One year after its attempt to enter the Tel Aviv Stock Exchange (TASE) via a reverse merger with a stock exchange shell failed, fast expanding Israeli boutique hotels chain Brown Hotels is considering a NIS 200-300 million bond issue for its properties division, which has made large investments in recent years, sources inform "Globes."
Brown Hotels' bond issue is scheduled to begin after Hachshara Insurance Company, controlled by Eli Elezra, becomes the owners of 20% of the hotel chain's shares via conversion into capital of a NIS 20 million loan provided last year to the chain. The conversion will reflect a NIS 100 million valuation for Brown Hotels.
Conversion of Hachshara Insurance's loan follows other measures in recent months: the entry of the Dayan family, which has real estate and hotel business in Israel and overseas, into partnership in Brown Hotels' emerging activity in Greece and the completion of a number of property acquisition by Brown Hotels in Tel Aviv and Jerusalem, which made the chain the owner of its own real estate, in addition to its previous activity of operating boutique hotels located on rented properties. Brown Hotels' bond issue is likely to take place in the first half of 2020, probably on the basis of the chain's full reports for 2019.
The controlling shareholder in Brown Hotels is Nir Weizman, son of hotel tycoon Meni Weizman. Nir Weizman will have a 70% stake in the chain after the conversion of Hachshara Insurance's loan into shares. Brown Hotels founder Leon Avigad and Nitzan Perry will hold 10%.
Brown Hotels said in response, "The matter is being considered. In recent days, we have had consultations on the subject, as we occasionally consider proposals on the agenda. When we have something to announce, we will do so in the regular way."
The planned merger of Brown Hotels into stock exchange shell Herodium failed last November. One of the conditions for the deal was approval from Hachshara Insurance, whose loan to Brown Hotels was convertible into shares, and this approval was not forthcoming. Before that, the parties signed an memorandum of understanding for merging the hotel chain's activity into Herodium in return for an allocation of 75% of the shares in the merged company, with an option to increase the stake of the hotel chain's shareholders to 85%. This was subject to verification of a NIS 325 million valuation for the chain's hotel activity.
Riding the tourism boom
Brown Hotels' rapid growth has been spurred by the boom in the tourism sector, especially in boutique hotels. The company's website states, "Brown Hotels is a Tel Aviv based design hotel collection, with hotels located in the city of Tel Aviv, Jerusalem and Trogir, Croatia, with new hotels opening soon around the world. In 2010, we were the first to introduce another kind of hotel to Israel: boutique, intimate, well-designed, innovative, stylish, and urban. The vision was to create hotels that would not only show tourists the real culture and creativity of the city's youthful population, but would also expand the nightlife and neighborhood joints for locals."
Brown Hotels currently owns 12 hotels, including 10 in Israel. The chain has been expanding in recent years, mainly in Israel, Greece, and Germany, through both acquisition of ownership of new hotels and through operation and management of hotels. According to the chain, in two years from now, it will have 54 hotels with 5,000 rooms.
Brown Hotels recently appointed a new chairman, Dan Cohen, who resigned as head of the banking division at Bank Leumi. Former Isrotel VP operations Shlomo Tahan was appointed CEO in place of Reuven Elkes, who left his position in order to found a hotel chain with Israel Canada.
Published by Globes, Israel business news - en.globes.co.il - on October 28, 2019
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