachim and Airpark without funding stress.

The liquidity is real, and so is the absence of debt

As of 31 December 2025, the company held NIS 124.6 million of cash and cash equivalents plus NIS 417.4 million of financial assets at fair value through profit and loss. Together, that is NIS 542.4 million. Financial liabilities were only NIS 11.0 million, and total financial debt was NIS 1.4 million. Net debt to equity is effectively zero.

That matters because it changes the read of the whole story. IES is not dealing with refinancing pressure, covenant stress or an urgent need to sell assets in order to survive. The same signal also comes from outside the company. Midroog reaffirmed an A2.il issuer rating with a stable outlook in 2025, alongside a debt-raising scenario of up to NIS 500 million. The issue is not access to capital. The issue is what that capital will eventually be deployed into, and in what sequence.

What cash actually did in 2025

Cash flow from operations came in at NIS 42.0 million. That is not weak. It is also not a number that can carry the entire strategic narrative around Palmachim and Airpark on its own. From there, the company allocated capital in two visible directions: net purchases of securities and additional investments totaling NIS 30.5 million, and buybacks plus loan repayments totaling NIS 39.4 million.

So the year ended with a NIS 27.9 million decline in the cash balance, not because the business was squeezed, but because management chose to deploy capital. That distinction matters. Cash did not disappear because of stress. It declined because of capital allocation.

Value that is accessible to shareholders versus value that is still stuck in the promise stage

This is where the capital structure matters. Cash, equivalents and the securities book are accessible value. The buyback itself shows that management can return part of that value to shareholders in practice. By contrast, the NIS 1.63 billion investment property figure is accounting value tied to land and rights. It may prove justified. It is still not cash.

The same logic applies to the NIS 1.429 billion of distributable profits. There is plenty of accounting room. Economically, though, common shareholders do not need only distributable capacity. They need proof that Palmachim and Airpark will actually become operating engines rather than just a higher appraisal.

If one uses the alternative frame of normalized or maintenance cash generation, the existing business looks healthier than the headline might imply. But that is not the decisive frame here. In IES, the central question is how much capital the company has to wait, advance projects and absorb delay. In that picture, the company is strong.

Outlook

Before looking at 2026, four non-obvious findings need to be pinned down:

• First finding: 2025 proved that Palmachim can generate more money even without national infrastructure conversion, but it did not prove that the company can turn the land into an active infrastructure business.
• Second finding: valuation has already moved ahead of execution. The next meaningful update therefore has to come from milestones, not just from appraisal.
• Third finding: Airpark has progressed to signed land rights and a permit subject to conditions, but it still depends on incentives, permits, partners and actual international demand.
• Fourth finding: a strong balance sheet buys time, but time is not the same thing as delivery. If 2026 passes without tangible progress, the market will again ask how much of the value is truly accessible.

What has to happen at Palmachim

The first and most important bottleneck is the commercial and legal route around the desalination asset. By 31 March 2026, the market should understand whether the MoU is moving into a detailed agreement, or whether the company is returning to the route of full acquisition under the existing contractual mechanism. Any other outcome, another delay without a clear framework, would weigh on the thesis.

The second bottleneck is national planning. The company needs authorization for the national infrastructure route and a clearer path for Palmachim A refurbishment, Palmachim B expansion and the supporting power plant. Without that, 2025 remains mainly a valuation year. With it, 2025 could start to look like the base year for a genuinely different strategic track.

What has to happen at Airpark

Airpark needs to move from land and planning into actual site work. A signed permit, the start of development work, and the emergence of a real partner or anchor customer would represent a major upgrade in quality. Without those steps, the project remains an interesting option, but still a distant one.

It is worth noting that the company's own wording stays cautious. It talks about planning, business development, partner recruitment, grants and financing. That is the language of a project in pre-commercial transition, not the language of an operating business.

What kind of year is ahead

2026 looks like a regulatory and commercial proof year. It is not a reset year, because the current business works and the balance sheet is strong. It is not yet a breakout year, because the company still lacks signed contracts, final permits and operating conversion. It is the kind of year in which the market will ask whether IES can close paths, not just open them.

