Solrom 2025: How much of earnings really came from the defense core and how much from rent?
Less than one fifth of Solrom's 2025 revenue produced almost 60% of operating profit because the rental layer also included NIS 12.9 million of tenant fit-out income. The fourth quarter already showed what the picture looks like when that component fades and earnings lean much more heavily on the defense core.
The Point Of This Follow-Up
The main article argued that Solrom's defense core genuinely improved, but that the 2025 consolidated headline was cleaner than the underlying earnings mix. This continuation isolates only that question: how much of 2025 profit came from the defense business itself, and how much came from the Tzahar rental layer, which in the same year also included NIS 12.9 million of revenue from tenant fit-out work.
The short answer up front: the NIS 27.4 million operating profit of 2025 cannot be read as the defense core's standalone earning power. Sales and services generated NIS 79.6 million of revenue and NIS 11.1 million of operating profit. Rent generated NIS 19.0 million of revenue, less than one fifth of the top line, but NIS 16.3 million of operating profit, almost 60% of consolidated operating profit.
That distinction matters precisely because the core did improve. This is not an argument that the defense activity is weak or that 2025 profit was fake. It is a narrower and more important argument for forward reading: 2025 blended two very different engines, with different friction, different repeatability, and a different direction into 2026.
The 2025 Profit Split
| Layer | 2025 revenue | Share of revenue | Gross profit | Operating profit | Share of operating profit |
|---|---|---|---|---|---|
| Sales and services | NIS 79.638 million | 80.7% | NIS 28.414 million | NIS 11.095 million | 40.5% |
| Rent | NIS 18.994 million | 19.3% | NIS 16.292 million | NIS 16.292 million | 59.5% |
| Total | NIS 98.632 million | 100% | NIS 44.706 million | NIS 27.387 million | 100% |
This is not only a size gap. It is a different kind of economics. In the split the company itself presents, the rental layer carries almost no operating friction beyond direct cost, which is why rental gross profit equals rental operating profit. Sales and services, by contrast, also carry the group's overhead and R&D burden, so core profitability looks very different once the full operating structure of the business is included.
That is where the easiest mistake sits. The consolidated operating margin in 2025 was 27.8%. The operating margin of sales and services was only 13.9%. So anyone reading 2025 as the defense business's new operating margin base is reading a number that was materially lifted by an unusually strong real-estate layer.
The investor presentation almost says this explicitly. It chooses to highlight gross profit and operating profit from sales and services separately, rather than relying only on total operating profit and EBITDA. That is not just presentation cosmetics. It is a signal that the core has to be measured separately, because otherwise 2025 looks stronger and cleaner than it really was.
What Sits Inside The Rental Layer
Out of the NIS 19.0 million of rental revenue in 2025, about NIS 12.9 million came from building fit-out for the tenant. That is the number that decides the debate. Strip that component out, and the remaining rental revenue that was not fit-out related falls to about NIS 6.1 million.
The presentation makes the transition even clearer. The previous lease on part of the buildings was priced at about NIS 6 million per year until the end of August 2025. In July 2025 a new one-year agreement was signed, effective September 1, 2025, at about NIS 3.5 million per year, while part of the buildings moved into self-use by the group. That means 2025 was not a normal rental year and not a normal core year. It was a transition year in which the real-estate layer included ordinary rent, fit-out recognition, and a partial shift from leasing to self-use.
It is also important not to swing too far in the other direction and treat everything related to Tzahar as meaningless noise. That is not the point. In the year-end valuation disclosure, the appraiser works with market rent of NIS 35 per square meter and a 7% discount rate, while explicitly noting that about NIS 24.7 million of conversion costs for the temporary school use were not included in the valuation. In other words, there is a real asset here, but even inside the real-estate layer itself, asset value, recurring rent, and accounting recognition tied to tenant adaptation are not the same thing.
What The Fourth Quarter Already Told Us
The fourth quarter is the most useful sample for 2026 because it already includes the move to self-use in part of the buildings and the new lease terms. This is where the annual 2025 headline stops being a convenient guide for what comes next.
Sales and services revenue in Q4 rose 34.7% to NIS 19.55 million, and core operating profit improved from a loss to NIS 1.017 million. So something genuinely improved inside the core. But in the same quarter rental revenue fell 70.6% to NIS 1.735 million, and rental operating profit fell 77.1% to NIS 1.195 million. The consolidated result was almost flat revenue, up only 4.3%, but a 55.3% drop in operating profit to NIS 2.212 million.
That is the center of this follow-up thesis. Q4 did not say the defense core weakened. It said the opposite. The core improved, but the layer that had lifted consolidated earnings earlier in the year weakened sharply. So 2026 will not be judged first by whether revenue keeps growing. It will be judged by whether the core can carry a much larger share of the group's earnings without the unusually strong rental support seen in 2025.
What This Means For 2026
The more disciplined reading of 2025 is that Solrom finished the year with two true stories at the same time. The first, clearly positive, is that the defense activity made a real step-up in profitability and now looks materially less fragile. The second, just as important, is that a large part of the year's reported profit did not describe the defense core's normal earnings run rate, but rather benefited from an unusually strong real-estate contribution.
That also defines the 2026 test. The right question is not only whether rent comes down. That already starts showing up in the new structure. The right question is whether what the buildings now release or absorb through self-use comes back through defense activity, through capacity, through deliveries, and through operating profit from sales and services. If it does, 2025 will look in hindsight like a bridge year from high real-estate profit toward a broader core earnings base. If it does not, 2025 will look like a year in which consolidated profit ran ahead of the defense business's normal earning power.
Conclusion
Once 2025 is split into its two layers, the picture becomes much cleaner. Solrom's defense core really did improve, and it no longer looks like a marginal activity being dragged around by real estate. But it produced NIS 11.1 million of operating profit, not NIS 27.4 million. The rest of the gap came from rent, and inside rent there was a large tenant fit-out component that does not look like a clean base for forward extrapolation.
The fourth quarter already sketched the next debate. As soon as the rental layer weakened, consolidated profit compressed sharply even while the core improved. So the right 2026 question is not whether Solrom owns useful real estate. It is whether the defense business can carry much more of group earnings without the relatively non-recurring tail that flattered 2025.
What needs to be watched now: whether sales and services hold operating profit under lower rent, whether self-use of the buildings translates into broader activity, and whether the market starts moving from a consolidated headline read to a core-earnings read.
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