Fattal: Hotels in Israel are more expensive, like everything

David Fattal Photo: Eyal Izhar

Hotelier David Fattal told the Globes Capital Market Conference that everything in Israel is more expensive and everything in Europe is easier to accomplish.

"Money was never the main thing; it was achievement, and money isn't the main thing now, either," Fattal Holdings (1998) Ltd. (TASE: FTAL ) CEO David Fattal told the Globes Capital Market Conference in Tel Aviv today. Fattal, who held an IPO for Fattal Holdings, his hotel empire, on the Tel Aviv Stock Exchange (TASE) in February in what was generally called the offering of the year, currently holds shares in the company worth NIS 3.4 billion, following a 24% rise in Fattal's share prices since the IPO.

Fattal added, "I think it’s a lot of fun getting up in the morning to accomplish things, surrounded by people I like and admire in Israel and overseas, and solving problems you never thought about." Asked about the differences between Fattal's growing business in Europe and its business in Israel, Fattal answered, "Everything overseas is easier in all respects. In bureaucracy and the entire process of building and operating hotels, everything is substantially easier overseas, but my heart is here, so we're continuing here, too.

Commenting on timing of his company's IPO, Fattal said, "An IPO was on the agenda several years ago, but I wasn't comfortable with it. I sat with a lot of CEOs and controlling shareholders in public companies. I wanted to hear what they were going through and I realized that it wasn't for me. Something has happened since then. After years of drought in the offerings market, the Israel Securities Authority realized that something had to be done. A committee was set up that gives concessions for the first five years to companies making IPOs. I had talks with (former Securities Authority chairperson, M.R.-C.) Prof. Shmuel Hauser and (TASE CEO) Ittai Ben-Zeev, who put my mind at ease. All in all, it was a good decision. From a company value of NIS 1 billion seven years ago, we eventually held the IPO at a NIS 4.4 billion company value."

"Globes": How is it to be a TASE-listed company?

Fattal: "Fine, not like I feared. It's not a great change from the way we operated previously, primarily because even before that we worked transparently, fairly, and in an orderly way. We had, and still have, a partner, the Migdal group, to which we made a commitment to manage the company as a public company."

Still, there is tougher regulation, it is more difficult to employ relatives, and they examine you with a magnifying glass. It also costs a lot of money to be a public company.

"It does cost a lot - millions of shekels a year. We've been functioning as a public company only for a short time, so I haven't yet experienced the frustrating moments."

The hotel business is now in a new situation of digitalization and Airbnb, which are making you do different things than in the past.

"On the one hand, there are threats to the conventional business called hotels, but on the other hand, the business is booming all over the world. This is the number one business worldwide in GDP. 10% of it is tourism, including civil aviation, restaurants, vehicle leasing, etc. It's prosperity taking place everywhere in the world. There's not a city that hasn't experienced an increase in the number of tourists in the past 3-4 years - both those who go to Airbnb and those who stay in hotels. We are developing at a rapid pace and the company is in a large number of countries and cities where the growth rate is 5-6% a year. It's phenomenal. There are threats; we're trying to learn how to deal with them and believe that we're strong enough."

On the one hand the number of tourists coming to Israel is at a peak, but when a local vacation is compared with the overseas alternatives, the prices here are very expensive.

"The consumer is right. He can fly overseas at a cheaper price and does it, but the comparisons aren't always correct. They compare them on holidays and at peak prices. The cost of living here is also high in comparison with a company operating in Berlin, and that's for everything: municipal property tax, supermarket prices, water, and electricity.

"A hotel is a lot of houses connected with each other and there's a lot of regulation and bureaucracy besides that. There's access and there are things you don't have overseas, such as security. In Eilat, we employ more security officers than the number of police in Eilat. There are kashrut inspectors and lifeguards, jobs that don't exist in Europe. The municipal property tax we pay here is 10 times as much as in cities abroad. We did an economic assessment, and it's detailed, and we saw that in order to earn NIS 100,000 in Israel and in Europe, I have to sell at a price 60% higher in Israel. That's an astonishing number."

"Airbnb isn't stopping us"

They're still managing to bring tourists here, so they must be doing something right.

"They're bringing a lot of tourists here, but in comparison with the potential, I don't think they're even approaching it. There are 12 billion Christians and half of them want to come to the Holy Land in one way or another. They come, make this trip maybe once in a lifetime, and the potential is huge. The Jewish market is huge, and so is the market that comes to travel around in Tel Aviv, which is a cool and very touristy city. There are more Airbnb rooms than hotel rooms in Tel Aviv. That doesn't exist in the rest of the world, where Airbnb is 15%, meaning that renting of apartments out of the total number of hotels in Israel is over 100%, maybe because the tourist needs something cheaper, and that's true. It's cheap for a lot of reasons, such as taxes and VAT. I would also agree to give customers 10% back immediately if they would get rid of VAT."

Is Airbnb an existential threat?

"There are places where it's an existential threat and places where it isn't. In the business market in Europe, Airbnb is a relatively small threat. In vacation cities, it's more threatening. There's a trend in the world to regulate it, because they realize that you can't harm businesspeople who are bringing in a lot of money. There's regulation in New York, Barcelona, Amsterdam, and it will eventually get to Israel. It's not fair to take 10,000 apartments in Tel Aviv and give them to tourists, because it has an effect on rents for young people. There will be a balance point between regulatory intervention or intervention in the market. We're still building hotels; this won't stop us."

"Eastern Europe doesn't suit us"

Are there countries you won't touch?

"We're only in Europe and Israel. We aren't entering Eastern Europe. It's a different business culture that doesn't suit us. When we began doing business overseas, a lot of business people went to do business in Eastern Europe. We didn't do it. We stayed with the four-star market segment in Europe and we want to continue and get stronger in the countries in which we're strong. We believe in clusters. There are cities with 11 hotels in one city. We believe that this is correct and works for us; we want to develop in more countries in Central and Western Europe. The US can wait at this stage."

It is said that you are the kind of person who looks for young employees and keeps them, such as Avia Ben David, CEO of the chain.

"They are the ones that run with me. This is very labor-intensive profession in Israel. We have 7,000 employees. There's a manager for every 10 employees. This is a huge number of managers, and the trick is to instill your wishes and your culture. What we're trying to instill you can find all along the chain. We're trying to do that."

"You can't limp to an IPO"

They are saying and writing that the TASE is nevertheless drying up with few IPOs and lower turnovers. You were a brave man in the IPO. What tips can you give?

"You have to have a good and organized business and a good team. You can't limp into this thing. I'll have insights in another few years. I'm not sorry about the IPO as long as our company is growing and its base is good and solid. We have a good and focused business."

What about the exposure of your salary and that of your family and so on the financial statements?

"We don't do party at interest transactions as a strategy. As for the reports, I don't like getting a mark every quarter, but that comes with the package. All in all, it's not significant in comparison with the huge advantages of an issue."

Published by Globes [online], Israel business news - www.globes-online.com - on June 20, 2018

© Copyright of Globes Publisher Itonut (1983) Ltd. 2018

David Fattal Photo: Eyal Izhar
David Fattal Photo: Eyal Izhar
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