Mahlabot Gad: Timorim, the Triple-Net Lease, and What Really Happens to the Cost Base

What This Follow-Up Is Testing

The main article argued that Mahlabot Gad's real test moved from reported net profit to the next execution phase. This follow-up leaves Weiler aside and isolates Timorim alone. The reason is straightforward: Timorim does not read like another capex line. It reads like a project with three very different cost layers. First, a condition precedent and a timeline gate. Then, a 24-year-11-month Triple Net lease. Alongside that, another NIS 180 million to NIS 200 million that the company itself expects to invest in leasehold improvements, equipment, and machinery.

The short version: the number that catches the eye, NIS 13 million to NIS 17 million of annual net savings in the third phase of the plan, is the last line of the bridge, not the first. The first line is a long-dated commitment, a rent formula tied to total project cost, and an interim period in which even the grace period can increase the rent base instead of erasing it.

It Starts With a Condition Precedent, Not With Construction

The Timorim agreement was signed on June 29, 2025, but as of March 27, 2026 it was still not effective. It depends on the land-option purchase agreement entering into force. If that does not happen within 12 months of signing, meaning by June 8, 2026, the lease agreement does not become effective. If the conditions precedent under the land-purchase agreement are extended, the lease deadline can move as well, by up to another 12 months. Beyond that, the parties may also extend it in writing.

The economic meaning: the first checkpoint for Timorim is not automation and not savings. It is legal and transactional. Before the market can think about how much the new site will save, the project first has to cross the entry gate.

Even after that gate, the timetable is not locked. The landlords are responsible for obtaining the building permit, but the company must complete the execution plans within 45 days of receiving it. Handover is due within 36 months from the full permit or from final approval of the execution plans, whichever is later. There is also a 60-day tolerance that does not count as a breach if a 90-day advance notice is given. Even Form 4 does not necessarily close the issue cleanly: if the delay in obtaining it comes from matters under the company's responsibility, the landlords can still be deemed to have fulfilled their side without it.

That is not a trivial point. Timorim does not depend only on landlord-side construction speed. It also depends on how quickly Gad itself closes specifications, production works, licensing requirements, and system ramp-up.

Who Pays For What, and What Can Move From Company Investment Into Rent

The simple read is that the landlords build and Gad rents. That is only half the picture. The landlords do bear the land acquisition cost, related taxes and levies, planning, permitting, development and construction works, and the financing costs that accrue into the project. But once the project reaches works driven by the company's own needs, the picture changes.

Changes to the technical specifications, deviations from zoning, licensing demands, and regulatory requirements tied to the company's business beyond the tender plans all sit with the company. Before construction starts, the parties are supposed to decide which works will be performed by the landlords and included in project cost, and which will be carried out by the company and funded directly outside the rent base. There is even a floor: the landlord-executed works included in project cost may not be less than NIS 110 million plus VAT.

At signing, the initial split was already defined. The landlords will build the logistics center and its systems, along with the shell and infrastructure of the remaining buildings. By contrast, works tied to the company's own production activity are supposed to be carried out by the company and stay outside project cost. Only if the company chooses to have the landlords perform them do they move into the cost base from which rent is derived.

This is the core economic point of the agreement: Timorim does not split cost only between rent and investment. It creates a mechanism that can move cost from upfront company investment into future rent, or the other way around. More works on the landlord side may reduce immediate company outlay, but raise project cost and long-term rent. More works on the company side keep the rent base lower, but increase the amount Gad has to fund itself.

That is why the NIS 180 million to NIS 200 million that the company expects to invest in fit-out, equipment, and machinery is not a side note. It is the point where Timorim stops being mainly a landlord real-estate build and becomes an industrial project sitting on Gad's own balance sheet and cash needs.

The Grace Period Does Not Erase Cost, It Only Defers It

The Timorim rent formula is simple on paper: 6.5% per year of total project cost, plus indexation and VAT. As of the report date, the project team estimated total project cost at NIS 240 million to NIS 260 million, implying initial annual rent of NIS 15.6 million to NIS 17.0 million.

The company did receive some cushioning: for up to 12 months from handover, or until the closure of the existing Bat Yam plant, whichever comes first, it is entitled to a grace period in payment of rent only so it can complete its own works and run the systems. But that grace is not free. During the grace period, the landlord bears the additional financing cost, and that financing cost is included in total project cost. In other words, deferring rent payment can itself enlarge the cost base from which rent will later be calculated.

That leads to a more conservative reading of the agreement. The grace period should not be read as if it eliminates a year of rent. It is better read as a transition tool that reduces immediate payment while potentially loading more financed cost into the project.

