Kardan Real Estate in the first quarter: sales jumped, but cash and margins stayed under pressure

Kardan Real Estate opened 2026 with a housing-sales number that looks unusually strong: 116 units sold in the quarter and another 96 after the balance-sheet date. But the quarter does not close the question left from 2025. Most of the change comes from Kiryat Gat and price-controlled units, not from a broad recovery across free-market projects, and in Kiryat Gat the accounting conditions for revenue recognition had still not been met at the end of March. Group revenue rose only slightly to NIS 124.7 million, while gross profit fell to NIS 16.1 million, operating profit fell to NIS 3.8 million, and the company moved to a net loss of NIS 3.7 million. El Har continues to provide work volume and an order backlog of NIS 3.668 billion, but roughly one third of that backlog still comes from group projects, and quarterly margins were hit by early-stage projects and delays. The deeper point is cash: negative operating cash flow of NIS 98.4 million, solo net financial liabilities of NIS 713 million, and a NIS 30 million dividend paid in April keep the company in a funded transition year. The quarter does not weaken the possibility that the large inventory base will become profit in the coming years, but it makes clear that the read improves only if sales turn into collection, El Har restores better execution margins, and debt stops growing faster than project value.

The strong number is sales, not profit

Kardan Real Estate is a residential developer with an internal construction arm, El Har, and a relatively small income-producing asset in Beit Kardan. The quarter therefore needs to be read through three layers: how many apartments were sold, how much of El Har’s construction activity truly adds external diversification, and how much cash remains after inventory, projects, and debt require funding. The prior annual analysis framed 2026 as a funded transition year. The first quarter improves the sales layer, but it still does not prove that the transition is becoming free cash flow or stable profitability.

The gap between the headline and the income statement is sharp. Consolidated revenue rose by just 3.9% year over year, but gross profit fell by 29% and operating profit fell by 64%. The bottom line moved from a NIS 7.1 million profit to a NIS 3.7 million loss. This is not a quarter of activity collapse. It is a quarter where the unit count looks better than the quality of earnings.

The chart explains why the quarter will draw attention. After only 25 units sold in each of the second and third quarters of 2025 and 52 units in the fourth quarter, 116 units in Q1 2026 is a real acceleration. But in a residential developer, unit count is only the starting point. The real question is what type of units were sold, under what payment terms, when they become revenue, and what remains after construction and financing costs.

Kiryat Gat changes the comparison base

The main source of the jump is not a broad spread across projects. Kiryat Gat alone accounted for 99 contracts in the quarter: 14 free-market units and 85 price-controlled units. After the balance-sheet date, the project added another 92 price-controlled contracts. The gross sales number therefore improves the picture, but a large part of it comes from a channel where price, collection pace, and profitability differ from a regular free-market sale.

That is not negative by itself. Price-controlled sales can accelerate marketing, reduce future inventory, and give the company better visibility on part of the project. Still, Kiryat Gat was only 4% complete at the end of March, its marketing rate was 7%, and the company states that the accounting conditions for revenue recognition had not yet been met. Sales there improve the contract backlog before they prove profit and cash.

This links directly to the issue raised in the continuation analysis on sales quality. The company says that in 2025 and in the first quarter of 2026 it granted 80/20 promotions to some buyers, while the draft temporary directive published by the Supervisor of Banks restricts bank financing for deferred-payment apartment sales and bullet or balloon loans through the end of 2026. The practical implication is straightforward: if those financing tools become less available, the sales pace must rely more on regular demand or on channels such as price-controlled units, and less on payment flexibility that pushes cash forward.

El Har still brings volume, but not margin

El Har remains the layer that stabilizes revenue, but the quarter shows why its backlog is not full protection. External construction revenue rose to NIS 84.2 million from NIS 80.7 million in the comparable quarter, yet the construction segment’s result fell to NIS 5.1 million from NIS 8.1 million. The margin pressure is not random: some projects are in early execution stages, where profitability is lower, and the company describes execution delays tied to the war and security operations.

Backlog quality has also not changed enough to close the debate. El Har’s backlog stood at NIS 3.668 billion at the end of March, of which NIS 1.247 billion relates to five projects El Har is performing for the group. That leaves about 34% of the backlog inside the house, almost the same structure flagged in the prior analysis on El Har backlog quality. El Har is a real operating asset, but part of its diversification still depends on the same residential economics, the same execution timetables, and the same cost pressures.

The operational note adds another yellow flag: El Har had to pay additional amounts to subcontractors and manpower corporations in some cases, or replace them, and following delays in project delivery, a claim and inquiries from developers, it updated estimates to reflect the expected delay for which it is responsible. That is not only a legal caveat. It explains why a large backlog can coexist with lower profitability, and why the market will measure not only the size of the backlog in coming quarters, but the actual profit rate that comes out of it.

Cash is the next proof point

The all-in cash picture for the quarter is not normalized maintenance cash generation. It tests what happened after working capital, investments, financing, and the declared dividend. Operating cash flow was negative NIS 98.4 million, mainly because receivables, revenue receivable and non-current land inventory absorbed cash. Financing activity brought in NIS 32.5 million, mostly from bank loans. Cash and cash equivalents fell by NIS 57.5 million before the NIS 30 million dividend was actually paid in April.

At the solo level, net financial liabilities stood at NIS 713 million. This is still not a covenant event: the company reports compliance with its bond covenants. But when equity attributable to shareholders falls to NIS 718.2 million, the dividend is recorded, and solo net debt rises, the quarter’s quality depends on how quickly project value starts releasing cash at the listed-company layer.

The next few quarters need to prove quality, not only volume. Kardan Real Estate showed that it can still accelerate sales, but the Kiryat Gat mix, El Har’s margin pressure, and negative cash flow prevent the quarter from becoming a full turning point. The better read would require actual collection, revenue recognition from Kiryat Gat, stronger El Har margins, and a halt in the rise of solo debt. The counter-argument is real: recent sales may enter revenue later, and El Har may improve as delayed projects mature. Until then, Q1 mostly pushes the proof test forward rather than completing it.