Kardan Israel 2025: Value Is Building in Data Centers, but the Real Test Is Parent-Level Cash

Getting to Know the Company

At first glance, Kardan Israel can look like another real-estate name with a strong annual report: NIS 106.6 million of net income, NIS 957.5 million of equity attributable to shareholders, and exposure to two attention-grabbing areas, housing and data centers. That is too shallow a reading. In practice, this is a real-estate holding company with two very different layers. The first layer is its 59.41% stake in Kardan Nadlan, which carries residential development, income-producing real estate, and construction activity through Elhar. The second layer is direct activity with Geva in logistics, employment, and data-center projects, where Kardan also finances part of the partner’s equity through loans.

What is working today is clear. Elhar returned to solid profitability after a weak year, its backlog is large, Kfar Saba moved from a planning story toward an operating story with Form 4, the local occupancy certificate, after the balance-sheet date, and the data-center exposure is taking on a more concrete shape. What is not clean is just as clear: accounting profit is running far ahead of cash, the value in the direct projects still needs to become rent, sales, or stable financing, and the parent company itself finished the year with only NIS 2.6 million of cash against NIS 511.6 million of current liabilities.

That is the core of the story. Kardan Israel should not be judged only on whether it owns good assets, but on whether that value is accessible to common shareholders at the parent layer and how quickly it can move upward. The company’s market cap stood at roughly NIS 780 million in early April, below equity attributable to shareholders, but the trading value on that day was only about NIS 33 thousand. So even if there is an apparent gap between market value and internal value, it is not a value gap that can be unlocked easily or quickly.

The first screen should therefore stay simple. What works: the data-center platform has advanced, Elhar recovered, and the residential and construction backlogs still provide some visibility. What blocks a cleaner thesis: weak solo liquidity, reliance on refinancing and project maturation, and lower-quality residential growth. What needs to happen for the read to improve: leasing and full financing at Shoham, occupancy and revenue conversion at Kfar Saba, and better collections and cash conversion beyond accounting profit.

The group’s economic map looks like this:

One more point belongs near the top. In 2025 Kardan Israel proposed a statutory merger with Kardan Nadlan. After that merger, the public company would be Kardan Nadlan, combining housing, construction, logistics, and data-center activity in one listed vehicle. That could reduce layers, create more scale, and eventually improve market access. It also underscores that Kardan Israel’s current problem is not a lack of assets, but a structure that makes it hard to push value up the chain.

Events and Triggers

Data centers moved from concept to proof stage

The first trigger: Shoham is no longer just a concept. In phase A, two data centers are being built on about 60% of the land, with capacity of up to 24 MW IT and more than NIS 700 million of construction cost including systems and equipment. Construction work effectively started in January 2025, and the target launch is the second half of 2026. That matters because 2025 was the year the project crossed from planning into real physical execution.

But the second trigger matters more than the first: Shoham still has no signed leases, even though the partners are in discussions with potential customers for meaningful volumes. That means a large part of the value currently recognized there still rests on valuation and construction progress, not on contracts that already lock in cash flow.

Kfar Saba is more balanced. On the positive side, in March 2025 the joint venture signed a 10-year lease with Serverz, with annual rent of about NIS 6.7 million effective upon receipt of Form 4. After the balance-sheet date, in March 2026, the Form 4 occupancy certificate was received, and by the report date the first hall was already in stages of occupancy by telecom and financial-sector customers. That is the first real proof signal that the group can move part of its data-center story from a valuation model into actual commercial use.

On the negative side, the Kfar Saba project saw weaker demand for logistics and retail space, and the company did not meet the sales milestones embedded in the bank financing. The bank granted several extensions, and in January 2026 the deadline was pushed to June 30, 2026. This is exactly the kind of detail many readers skip even though it is central: even in the more advanced project, the path from asset value to cash and clean financing is still not frictionless.

The group structure is starting to move

The third trigger: the merger of Kardan Communications into the company was registered on February 23, 2026. It is a relatively small step, but it fits a broader direction of simplifying the group and aligning the structure.