The commitment also does not end with an early exit. The company may not shorten the lease term and vacate the premises before the end of 24 years and 11 months unless otherwise agreed. If it leaves early and does not secure a replacement tenant, it continues paying rent and the other amounts due until the term ends or the asset is relet. And if the new tenant comes in on weaker terms, the company funds the gap. That is no longer a standard operating lease in economic substance.

Management's Own Savings Bridge Is Already Narrower Than the Headline

Management itself does not present Timorim only through a gross savings headline. Under the company's strategic plan for 2025 to 2029, Timorim is supposed to double the group's production and distribution capacity. According to the landlord's work plan, the building permit is expected in the first quarter of 2026, construction is expected to be completed by the first quarter of 2028, and the relocation of the Bat Yam dairy and the Tzrifin logistics center is expected to take place during 2028 to 2029. On that basis, the company sets a target for that phase of NIS 850 million to NIS 950 million of revenue and NIS 110 million to NIS 125 million of EBITDA.

But once the company gets to the third phase, 2029 to 2035, it shows a more detailed bridge: general lease expenses are expected to rise by NIS 7.7 million to NIS 9.1 million per year, while Timorim is expected to generate NIS 22 million to NIS 24 million of annual savings from automation, new production lines, site consolidation, and lower transport and external-storage needs. The implied net annual benefit is therefore NIS 13 million to NIS 17 million.

That is already a much more sober bridge than the raw NIS 22 million to NIS 24 million savings headline. First, it explicitly admits that the rent layer rises rather than falls. Second, it pushes realization into a later phase, not to day one of handover. Third, it depends on several heavy execution assumptions: real automation, new production lines, site consolidation, and a genuine reduction in inter-site transport and external storage.

There is still one missing piece. In one place the company presents the NIS 13 million to NIS 17 million bridge. Elsewhere it states that the lease is Triple Net, and that if shared facilities are built on or near the site, the company will bear its share of maintenance costs under a cost + 12% formula. The filing does not break out whether and how those items sit inside the savings bridge shown to the market. That is why the NIS 13 million to NIS 17 million should be read as a management target, not as guaranteed cash economics.

The Transition Period Is the Under-Discussed Risk

Mahlabot Gad is not moving from ownership into rent. It already operates almost entirely out of leased facilities. As of the report date, it has no owned real estate, and both its main Bat Yam production site and its main Tzrifin logistics center are leased.

That is where the timeline becomes especially important. The central Tzrifin logistics center, a roughly 6,000 square meter site with about 2,500 square meters built, is currently held under a lease that runs through December 31, 2026. The main Bat Yam plant, which also houses the company headquarters, received a two-year lease extension in July 2025 through March 26, 2028, with monthly rent of NIS 230 thousand starting March 27, 2026 and additional extension options.

Now set that against Timorim: a building permit expected in the first quarter of 2026, construction completion in the first quarter of 2028, and physical relocation during 2028 to 2029. The analytical conclusion: this is not a clean old-rent-out, new-rent-in swap. There is an interim period in which the old site base is still alive, the new cost base is not yet producing savings, and the company is still investing NIS 180 million to NIS 200 million to turn the shell into a working dairy and logistics center.

More than that, the filing does not explicitly explain the logistics bridge between the current Tzrifin lease, which expires on December 31, 2026, and the expected Timorim completion date in the first quarter of 2028. The solution may be an extension, a distributed-site arrangement, or something else. For now, it remains an open point.

That is precisely why Timorim is economically larger than it looks in the headline. The savings sit at the end of the story. In the transition period, the company has to hold together the timetable, licensing, production fit-out, existing leases, a new rent base tied to project cost, and a ramp-up that is not supposed to interrupt supply continuity.

Bottom Line

The continuation thesis: in Timorim, the value layer sits farther out in time than the commitment layer. What arrives first is a condition precedent, a rigid rent formula, Triple Net economics, a grace period that may enlarge the rent base, and NIS 180 million to NIS 200 million of company investment. Only after that does the NIS 13 million to NIS 17 million net-savings target arrive.

That does not make the project a bad one. On the contrary, the company itself says Bat Yam and Tzrifin are approaching capacity, and without Timorim it becomes harder to keep growing. But it does mean Timorim should not be read as just another new plant that will lower cost. It is a necessary, expensive, phased program in which the operating upside only arrives if the company gets through the transition period cleanly and keeps control over both the investment split between the landlords and itself, and the post-occupancy site-cost structure.

So Timorim may still make Gad more efficient and larger. Before that, it adds several years in which cost and complexity arrive ahead of the payoff.