Kiryat Shlomo after 2025: tenant concentration, 2026 options and the real valuation question

After the broader 2025 read, it is worth stopping at one asset. Kiryat Shlomo in Tzrifin looks like the calmest anchor in the Israeli portfolio: 100% occupancy, NIS 27.6 million of NOI, a NIS 425 million fair value, and a steady rise in both rent and value.

That calm is a bit misleading. The property has only two tenants, both controlled by the controlling shareholder. The signed-income table gives hard visibility only through 2026, while the option periods that can extend the story through 2035 are subject to repricing by an independent valuer. At the same time, the appraisal that supports the asset value is framed as a gross property valuation, while the property note itself discloses a first-ranking charge. That is the gap this follow-up isolates.

Four points to hold in mind

• Kiryat Shlomo is still the largest named Israeli contributor in the representative-year table, with NIS 35.7 million of income and NIS 26.3 million of NOI.
• At the property level, 2025 ended with NIS 37.1 million of total income, of which NIS 26.6 million was rent and NIS 10.5 million was management fees, against NIS 27.6 million of NOI.
• All property income is tied to only two related-party tenants, split 78% to Shlomo Holdings and companies under its control and 22% to Shlomo Garage Network and Road Services.
• The NIS 425 million appraisal is built on 2025 rent and a 6.25% cap rate, but the opinion itself frames the valuation as rights free of debt or liens, while the property is in fact specifically charged.

Kiryat Shlomo is an anchor, but one already operating close to its ceiling

In the representative-year table for the Israeli assets, Kiryat Shlomo stands above the rest: NIS 35.7 million of income and NIS 26.3 million of NOI, ahead of HOPE TOWN, the wholesale market asset and the other named properties. The property-specific tables tell the same story. Rent rose from NIS 24.98 million in 2023 to NIS 26.57 million in 2025, management fees stayed around NIS 10.5 million, and NOI rose from NIS 26.03 million to NIS 27.56 million. Fair value increased from NIS 406 million to NIS 425 million over the same period.

The more important point is not stability by itself but how little easy operating upside is left. Occupancy is already 100%, the number of tenants is 2, and the valuation itself assumes full occupancy both in year one and in the representative year. That means the asset is not creating further value through filling vacant space. It depends mainly on preserving the current tenant setup, carrying rent forward and defending the cap rate. That is a comfortable base, but also one that is already working near full capacity.

One more detail matters here. Management fees do not create a hidden diversification layer. The valuer states that the property has no external management company, that it is managed by the company itself, and that management-fee income covers operating and maintenance costs. In other words, the operating layer does not bring in third-party diversification. It stays inside the same related-party tenant ecosystem.

The concentration here is absolute, not merely high

At the property level the picture is extremely sharp. 78% of Kiryat Shlomo's income is attributed to Shlomo Holdings and companies under its control, and 22% to Shlomo Garage Network and Road Services. Both tenants are flagged as responsible for 20% or more of the property's income, and both receive two additional consecutive option periods of 4.5 years each after the current term ends in August 2026.

This is not just two-tenant concentration. It is concentration in two tenants from the same related-party sphere and from the same wider vehicle ecosystem of leasing, garages and road services. In practice, Kiryat Shlomo is not an asset with broad market diversification that happens to be performing well in 2025. It is an operating campus that serves the Shlomo group ecosystem. That can be a moat, because the group has an incentive to stay in a site built around its needs. But it also means the asset's stability is internal stability, not proof of deep third-party market demand.

The company-level disclosure reinforces the same point. Shlomo Holdings and companies under its control generated NIS 37.694 million of revenue in 2025, equal to 18.1% of the company's proportionately consolidated revenue, and the company explicitly describes a material dependency because roughly half of its Israeli leasable area is rented to companies controlled by the controlling shareholder. The sector-exposure table adds that vehicles and leasing represented 38% of 2025 income in the Israeli activity. Kiryat Shlomo is where that aggregated exposure becomes almost total.

2026 is the edge of hard visibility, not necessarily the end of the relationship

The key leases at the property expire in August 2026. That does not mean the tenants leave, but it does mean hard public lease visibility stops there. In the table of expected income from signed lease agreements, Kiryat Shlomo shows NIS 16.811 million of fixed components and NIS 6.553 million of variable components for 2026, a total of NIS 23.364 million. From 2027 onward, no signed income is disclosed.