The fourth trigger: the proposed merger with Kardan Nadlan, raised in August 2025, is much more consequential. The stated rationale is straightforward: create a larger real-estate company, combine data-center and logistics activity into one public vehicle, reduce structural layers, and potentially benefit from tax losses accumulated at Kardan Israel. Here too, two thoughts need to be held at once. The deal could improve tradability, scale, and maybe value accessibility. It also means dilution for existing Kardan Nadlan shareholders, and the real test will be the exchange ratio, the quality of the assets going in, and the merged company’s ability to serve debt without leaning too heavily on future-story economics.

Financing improved in one thread, but it did not disappear from the thesis

The fifth trigger: the post-balance-sheet credit update says some borrowings at Kardan Nadlan and the Shoham project are no longer “reportable credit.” That is a limited positive signal because it points to a change in the reported financing structure. But it is not proof that financing pressure has disappeared. The wider picture still includes high short-term debt, funding costs exposed to prime, and large projects that still need to prove commercialization and stability.

Efficiency, Profitability, and Competition

The paradox of 2025 is that some segments genuinely improved, yet stronger net income does not mean a cleaner improvement in the group’s operating quality. Revenue fell 8.2% to NIS 525.1 million, gross profit fell 31.6% to NIS 87.6 million, and operating profit fell 36.2% to NIS 53.9 million. The rise in the bottom line came mainly from equity-accounted profit of NIS 80.1 million, fair-value gains of NIS 28.0 million, and a near-vanishing tax expense relative to 2024.

This chart clarifies an important shift. In 2024 the group relied mainly on real-estate sales. In 2025 the center of gravity moved to construction works. That is not automatically bad news, but it is definitely a different economic model. Apartment, logistics, and office sales fell 54.3%, while construction revenue jumped 82.4%. The group leaned more heavily on the execution engine and less on recognized development sales. That stabilizes part of the activity, but it also puts more weight on a business where backlog quality, customer mix, and margins matter as much as top-line growth.

The chart shows the real split. Residential weakened sharply, construction recovered, and logistics plus data centers surged. But that last surge is not the same quality as growth in a business already running on signed contracts, stabilized occupancy, and recurring rent. It also contains fair-value gains and the company’s share in joint ventures that have not yet fully become accessible cash.

Residential keeps a reported price point, but not the same sales quality

Kardan Nadlan sold 134 housing units in 2025 versus 145 in 2024. Segment operating profit fell from NIS 76.8 million to NIS 19.9 million. At the same time, average selling price per square meter rose to NIS 26,242 from NIS 23,298. On the surface that looks like pricing resilience. It is only part of the picture. The company explicitly says the average price per square meter excludes buyer benefits such as builder loans, 80/20 structures, and CPI protection. So the number shown in the price line does not, by itself, tell you the quality of the transaction.

That matters because the housing market itself became harder. New-home inventory in Israel reached 86,090 units at the end of 2025, equal to 29.2 months of supply, versus 75,940 units and 23 months of supply at the end of 2024. In that backdrop, a sale that preserves a headline price but requires financing incentives is not the same sale economically. It can weigh on collections, extend the cash cycle, and raise cancellation risk if market conditions keep shifting.

Here too both sides need to be held. On one side, Kardan Nadlan still has a broad project platform and a residential backlog of NIS 886.8 million at the end of 2025, rising to NIS 940.6 million near the report date. On the other side, the banking regulator already signaled tighter limits in March 2025 on deferred-payment structures. So backlog alone is not enough. The real question is under what terms it was built, how fast it becomes cash, and what happens if the aggressive sales toolkit loses effectiveness.

Elhar recovered, but part of the backlog sits inside the group

Elhar is one of the reasons the group’s operating picture does not look worse. Segment operating profit rose to NIS 28.5 million from NIS 4.3 million in 2024, and backlog reached NIS 3.77 billion at year-end 2025. A management team looking to highlight a bright spot would be right to point there.

But one more layer matters. About NIS 1.269 billion of Elhar’s backlog is tied to Kardan Nadlan projects. So the backlog is certainly real work, but it is not definitive proof of broad external demand or customer diversification. That does not cancel the recovery. It does mean that Elhar’s backlog partly reflects the pace of development inside the group itself.

