Kardan Nadlan 2025: El-Har Is Carrying Results, but Land and Debt Are Eating the Room to Maneuver

Getting to Know the Company

Kardan Nadlan is no longer read correctly if you look at it only as a residential developer. In 2025 it is a three-engine group: residential development, an in-house execution arm through El-Har, and one relatively small but stabilizing income-producing asset, Beit Kardan. The problem is that the engine carrying the report right now is not the same engine absorbing the capital. El-Har and the income-producing asset soften the accounting picture, but land, inventory and front-loaded project investment are what now determine the cash question.

What is working today is fairly clear. Execution revenue jumped to NIS 347.3 million from NIS 190.4 million in 2024, El-Har's backlog rose to NIS 3.766 billion from NIS 2.234 billion, and Beit Kardan recovered from weak occupancy at the end of 2024 to roughly 91% occupancy at the end of 2025, alongside a NIS 12.1 million fair-value gain. That buys the group time.

What is still messy is just as clear. Residential development, which had been the heart of the story in earlier years, generated only NIS 122 million of revenue in 2025 versus NIS 315 million a year earlier, while net profit fell to NIS 24.3 million. Operating cash flow moved to a negative NIS 129.8 million, and equity attributable to shareholders slipped slightly to NIS 751.4 million despite positive earnings, because the dividend consumed more cash than profit rebuilt in equity.

What a superficial reader may miss is that the jump in inventory is not necessarily a pile of completed apartments that are stuck. At year-end 2025 the company had almost no completed unsold apartments, other than one unit in Kiryat Shalom. The real issue is that the balance sheet is swelling before profit and cash show up: buildings and apartments inventory rose to NIS 999 million, non-current land inventory still stood at NIS 551.7 million, and the company is loading land, planning and execution earlier than it is converting them into cash.

That matters now because of the shareholder layer. At the solo-company level, net financial liabilities stand at NIS 669 million. So it is not enough to look at project-level surpluses or execution backlog. The real question is how much of that value can move through construction finance, partners, overhead, debt and dividends and actually become accessible cash for shareholders.

The group had 128 direct employees at the end of 2025, 35 in Kardan Nadlan and 93 in El-Har, but the execution arm also relies on manpower corporations and foreign workers. That is why revenue of roughly NIS 3.8 million per direct employee is not a clean productivity metric. It mainly shows that management and contracting activity sit on top of a broad layer of external labor. All material activity is in Israel, with only an immaterial US housing exposure that is already in late-stage wind-down mode.

Events and Triggers

Trigger one: In August 2025 the company received a proposal from Kardan Israel to negotiate a statutory merger under which Kardan Nadlan would be the absorbing entity. On paper that could simplify the structure, broaden the asset base and remove a holding layer. In practice it remains a non-binding proposal, with an independent committee, regulatory and creditor approvals still needed, and no exchange ratio disclosed. Right now it is a source of uncertainty more than an immediately actionable value trigger.

Trigger two: The issuance and expansion of Series V bonds brought in NIS 380.2 million net from issuance. That is what kept year-end cash at NIS 239.8 million and allowed the company to continue funding land and project investment. The other side of the move is just as clear: the bond balance rose to NIS 588.7 million and financing costs kept climbing.

Trigger three: Residential sales did not freeze, but they still did not return to being the recognition engine. The fourth quarter saw 52 apartment sales, versus only 25 in each of the second and third quarters, so there is some sign of better sales momentum. But most of the report was still written by project stage, not by sale count.

Trigger four: After the balance-sheet date, on March 16, 2026, the board approved another NIS 30 million dividend to be paid in April 2026. That signals a degree of confidence, but it also sharpens the question of whether this is the right time to keep sending out cash in a year when equity did not grow and operating cash flow was negative.

One important external signal is the Midroog report dated December 31, 2025, which kept the issuer and bond ratings at A3.il with a stable outlook. This is not a blindly positive report. Its message is double-sided: liquidity and long-running financial discipline still support the rating, but the base case already assumes higher leverage and a relatively weak interest-coverage range. In other words, the credit market is still giving Kardan Nadlan room, but it already wants proof that balance-sheet expansion will turn into results.

Efficiency, Profitability and Competition

The core story of 2025 is a handoff between engines. On a consolidated basis, revenue fell 9.8% to NIS 484.8 million, gross profit fell 33.2% to NIS 80.3 million, and operating profit was cut by 50.6% to NIS 39.3 million. But those numbers do not describe an even slowdown. They describe a shift away from residential development, which recognized much less revenue and profit, toward execution, which kept activity moving, and a small yielding asset portfolio that stabilized the picture.

Residential Development

Residential development fell sharply. Revenue from apartment sales and construction services dropped to NIS 122 million from NIS 315 million, while segment operating profit fell to NIS 19.9 million from NIS 76.8 million. The more interesting point is that the decline in apartment sales was much milder than the collapse in recognized revenue. Based on the quarterly sales split, the company sold 145 units in 2024 versus 134 units in 2025. Demand weakened, but it did not collapse. The gap comes from project stage and the pace at which contracts turn into accounting recognition.