The crucial point sits in the footnote. Future rent that could arise from exercising the options granted to Shlomo Holdings and the private companies is excluded from that table. So the zero beyond 2026 is not a forecast of vacancy. It is the boundary of hard contractual disclosure. Once the asset moves into the option periods, rent is no longer locked in by the current filing. It is reset through an independent valuation if the option is exercised.

That is where the most important gap opens between the contract layer and the valuation layer. In the attached appraisal, the valuer describes the leases as long-term agreements running from February 2011 through 2035 including the option periods. In other words, the valuation framework looks at a much longer stream of occupancy and rent than the signed-rent disclosure currently gives to investors. This is not an accounting contradiction, but it is an interpretive one: anyone building a thesis on Kiryat Shlomo has to decide whether to anchor on signed visibility or on the assumption that the options will be exercised and repriced at a level that still supports the current value.

The real valuation question starts exactly where the appraisal stops

The appraisal summary looks simple enough: monthly rent of NIS 2.214 million, annual rent of NIS 26.57 million, a 6.25% cap rate, and a rounded value of NIS 425 million. The parameter table in the annual report points to the same basis, with representative NOI of NIS 26.571 million and a 6.25% cap rate.

The disclosed sensitivities show how far this is from a hard number. In the attached appraisal, moving the cap rate up from 6.25% to 6.75% takes value down to NIS 394 million. Moving it down to 6.0% lifts value to NIS 443 million. The sensitivity table in the annual report adds another useful detail: because occupancy is already 100%, a 5% upside occupancy scenario creates no additional value, but a 5% downside occupancy scenario cuts value to NIS 403.9 million. That is exactly how a mature fully let asset behaves, limited operating upside, but still meaningful downside if renewal or pricing weakens.

But the more important question is who this value belongs to. The valuer states that the opinion is framed on the assumption that the rights are free of debt or liens, subject to the existing leases. The property note in the annual report, by contrast, discloses a first-ranking specific charge securing loans and a credit facility, with NIS 153 million secured at year-end 2025 and an additional unused short-term facility of NIS 305 million. Put simply, NIS 425 million is a gross asset value, not freely accessible equity value.

That is the core argument. If Kiryat Shlomo is the anchor supporting the stable read on the Israeli portfolio, it is not enough to say the property is worth NIS 425 million. The relevant questions are how much of that value depends on rolling related-party tenants forward on similar terms, how much is sensitive to small moves in the cap rate or rent, and how much is actually available to owners once the charge is put back into the picture.

What has to happen next

The first trigger is renewed visibility beyond August 2026. That does not require a new external tenant. It can come from the current tenants exercising their options or from new agreements that preserve the current income base.

The second trigger is pricing. Since rent in the option periods is supposed to be determined by an independent valuer, the test is not only whether the leases extend, but whether the next rent reset still supports a NIS 425 million valuation.

The third trigger is the market's interpretation of value. As long as the property stays full and continues to generate stable NOI, it is easy to treat Kiryat Shlomo as a certainty. In practice, it is a relative certainty only as long as the internal group continues to use it and as long as the market is willing to underwrite a relatively low cap rate for a property effectively leased to two related-party tenants. That is a small wording change, but a major analytical difference.

Bottom line

Kiryat Shlomo ended 2025 as a strong, full and profitable asset. This is not a classic weak spot. But it is also not a completely frictionless stone in the portfolio. The property's economics are 100% concentrated in two related-party tenants, hard disclosed lease visibility ends in 2026, and the valuation underneath the number relies on a gross asset frame and a longer continuity assumption than the filing's contractual visibility provides.

So the real question is not whether Kiryat Shlomo is good or bad. The real question is how much of the 2025 value is already proven and how much of it rests on the assumption that the related-party relationship will roll forward in the same form, at the same pricing level and at the same cap rate. If those three assumptions hold, Kiryat Shlomo remains an anchor. If one of them cracks, the discussion quickly shifts from a stable asset to an asset whose value was tighter than it first appeared.