Cash Flow, Debt, and Capital Structure

Where the cash actually got stuck

This is where the analysis needs to shift explicitly into an all-in cash flexibility frame, meaning how much cash is left after the year’s real cash uses. On that basis, 2025 looks far less comfortable than net income suggests.

Net income was NIS 106.6 million. Operating cash flow was negative NIS 186.4 million. The gap was driven mainly by a NIS 454.8 million increase in inventory and long-term land inventory, a NIS 44.5 million increase in receivables, partly offset by a NIS 279.3 million increase in land-purchase liabilities and a NIS 61.1 million increase in suppliers, payables, and advances. In other words, cash did not burn because of one odd item. It burned because development economics require sustained funding before projects mature.

This chart explains why the rise in consolidated cash to NIS 242.4 million should not be mistaken for true cash comfort. To fill the gap, the company relied on NIS 418.3 million of financing cash flow. In other words, in 2025 the money came from financing, not from the business itself.

Solo is where the bottleneck sits

At the solo parent level, the picture is even sharper. At the end of 2025 Kardan Israel had only NIS 2.6 million of cash. Against that, it carried NIS 428.3 million of short-term bank credit, NIS 50.0 million of current bond maturities, and NIS 511.6 million of total current liabilities. The company itself shows a solo working-capital deficit of about NIS 299 million.

That does not automatically mean the company is heading into an immediate liquidity event. Management explicitly says it is relying on positive cash flow from project maturation, on extensions and refinancing of short-term credit, and on additional assets including listed shares. But this is exactly where economic value diverges from accessible value. A parent company can own investments, property under development, and long-term loans, and still remain very tight at the cash level.

Another non-obvious point is the structure of the loans to Geva. Kardan extends loans to Geva in order to finance the partner’s share of equity in the joint projects, and by the end of the period those loans and accrued interest effectively reached about NIS 181 million. Those loans are meant to be repaid first from Geva’s future share in the projects. This strengthens Kardan’s economic grip on the platform, but it also leaves Kardan more exposed to the speed at which the projects mature and start generating distributable cash.

Debt is still within covenant limits, but it remains highly execution-sensitive

The company was in compliance at the end of 2025 with all bond covenants on its own series, and that matters. The immediate covenant test does not look close. But it would be a mistake to read that as a pressure-free balance sheet. Roughly NIS 785 million of consolidated credit is exposed to prime, and the company itself points to the rate environment as something that affects both funding cost and demand.

In addition, Kardan Israel’s bonds are secured by a pledge over 24.2 million Kardan Nadlan shares. That strengthens creditor protection, but it also highlights how heavily the parent-layer debt structure relies on the value of the layer below. So any claim of balance-sheet strength still has to pass through a simpler question first: will Kardan Nadlan, the joint projects, and the expected monetization events actually push enough cash up the chain?

Outlook and What Comes Next

First finding: 2025 closed the gap between a strong strategic story and weak cash generation. If 2026 again delivers profit without better collections, sales conversion, or commercialization, the market is likely to treat the earnings line more skeptically.

Second finding: Kfar Saba provides the first proof point, Shoham still does not. That matters because the market usually gives a very different reading to a project that has already reached Form 4, occupancy, and a signed lease versus one that still depends on future demand and construction progress.

Third finding: residential is not a broken platform, but transaction quality is weaker. The backlog exists, the projects exist, and the company is not out of the game. Still, sales increasingly supported by builder loans, deferred payments, and CPI protection make 2026 look more like a bridge year than a breakout year.

Fourth finding: the proposed merger with Kardan Nadlan may become a value-unlocking move, but it is not a substitute for execution proof. If 2026 fails to deliver data-center commercialization, better cash flow, and progress in sales and financing, a simpler group structure by itself will not be enough.

Data centers: the market will look for contracts, not just valuation

Shoham is expected to begin operation in the second half of 2026. At Kfar Saba, the first hall is already moving through occupancy stages, and Serverz increased electricity capacity from 15.2 MVA to 22.2 MVA in the fourth quarter of 2025. That means the coming year will subject the data-center business to a new test: not whether it looks compelling in a presentation or in a valuation model, but whether it can turn power allocation, built space, and infrastructure into leases, occupancy, and cash flow.

