When Will Kiryat Malachi Stop Eating The Margin?
Kiryat Malachi has already become a major growth engine for Orian, with about NIS 48.5 million of revenue in 2025, but at 60% year-end occupancy it still is not absorbing enough fixed cost to turn warehousing into a cleaner profit contributor. The decline in rental backlog and the thin impairment headroom in Lev Haaretz show that the issue is no longer whether the asset works, but how long and how expensively the network still needs to carry it.
Why Isolating Kiryat Malachi Matters
The main article argued that Orian kept revenue standing while profit remained under pressure. This follow-up isolates only the warehousing bottleneck, and inside that bottleneck mainly Kiryat Malachi, because that is where the core contradiction now sits. On one hand, this is already a working asset: in 2025 Kiryat Malachi generated about NIS 48.5 million of revenue, up from about NIS 15.5 million in 2024. On the other hand, in the same year that the site delivered the biggest revenue jump in the network, the warehousing segment loss widened to about NIS 8.8 million from about NIS 6.7 million in 2024.
That is the real issue. Kiryat Malachi is no longer at the stage where the question is whether there is activity there. There is. The question is whether the activity is already large enough to carry the fixed-cost base of what is now the largest warehouse in Orian's logistics network. As of year-end 2025, the answer is still no.
The four numbers that frame the situation are straightforward:
- Kiryat Malachi is Orian's largest warehouse, with roughly 42 thousand square meters of net storage area, after the first building, about 75% of the site, began phased occupancy in January 2024 and the full complex was completed in July 2024.
- Average occupancy rose from 19% in 2024 to 52% in 2025, while year-end occupancy rose from 35% to 60%.
- Site revenue jumped to about NIS 48.5 million, but the warehousing segment as a whole still moved deeper into loss because the new capacity is carrying more fixed cost than it is yet absorbing.
- At the same time, the disclosed warehousing backlog fell from about NIS 78.8 million to about NIS 55.6 million, but that is not warehouse-services backlog at all. It is rental and sublease backlog. Anyone reading it as a direct measure of Kiryat Malachi fill is reading the wrong number.
What Improved, and What Still Hasn't
It is easy to see why management keeps talking about filling Kiryat Malachi as a central target. Between 2024 and 2025 the site nearly tripled revenue, and that jump explains a large part of the rise in total warehousing revenue. In revenue terms, the site moved from ramp-up to material scale.
But the annual report and the director's report say the second half of the story just as clearly. In 2025 warehousing revenue rose 15% to NIS 204.9 million, and in the fourth quarter it rose 5% to NIS 51.5 million. Even so, the warehousing segment posted a loss of about NIS 8.8 million for the year and about NIS 4.4 million in the fourth quarter, versus about NIS 1.8 million in the comparable quarter. The company's own explanation is direct: the deeper loss mainly reflects the increase in fixed cost after taking possession of Kiryat Malachi and filling it only gradually.
That point matters. Kiryat Malachi did not fail. It is still in absorption mode. The problem is that while it remains in that mode, it eats the benefit coming from higher revenue. That is why a reading that focuses only on occupancy improvement can miss the real economics. Moving from 35% year-end occupancy in 2024 to 60% at the end of 2025 is a real improvement, but it is still not a level that automatically covers the cost base of a site this large.
The internal comparison with the older warehouses makes that even clearer. Lev Haaretz 1 ended 2025 at 89% occupancy and generated about NIS 47.7 million of revenue. Kiryat Malachi ended the same year at 60% occupancy and generated about NIS 48.5 million. In other words, Kiryat Malachi already delivered a similar top line to Lev Haaretz 1, but it did so on a much larger storage footprint and at a much lower occupancy level. That does not prove the site cannot become profitable. It does prove that it still is not operationally leveraged like the more mature sites.
The Backlog Here Is Rental Cushion, Not Warehouse Fill
One of the more misleading numbers around the warehousing story is the backlog. At first glance it looks like a direct read on future demand. In practice, the report explicitly states that the company has no backlog in warehousing services. Revenue from storage services depends on customers' actual operating activity, and in most agreements either side can terminate with advance notice, usually 60 to 90 days.
The only backlog that is disclosed belongs to rental and sublease agreements for office and operating space. That is why the decline from about NIS 78.8 million at the end of 2024 to about NIS 55.6 million at the end of 2025 does not mean Kiryat Malachi emptied out or that storage demand weakened. What it does mean is that the contractual cushion coming from rent and sublease became smaller.
That analytical distinction matters. Anyone looking for proof that Kiryat Malachi is already on its way to becoming a mature warehouse will not get it from this backlog number. The relevant measures are occupancy, the pace of new-customer intake, pricing, and the ability to turn revenue growth into segment-level profit improvement. The reported backlog only helps show how much contractual rental protection is left underneath the network.
That also leads to a better test for 2026. If this backlog keeps falling, that is not automatically evidence that core warehouse demand is getting weaker, but it would reduce the contractual cushion provided by sublease income. In that case Kiryat Malachi would have to prove more through real operating fill and less through semi-passive rent economics elsewhere in the network.
