Shoval Engineering: What Really Sits Inside the Equity-Accounted Losses and the Harakevet Project

Why This Follow-Up Matters

The main article argued that Shoval’s backlog is larger and its balance sheet is stronger, but the real test now sits in execution rather than in planning. This follow-up isolates just one layer, the associates, because in 2025 that line stopped being a side note and became a meaningful part of the earnings story.

That is visible in the numbers. The group’s share in losses of equity-accounted entities rose to NIS 7.4 million from NIS 4.2 million in 2024. Management tied that move mainly to UPTOWN, which also holds the Harakevet project, where a roughly NIS 27 million inventory impairment was recorded in 2025. Shoval’s after-tax share was stated at roughly NIS 7 million. Against annual net profit of NIS 16.8 million, that is already material.

The less obvious point is that it is wrong to read Aptown as if it were one associate with one economic profile. Inside the same shell sit two very different projects. UPTOWN in Kiryat Bialik is a large option with wide potential economics, but it is still at a very early stage. Harakevet in Tel Aviv already showed in 2025 how quickly delays and financing costs can hit Shoval’s reported earnings, long before the project turns into revenue.

How Aptown’s Economics Actually Work

To understand what reaches Shoval’s common shareholders, the ownership layer matters first. Aptown Urban City is held equally by three parties. Under the cooperation agreement, decisions are taken unanimously, each side provides equity, guarantees, and collateral on an equal basis, and project surpluses are distributed according to ownership stakes.

But this is not only an equity split. Shoval Mit’hamei Megurim is entitled to a 1% management fee on direct construction costs, Sela gets 2%, and Barel gets 1%. Construction and execution are also meant to be carried out by the three parties on an equal basis for Cost + 8%. In other words, the economics do not sit only in the equity-accounted line. Some of the future value may flow through management and execution fees, while some remains at the shareholder layer of the joint vehicle.

That is the critical bridge. It is easy to look at project size and assume all of that value belongs directly to Shoval’s public shareholders. It does not. Shareholders only own roughly one-third of the project-company economics, not 100% of the headline. For the same reason, a sharp loss in one project does not sink Shoval itself, but it can still move quickly into reported earnings through the associates line.

The table looks dry, but the message is sharp: by the end of 2025 almost the same amount of equity had already gone into both projects, yet Shoval’s share of expected future surplus in UPTOWN is more than 3 times the Harakevet figure. That is exactly why the associates line matters more than a surface read of the combined pipeline.

UPTOWN: A Large Option, Still Not an Earnings Engine

UPTOWN in Kiryat Bialik is the larger project and, economically, the more attractive one of the two. In the planned future configuration, the company is working to increase the number of housing units and convert part of the office and retail rights into assisted-living units, so the project is expected to include 540 residential units, 185 special units, about 12 thousand square meters of retail, and about 63 thousand square meters of office space.

The headline numbers are strong: expected gross profit of NIS 429.8 million, expected economic profit of NIS 283.8 million, and expected surplus attributable to Shoval of NIS 168.6 million. The problem is that the project is still far from turning into recognized profit or accessible cash. Completion stands at only 3%. As of the end of 2025 there was still no execution agreement, no construction-finance agreement, and no binding sale contracts. There were about 340 non-binding registration forms, and an excavation permit was received in January 2026, but that is still a very different level of certainty from signed sales and closed financing.

The funding structure shows how early the story still is. At the end of 2025 the senior land loan stood at NIS 230.6 million at prime plus 0.7%, and there was an additional NIS 35 million mezzanine loan at an effective rate of prime plus 3.8%. Maturities are relatively close to a stage where the project still has not reached full construction finance: roughly NIS 35 million is due on March 26, 2026, and roughly NIS 192 million on September 24, 2026, while the mezzanine is due on March 30, 2026.

So UPTOWN can still become a major value source, but as of year-end 2025 it is primarily a planning-stage asset with attractive paper economics and a financing path that still needs to be converted into signed sales, construction finance, and continued equity deployment.

Harakevet: Where the Risk Already Hit Earnings

If UPTOWN is a wide but early option, Harakevet is where the cost of time is already visible. This project is smaller in terms of economics available to Shoval: 105 housing units, a 23-floor office tower of about 20 thousand gross square meters, about 1,200 gross square meters of retail, and shared parking levels. Shoval does not hold the project directly. Its economic exposure comes through Aptown, leaving it with an effective stake of about 27.8% in the project rights.

Here too, the project is still not mature. As of the end of 2025 there was still no signed co-ownership agreement in the land, title had not yet been registered in the project company’s name, there was no execution agreement, and meaningful marketing had not yet started. Demolition works had begun, but the excavation and shoring permit was only expected in the first quarter of 2027. That is a very different pace from what the words “Tel Aviv project” can suggest at first glance.

The key gap is economic. Expected gross profit in the project stands at only NIS 71.35 million, and expected gross margin is 9%, versus 21% in UPTOWN. Expected surplus attributable to Shoval is only NIS 50.9 million. So even if the project is eventually delivered, its contribution to Shoval’s common-shareholder economics is far smaller than UPTOWN’s, even though the amount of equity already invested is almost the same.

That is exactly where the 2025 hit came from. During the year Aptown recorded an inventory impairment of roughly NIS 27 million on the project, and Shoval’s after-tax share was stated at roughly NIS 7 million. By year-end, cumulative loss had already reached about NIS 43 million, or roughly NIS 11 million after tax for Shoval’s share. This does not necessarily mean the entire thesis collapsed. It means the economic assumptions had to be reset. In the project disclosure, expected gross profit is said to have fallen by more than 10% versus the end of 2024, mainly because of delayed execution timing and the resulting expected financing costs.

That is the core of the issue. Harakevet shows that the associates layer is not only about upside that may or may not materialize later. It can become a direct earnings drag long before the project becomes a revenue engine.

What A Surface Read Can Miss

The first mistake is to assume that Aptown’s project pipeline translates one for one into common-shareholder economics at Shoval. In practice there are three filters: ownership share, the split of management and execution economics among the partners, and each project’s financing path. The number that matters is not simply how many apartments or office meters are planned. It is how much value survives after partners and after the cost of time.

The second mistake is to treat the Harakevet loss as a one-off accounting detail that can be ignored. The project may yet stabilize, but 2025 already proved that the associates line is a real pressure gauge. Once timing slips and financing costs rise, the hit can flow into earnings even without weak demand or an obvious sales problem.

The third mistake is to assume that every Tel Aviv project is automatically better than a peripheral one. In the 2025 disclosures, the picture is almost the opposite: UPTOWN in Kiryat Bialik currently looks like the project with broader economics for Shoval, while Harakevet currently carries thinner economics, heavier funding, and a lower certainty layer.

What Has To Happen Next

At UPTOWN, the next proof points are clear: registration interest has to turn into binding sale agreements, construction finance has to be signed, and actual execution progress has to start matching the project’s paper economics. Until then, the NIS 168.6 million of expected surplus remains contingent value, not delivered value.

At Harakevet, the immediate need is stabilization of the risk layer. That means moving from demolition to excavation and shoring approval, tightening the still-open rights and agreement structure, and showing that the 2026 funding path will not trigger another round of value erosion. Without that, Harakevet remains an example of how a Tel Aviv project can still create more pressure on reported earnings than value for common shareholders, at least for now.

The bottom line of this follow-up is simple: Aptown is not one story. UPTOWN is a large option that still needs to become execution. Harakevet has already shown how thin the profit layer can get when time, rates, and the partner structure work against you. That is why, when reading Shoval through its associates, the right metric is not the size of the pipeline but the quality of the economics that actually reach common shareholders.