Read like an analyst rather than a developer, 2026 is a commercial proof year. Kfar Saba can show whether demand is real and translatable into net operating income and actual revenue. Shoham needs to show that discussions with large customers turn into signed leases and that project financing does not remain an open issue until the last minute.

Residential provides visibility, but not cleanliness

Residential backlog does provide an activity base. The problem is that this visibility is not the same as liquidity. Only about NIS 209.9 million of the backlog is scheduled for 2026 recognition, while the larger portion sits in 2027 and beyond. In a housing market leaning more heavily on buyer incentives and less on free demand, a later backlog is only partly good news.

That is why 2026 looks like a bridge year here. It is not a reset year because there is inventory, there is activity, and there are projects. It also does not look like a breakout year because the housing market itself became harder, and tighter regulation on deferred-payment structures may weigh on the very sales tools that helped preserve pace.

Elhar provides stronger operating visibility

Elhar gives the group something it lacks elsewhere: a very large construction backlog already split by recognition years. About NIS 844.5 million is expected in 2026 and another NIS 1.18 billion in 2027. That is useful operating visibility. But for the market to grant it full credit, it will still want to see that 2025 margins hold and that a larger share of backlog rests on external work rather than on intragroup projects.

What has to happen over the next 2 to 4 quarters

The next reports are likely to be judged less on net income and more on four practical metrics. First, occupancy pace and first revenue at Serverz. Second, signed tenants at Shoham and progress toward final financing. Third, sales and collections in residential without a further deterioration in buyer incentives. Fourth, the ability to roll short-term credit at the parent without the pressure migrating fully into the solo layer.

Risks

The first risk is value accessibility risk. Even if Shoham, Kfar Saba, and the investment in Kardan Nadlan are worth a lot, Kardan Israel shareholders still depend on that value reaching the parent in the right form and on time.

The second risk is commercialization and financing risk at Shoham. Construction is advancing, but without signed leases and fully visible financing, any delay can postpone the project’s proof point.

The third risk is residential sales quality. If buyer incentives keep expanding, or if regulation on deferred-payment structures tightens further, the company may preserve activity at the price of weaker cash flow or higher cancellation risk.

The fourth risk is internal concentration inside Elhar’s backlog. A large backlog is an advantage, but when a meaningful share comes from Kardan Nadlan projects, diversification is weaker than the headline suggests.

The fifth risk is actionability in the stock itself. Short interest is negligible, but liquidity is very weak. That means even if the narrative improves, efficient repricing may not happen quickly.

Conclusions

Kardan Israel exits 2025 with assets and projects that can create real value, but also with a widening gap between value under construction and accessible cash. The data-center platform and Elhar’s recovery explain why the story still matters. The cash burn, weak solo liquidity, and lower-quality residential sales explain why the story is still not clean. In the near to medium term, the market is likely to react mainly to whether 2026 brings commercialization and cash, not just further accounting gains.

Current thesis in one line: Kardan Israel is entering 2026 as a real-estate holding company with a real value option in data centers, but still under a liquidity, commercialization, and cash-conversion test at the parent layer.

What changed relative to the 2024 read is not the existence of the assets but their stage of maturity. Kfar Saba is closer to real revenue, Shoham is under construction, and Elhar is again producing better operating numbers. At the same time, the solo cash gap and the weaker quality of residential sales became much more visible.

The strongest counter-thesis: the market may simply be too harsh on the parent layer. If Kfar Saba fills well, Shoham signs customers, Kardan Nadlan continues producing profits and dividends, and the merger with Kardan Nadlan advances, the gap between market cap and equity could close faster than skeptics assume.

What could change the market’s interpretation in the near to medium term is a combination of first or material lease signings at Shoham, visible revenue progress at Serverz, and refinancing steps that show the solo parent can move through the bridge period without leaning on more expensive solutions.

Why does this matter? Because Kardan Israel is sitting right on the line between a real-estate platform with a new growth engine and a holding company where value keeps accumulating underneath but remains difficult to monetize for common shareholders. 2026 should start showing which side it belongs to.

What needs to happen over the next 2 to 4 quarters for the thesis to strengthen is a clear move from physical progress to commercial and cash-flow progress. What would weaken it is another delay in Shoham commercialization, renewed pressure in residential sales, or a need for more expensive financing at the parent.