BSR Engineering and Vertical: How Much Value Is Already Embedded, and How Much Still Depends on Execution
Vertical is no longer a hidden option on BSR's balance sheet. A large part of the value is already embedded through BSR's 19.64% stake, but roughly one-third of the appraisal still rests on Phase B, and the next leg requires execution, financing, and actual delivery.
Vertical Is No Longer an Option Story, but an Execution Test
The main article's core point was that BSR's next phase is no longer mainly about balance-sheet repair. It is about whether advanced projects can actually be converted into value that reaches reported profit, NOI (net operating income), and eventually the listed company. Vertical is the clearest test of that point because it combines three different layers in one project: accounting value, development profit that has not yet been recognized, and an income-producing asset that still has to be built.
At year-end 2025, BSR held 19.64% of Vertical. The December 2025 appraisal values Vertical at ILS 1.315 billion. Applying BSR's stake to that number gives roughly ILS 258 million, almost exactly the carrying value management presents for BSR's share of Vertical. That is the first anchor point: a large part of the value is already sitting on the books. Anyone looking here for a simple rerating story based only on the project's existence is missing that much of the current value is already embedded.
That leads to the more important question. If the current value already includes both planning progress and part of Phase B's upside, where is the remaining unembedded value, and what still has to happen for it to move from appraisal and presentation slides into BSR's actual economics.
The chart makes one point immediately clear: a meaningful part of the upside has already happened on paper. The appraisal itself says that most of the move from the 30 September 2025 valuation to the 31 December 2025 valuation came from removing the uncertainty factor on converting office area into residential use in Phase B, from acquiring additional rights in the land, and from additional investments up to the valuation date. In other words, not only concrete and construction progress lifted value. A change in assessed certainty did too.
What Is Already Embedded
The appraisal breakdown shows how much of today's value is not just a number for what is already approved, but also a number that gives weight to what the appraiser is already willing to count.
The base layer is the approved Phase A rights, worth about ILS 691.9 million at the Vertical level. This is the most grounded part of the project. It rests on the full building permit received on 11 September 2025, on shoring and excavation work that started in April 2025, and on a project that has clearly moved from planning into execution.
But that is not the whole picture. The appraisal also includes roughly ILS 421.2 million for Phase B potential rights, after a delay factor for plan approval and an uncertainty factor for using the additional rights. That is about one-third of Vertical's total value. So treating the ILS 1.315 billion headline as if it were all equally de-risked would be the wrong reading. Inside today's value there is still a delayed, conditional, and materially planning-driven component.
Translated into the BSR layer, out of the roughly ILS 258 million implied value, around ILS 135.9 million comes from approved Phase A rights, about ILS 82.7 million comes from Phase B potential rights, and the remainder comes from investments already made, net of the deductions and obligations taken out in the appraisal.
That leads to a second conclusion. If every ILS 100 million move in Vertical's project value translates into roughly ILS 19.6 million at the BSR level, even the appraiser's own sensitivity test, a 5% change in office sale value, moves BSR's share by only about ILS 8.9 million in either direction. That is not trivial, but it is also not the main driver of the continuation thesis. The bigger issue is not a small move in office pricing. It is how much of the current appraisal can actually be converted into a project that keeps moving through execution, recognition, leasing, and financing.
What Has Been De-Risked, and What Has Not
The good news is that the project is no longer stuck at concept stage. Phase A has a full permit. Excavation and shoring have started. In November 2025, Vertical signed a financing agreement with two local banks for a total credit and guarantee framework of up to ILS 1.29 billion through 31 December 2026, intended to fund construction and issue sale guarantees. A voucher agreement was also signed later that month.
That is a real change. It shifts Vertical from a "will it get approved" risk into an "can it execute, market, and carry financing to the next value inflection point" risk. That is a meaningful improvement, but it is not the end of the story.