That is where sales quality becomes important. The company explicitly describes greater payment flexibility, including contractor loans, 80/20 deals and index protection. The main project table shows cumulative financing benefits of roughly NIS 24.2 million in only four projects: Holiland, Matzada, Karmi Gat and Uziel. That is not necessarily an immediate problem, but it is a clear reminder that the question is not only how many apartments were sold, but under what terms the pace was maintained.

Margin pressure is visible at the project level as well. In Uziel, expected gross profit declined by roughly NIS 6 million between 2024 and 2025, mainly due to higher execution costs. That is exactly the kind of erosion that can turn a decent sales year into a weak earnings year.

El-Har

El-Har provided the counterweight. Execution revenue rose 82.4% to NIS 347.3 million, and segment operating profit jumped to NIS 28.5 million from NIS 4.3 million. The company explains this mainly through new projects starting up and faster progress in ongoing projects after a prior year hit by the war. That is positive, but it is still important to put a limit on what El-Har actually solves.

Out of a total backlog of NIS 3.766 billion, NIS 1.269 billion is tied to five projects El-Har executes for the group itself. So the large backlog is not a pure proof of third-party diversification. A meaningful portion is work that recycles risk inside the group. That is still better than having a weak or empty execution arm, but it is not the same thing as a clean third-party backlog.

The Yielding Asset Layer

Beit Kardan provides a real stabilizing layer, but it is still a small one. Rental income was essentially flat at NIS 13.9 million, yet operating profit from the yielding-assets segment rose to NIS 24.1 million from NIS 16.4 million, mainly because of a NIS 12.1 million fair-value gain. Average occupancy improved to roughly 82%, and year-end occupancy reached roughly 91% versus roughly 78% a year earlier.

What sits behind that is not just a better occupancy number, but better re-leasing quality. Space vacated by the Tel Aviv Municipality was partly re-let to the Tel Aviv District Attorney's Office and partly to other tenants. The District Attorney's Office accounts for 48% of the asset's area, which strengthens the quality of the anchor tenancy but also reminds readers that this is still one concentrated asset. It is a useful stabilizer, not a growth engine big enough to carry a NIS 2.4 billion balance sheet.

Cash Flow, Debt and Capital Structure

The gap between profit and cash is the core issue. If you use an all-in cash flexibility lens, 2025 was not a cash-generation year. It was a capital-absorption year. The company used NIS 129.8 million in operating cash flow, generated NIS 21.2 million in investing cash flow, mainly from deposit withdrawals, JV returns and the Mikdan sale, and brought in NIS 254.2 million from financing, almost entirely through the Series V bond issuance and expansion. Put simply, year-end cash rose because the debt market provided oxygen, not because the business funded itself.

This is not the right year to present a normalized cash-generation story as if the current capital needs were temporary noise. Financing costs, land investment and front-loaded equity are the core economics here. During the year the company paid NIS 17.8 million of interest, NIS 41.1 million of taxes, and capitalized another NIS 23.7 million of interest into inventory. That is the real cost of carrying growth forward.

On the balance-sheet side, assets rose 34.5% to NIS 2.446 billion while equity barely moved. Buildings and apartments inventory rose to NIS 999 million from NIS 358 million, non-current land inventory fell to NIS 551.7 million from NIS 729.5 million, but together they still reached NIS 1.551 billion versus NIS 1.087 billion a year earlier. On the liability side, land-purchase obligations jumped to NIS 487.1 million from NIS 201.3 million, and bonds rose to NIS 588.7 million from NIS 293.1 million. Bank debt plus bonds reached NIS 946.8 million versus NIS 651.4 million at the end of 2024.

This is where the bridge to shareholder economics matters. At the solo-company level, net financial liabilities stand at NIS 669 million. So the project tables showing future surpluses are not enough on their own. For that value to become accessible, it still has to move through solo debt, project finance, timing and the company's willingness not to over-distribute cash before the cycle turns.

Still, precision matters in the other direction as well. This is not a company sitting on the edge of a covenant event. Solo tangible equity to solo balance sheet stands at roughly 41.7%, net financial debt to solo CAP net at roughly 45.77%, and consolidated tangible equity to consolidated tangible balance sheet at roughly 35.76%. All of those are comfortably inside bond-deed and financing thresholds. So the current bottleneck is not covenant headroom. It is the price of continuing to expand before earnings and cash catch up.

Capital allocation is the less comfortable add-on. The company paid NIS 34 million of dividends in 2025 and approved another NIS 30 million after the balance-sheet date. That can be read as confidence. It can also be read as a choice that makes the 2026 execution test harder, because more cash is leaving the company in a year when equity is flat and operating cash flow is negative.

Outlook

Before getting to the forecast, four points are worth pinning down:

• Apartment sales weakened much less than recognized revenue, so 2026 depends mainly on project stage, not only on demand.
• El-Har can smooth the income statement, but it does not replace equity and does not solve the cash question at the company level.
• Project-surplus tables look attractive, but some projects sit on thin equity cushions and long timelines into 2029 and 2030.
• The credit market is still giving the company room, but the stable rating already assumes higher leverage and weak interest coverage.