Why Sublease Economics Make The Older Sites Look Cleaner
The report reveals one small but important detail: part of the stability in the older sites does not come only from warehouse activity. Lev Haaretz 1 and Lev Haaretz 2 both include meaningful subleased space, and the report separates that income line.
| Site | Net storage area (thousand sqm) | Occupancy at 31.12.2025 | 2025 revenue (NIS million) | Disclosed sublease / rental layer |
|---|---|---|---|---|
| Lev Haaretz 1 | 21.8 | 89% | 47.744 | About 6.25 thousand sqm subleased, plus about NIS 4.087 million of rental income |
| Lev Haaretz 2 | 10.9 | 77% | 27.964 | About 8.3 thousand sqm subleased, plus about NIS 4.147 million of rental income |
| Kiryat Malachi | 42.0 | 60% | 48.496 | The report shows free-storage revenue only, with no separate sublease line disclosed |
That is not a technical footnote. It is a different economic structure. In the older sites, part of the area already sits on sublease or related rent, so part of the revenue there is less directly dependent on picking, dispatching and live inventory movement. In Kiryat Malachi, at least based on the report's own disclosure, there is no equivalent cushion presented. What is disclosed there is storage-services revenue.
So when Kiryat Malachi delivers nearly the same 2025 revenue as Lev Haaretz 1, that does not mean it has reached the same economic quality. Lev Haaretz 1 combines higher occupancy with an identified sublease layer. Kiryat Malachi, by the end of 2025, still looks like a very large site in the middle of a fill-up process, not a mature site already benefiting from the same contractual protection.
The Asset-Value Cushion Is Still Too Thin
The strongest evidence that the company still cannot afford another disappointment in warehousing economics sits in the impairment review of Lev Haaretz 1 and Lev Haaretz 2. The auditor flagged the issue as a key audit matter, and the numbers show why.
At the end of 2025 the carrying value of the cash-generating unit that includes Lev Haaretz 1 and Lev Haaretz 2 was about NIS 136.6 million. Its recoverable amount was about NIS 140.6 million. That means headroom of only about NIS 4.0 million. For a material operating asset base, that is very thin.
The sensitivity table makes the point even sharper:
| Parameter | 31.12.2025 base | Impact on recoverable amount | What it means for the NIS 4.0 million headroom |
|---|---|---|---|
| After-tax discount rate | 9.75% | A 0.5% increase cuts recoverable amount by about NIS 4.843 million | Half a point of discount-rate pressure already wipes out more than all the headroom |
| Representative EBITDA margin | 29.8% | A 0.5% decrease cuts recoverable amount by about NIS 3.366 million | Almost the entire buffer disappears even under a relatively mild downside case |
| Representative EBITDA margin | 29.8% | A 1% decrease cuts recoverable amount by about NIS 6.732 million | In that scenario the unit would move below carrying value |
It is important to be precise: this is not an impairment test for Kiryat Malachi. It is for Lev Haaretz 1 and 2. That is exactly why the message matters. Even the mature warehousing base is not sitting on a thick value cushion. When the older core still has that little slack, Kiryat Malachi does not have much time to remain a large fixed-cost site that has not yet translated scale into enough earnings.
That also helps explain why management keeps talking in the same sentence about higher occupancy, new-customer intake, price updates and wider warehouse optimization. This is not generic management language. It is an admission that the solution will not come from just one more customer in Kiryat Malachi, but from a combination of fill, pricing, portfolio management and network-wide efficiency.
When Will Kiryat Malachi Stop Eating The Margin?
The filings do not give a date. They give conditions.
First, occupancy has to keep moving materially above the 60% year-end 2025 level so that cost absorption changes in practice. This is not cosmetic. 2025 already showed that about NIS 48.5 million of revenue at this site still is not enough.
Second, revenue growth has to reach the segment result line. 2025 was the year in which Kiryat Malachi clearly delivered turnover, but warehousing as a segment still ended in a deeper loss. If 2026 again shows rising revenue without parallel improvement in the warehousing loss, then the site still has not crossed the absorption threshold.
Third, the company needs more than fuller space. It needs the right revenue on that space. The report describes long-term agreements with global customers, higher service standards, and management efforts around price updates and wider optimization of the warehouse network. That matters because at a site this large, the key question is not only whether more area is occupied, but whether customer mix and pricing can produce a normal operating return.
Fourth, the discussion sits inside a wider warehouse network where the contractual rental cushion has already come down and the Lev Haaretz impairment sensitivity remains high. So Kiryat Malachi does not just need to improve. It needs to improve fast enough to move from being a cost-absorption story to being a real margin repair story.
The bottom line is that 2025 already answered one question: Kiryat Malachi can generate activity. It has not yet answered the more important one: whether that activity is already paying for all of this size. As of year-end, not yet. This makes 2026 look like a very clear operating proof year, no longer a construction year, but still not a harvest year either.
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