| Layer | What improved | What remains open |
|---|---|---|
| Permit and execution | Phase A received a full permit, and excavation and shoring have already started | Phase B still depends on an additional plan and further approvals |
| Financing | A framework of up to ILS 1.29 billion is in place through 31.12.2026 | At year-end 2025, bank debt still stood at about ILS 1.016 billion, shareholder loans at about ILS 505.5 million, and the project still depends on financing carry and follow-through |
| Liquidity | There is a financing and guarantee framework | Vertical ended 2025 with only about ILS 0.3 million of cash, negative working capital of about ILS 224.1 million, and negative operating cash flow of about ILS 123.4 million |
| Commercialization | Roughly 26.5 thousand square meters of offices had already been sold, and management presents about ILS 723 million of office sales not yet recognized | Most recognition still lies ahead, and the project must keep being built and delivered before those numbers leave the slide deck and enter the P&L |
This is the core of the continuation thesis. Vertical has already cleared much of Phase A's permit risk, but it has not yet cleared the execution and financing test. The subsidiary itself ends the year with minimal cash, heavy bank debt, and material shareholder loans. That means Vertical cannot be presented as a stable cash engine today. Right now it is still a capital-consuming project, even if it is clearly moving in the right direction.
Where Double Counting Can Creep In
This is the easy mistake, and it matters.
The ILS 1.315 billion appraisal explicitly deducts the office rights classified as inventory, together with the public obligations and investments attributed to them. At the same time, in the development table management presents for Vertical's office rights for sale expected revenue of about ILS 2.051 billion and expected gross profit of about ILS 534.6 million at a 26% gross margin.
These are not the same value layer. The investment-property appraisal and the development economics of the offices for sale are not the same number in two different forms. So you cannot take Vertical's appraised value and then add the full office development profit on top as if it were entirely separate value. Doing that would count part of the story twice.
The right way to read it is this:
| Value layer | What looks embedded today | What still has to happen for BSR to capture it |
|---|---|---|
| Balance-sheet value | BSR's share of Vertical is already broadly reflected in carrying value through the current appraisal | Further upside requires real progress in Phase B and support from market conditions |
| Development profit from offices for sale | Roughly 26.5 thousand square meters have been sold, and management presents about ILS 723 million of sales not yet recognized | The project still has to be built, delivered, and recognized, not just marketed or presold |
| Engineering management fees | BSR has an additional capture layer through engineering management fees of 2% to 2.75% of execution cost | This layer exists only if execution actually moves ahead at the scale management assumes |
| Future NOI | Management presents about ILS 41 million of expected NOI for Vertical at full occupancy | Before that NOI exists, there are still about ILS 372 million of remaining construction costs and a project that has to become operational |
The implication is that Vertical's future value to BSR is not just a question of what the appraiser is willing to write down today. It has to pass through three gates: accounting recognition, physical execution, and financing carry to completion. Skipping one of those gates shortens the route too aggressively.
Where the Bottleneck Really Sits
The main bottleneck is no longer a full building permit for Phase A. It is also not the existence of hidden value, because that value is already visible today in both the appraisal and the carrying amount. The bottleneck is the move from appraised value to accessible value.
First, office sales already signed have to turn into recognized revenue. That is a function of time, execution, and delivery. Second, the financing structure has to remain adequate until the project moves deeper into construction and marketing. Third, the Phase B layer cannot remain only inside the valuation model. It has to move through more planning milestones while preserving economic logic in a taller, more complex project with more employment space and some office-to-residential conversion.
That is also where the gap between created value and accessible value shows up. BSR does not own 100% of Vertical. It owns 19.64% through an equity-accounted investee. So even if project value rises, what reaches BSR comes through a minority share, through equity-accounted profit, through management fees, and perhaps later through surplus distribution. It is not cash that can be pulled upstream tomorrow morning just because the appraiser wrote a larger number.
Bottom Line
Vertical is indeed BSR's biggest value reservoir outside Beit Shemesh, but the more interesting point is not just its size. It is where that value sits on the timeline. By the end of 2025, a large part of it is already sitting on the books. Precisely because of that, the story from here is less a discovery story and more a proof story.
What is already embedded: a 19.64% stake in a project appraised at ILS 1.315 billion, a full permit for Phase A, execution already underway, financing through the end of 2026, and a valuation layer that already gives credit to part of Phase B's potential.
What is still not fully earned: converting office presales into recognized revenue, turning expected NOI into a real operating asset, and moving Phase B through planning and financing without undermining the project's economics. That is exactly where Vertical stops being a high-value project on paper and has to prove that it can translate that value into economics BSR can actually capture.
In one line, the read is this: Vertical's value is already present in BSR's balance sheet, but the next leg of upside depends on converting appraisal into execution, and execution into value that can actually be captured.
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