If 2026 needs a name, it is not a breakout year. It is a debt-funded bridge year. The company needs to move projects from planning and early execution into stages that actually generate recognized residential revenue, without letting the balance sheet keep running ahead of equity. This is a year where the key variables are not just how many units get sold, but how many projects truly enter execution, at what margin, and at what pace they begin releasing surplus.

In its rating report, Midroog estimates that residential-development revenue could reach NIS 250-400 million in 2026 in its base case, as projects enter execution. That is an external assessment, not management guidance. In the same breath, Midroog also assumes leverage of 53%-58% and EBIT-to-interest coverage of only 0.5-1.2. Even under the friendlier reading, then, 2026 still looks like a year in which expansion will arrive before real financial comfort.

Together, the six main execution projects carry expected surplus at completion of NIS 523.7 million. That is a meaningful number, but it needs to be read carefully. First, it is not a 2026 cash picture. These surpluses are spread mainly across 2027 to 2030. Second, the cushion is not uniform. Netanya 1011 sits at a 3.8% equity ratio, Park Hayam at 6.9%, and Karmi Gat at 5.3%. Those are projects that may create value, but they do not look like cash already sitting in the bank.

On the positive side, the company is not burdened with a large stock of completed unsold apartments, and fourth-quarter apartment sales did improve. Beit Kardan should also contribute roughly NIS 10.4 million of fixed signed rental income in 2026 at the company share level. That is not enough to move the whole group, but it helps stabilize the edges.

On the less comfortable side, market conditions still look fragile. The company itself says demand is affected by relatively high interest rates, limitations on financing promotions, labor shortages and higher material costs. So over the next two to four quarters the question is not just whether apartments will sell, but whether they will sell without deeper subsidies, more delayed payments or another step down in margin quality.

Risks

The main risk is not one isolated issue, but the combination of financing, execution and sales quality. A developer can live with high leverage if projects move quickly and sell well. It can live with weaker sales for a period if the balance sheet is conservative. In 2025 Kardan Nadlan chose to front-load growth, so each classic risk now matters a bit more.

Sales quality: The company explicitly describes wider use of contractor loans, 80/20 campaigns and index protection. It also notes that the Supervisor of Banks published a temporary directive restricting banking-system exposure to deferred-payment apartment sales and bullet or balloon structures through the end of 2026. If those channels tighten, not only sales pace but also cash collection quality could weaken.

Execution cost and labor: The company describes continued shortages of construction workers, difficulty sourcing skilled foreign labor, and pressure from the halt in trade with Turkey in key construction materials. It also says El-Har had to pay more to some subcontractors or replace them. That already fed into delays, higher costs and weaker profitability in some projects during 2025.

Backlog that does not fully diversify risk: A NIS 3.766 billion backlog sounds excellent, but roughly one-third of it sits on projects inside the group. That means El-Har does provide better execution control, but it does not remove Kardan Nadlan's economic risk. It mainly changes the way that risk shows up in the report.

Capital structure and capital allocation: The 2025 expansion was funded mostly by debt. At the same time, the company paid a NIS 34 million dividend and approved another NIS 30 million after year-end, while the potential merger with Kardan Israel remains open. That does not mean immediate stress. It does mean that management's room for error has become more expensive.

Conclusion

Kardan Nadlan ends 2025 looking like a company that is building faster than it is recognizing profit. That is not automatically a negative. A developer that gets ahead of land, planning and execution can create meaningful value later. But the arithmetic of this year is clear: El-Har and Beit Kardan kept the report readable while residential development, equity and cash flow did not yet close the gap.

So the current thesis is not a distress thesis. It is a conversion thesis. The company now has to prove that the balance sheet it built in 2025 will turn into revenue, profit and cash at the shareholder level over the next few years, rather than into more inventory, more debt and more project tables that look good on paper.

Current thesis: El-Har and the yielding asset are buying time, but the real test is whether residential development starts paying back the capital it absorbed.

What changed: The company is no longer relying on housing as the immediate profit engine. Execution and the yielding asset carried 2025, and debt funded the bridge.

Counter-thesis: The market may be reading 2025 too harshly, because the weakness in residential development stems largely from recognition timing and too few projects at the right execution stage, while backlog, land reserves and El-Har could restore growth and profitability from 2026 without real covenant pressure.

What could change the market read in the short to medium term: Continued sales momentum after the strong fourth quarter, real project starts in 2026, rating stability without another sharp leverage step-up, and a more measured distribution posture.

Why it matters: In a developer-contractor model, value is not tested only by backlog size or land bank size. It is tested by the ability to turn those into accessible cash before debt has to fund the full journey.

What has to happen over the next 2-4 quarters: Stable apartment sales without deeper subsidies, real execution starts in planned projects, margin stability in the main projects, and capital discipline.