This is an important data point. Existing contracts support the next two years, but they do not carry the full long-duration strategic case by themselves. The higher land value depends on what still needs to happen, not only on what is already signed.

Risks

The land value is still sensitive to assumptions, not only to facts on the ground

The fair value uplift relies on an external valuation and, in the desalination-designated part of the land, on a methodology change. The sensitivity analysis shows that a 5% change in value per square meter affects fair value by NIS 77.6 million. This is not a survival risk. It is a perception risk. If the planning track slows down, the market may start questioning the pace at which accounting value can turn into accessible economic value.

Heavy dependence on government and external parties

At Palmachim, the company depends on the Water Authority, the Ministry of Finance, the government, the national planning process, Palmachim Partnership and Via Maris. At Airpark, it depends on the Ministry of Defense, the land authority, planning bodies, partners and grants. This is not pure demand risk. It is a coordination risk across a long list of actors that do not sit inside the company.

Financing income is a cushion, but also a volatility source

The financial asset portfolio stood at NIS 417.4 million. Securities gains contributed NIS 56.1 million in 2025. In addition, the company held NIS 69.2 million of foreign-currency financial assets against minimal foreign-currency liabilities, so shekel appreciation can hurt the financing line. The portfolio therefore gives IES flexibility, but it also adds earnings volatility that does not come from the Palmachim operating base.

Contract visibility is relatively short, and all revenue still sits on one asset

All of IES's revenue still comes from Palmachim. Without extension options, signed future rent totals only NIS 138.4 million, and drops to NIS 42.1 million in the second year, NIS 20.0 million in the third, NIS 10.6 million in the fourth and only NIS 2.1 million from the fifth year onward. This does not threaten liquidity, but it does make clear that the long-duration value case already depends on what still has to be delivered, not only on what is already contracted.

Airpark is also a geopolitical story

The company itself says Airpark's location next to an active military base makes the project sensitive to Israel's geopolitical and security environment, especially in terms of willingness by aircraft owners, investors and international partners to commit. So even if the physical setup advances, demand quality at Airpark will remain tied to the regional backdrop.

Short Interest Read

The market is not building an aggressive skeptical position here. As of 27 March 2026, short float stood at 0.23% and SIR at 1.08, both below the sector averages of 0.55% and 1.562 respectively. There was a jump versus early March, but even after the jump the level remains very low.

The implication is that the debate around IES is not currently being expressed through a crowded short. The market probably is not confident enough to short the story aggressively, but it also has not yet accepted the Palmachim and Airpark promise as a proven fact.

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Conclusions

IES enters 2026 from a position of real financial strength and genuine strategic interest. Palmachim generates real money, the balance sheet is wide, and the state is now part of the desalination and infrastructure conversation. But it is still not a clean story: reported earnings rely heavily on revaluation and the securities book, while the two biggest growth engines, infrastructure at Palmachim and Airpark, remain in a stage that still requires proof.

Current thesis: IES is a cash-rich Palmachim income asset with a real option on desalination and power, but the large value gap still has to move from planning into contractual and operating form.

What changed: the company no longer looks like a passive land holder. 2025 showed that the existing Palmachim business is improving, that the government dialogue around desalination is moving, and that management is willing to allocate capital through buybacks. At the same time, it also showed that the gap between accounting value and operating income remains large.

Counter-thesis: the market may still be underestimating how unusual the combination is between unique land, high liquidity, contractual rights around the existing plant and emerging regulatory traction, which could mean that even after the 2025 revaluation the underlying value is still understated.

What could change the market read in the short to medium term: a detailed Palmachim agreement or a clearer alternative route, a government planning decision, a signed permit and actual site work at Airpark, and visible execution of the new buyback program.

Why this matters: this is a classic case of the gap between value already built on paper and an operating business that still has to be born. Anyone who reads the 2025 profit as if it already represents the company's future economics will miss the main point.

Over the next 2 to 4 quarters, the thesis strengthens if Palmachim moves from an extended memorandum to a binding structure, if national planning progresses in practice, and if Airpark starts real work on the ground. It weakens if 2026 delivers more valuation and more intentions, but still no signed contracts, final permits and new operating activity.