Israel's hotels prosper amid record tourism

Fattal's Herods hotel in Eilat

Large companies operating hotels in Israel are enjoying growth and potential for continued positive development.

Despite repeated complaints by senior hotel industry figures in Israel about high operating costs, difficulties in making a profit, and other problems, the large companies operating hotels in Israel are enjoying growth and potential for continued positive development.

One indication of this is the announcement this week by real estate company Azrieli Group Ltd. (TASE: AZRG) of its entry into the hotel business. Azrieli reported signing a deal to buy the Mount Zion Hotel in Jerusalem from Migdal Insurance and Financial Holdings Ltd. (TASE: MGDL) controlling shareholder Shlomo Eliahu for NIS 322 million (NIS 275 million plus VAT). The hotel generated NIS 34 million in revenue in 2018, and Azrieli plans to invest NIS 500-600 million in expanding and renovating it.

Azrieli's decision is supported by record figures for number of tourists visiting Israel, with 4.5 million visitors projected for 2019. Figures cited by Azrieli in support of its entry into the hotel industry show a rise in hotel overnights by Israelis and foreign tourists in previous years, as well.

Brown planning early 2020 bond issue

Another sign of prosperity in the hotel business is the plan by growing boutique hotel chain Brown to raise money on the Tel Aviv Stock Exchange (TASE). After Brown failed to merge with a stock exchange shell last year, "Globes" reported in October this year that the company had begun promotion of a bond issue in the hundreds of millions of shekels, scheduled for early next year.

As of now, three large hotel chains are listed on the TASE: Fattal Holdings 1998 Ltd. (TASE: FTAL), Dan Hotels (TASE: DANH), and Isrotel Ltd. (TASE: ISRO). Their financial results for the third quarter and the first nine months of 2019, together with the high levels of their share prices, all of which have gained over 10% this year, could explain the potential spotted by Azrieli in the hotel sector.

Fattal and Dan increased the number of hotels that that they own and manage, both in the third quarter and the first three quarters of the year, and their revenue accordingly jumped by over 10%. The growth in Isrotel's revenue was more moderate, but like its competitors, Isrotel also improved its profit margins.

As is the case every year, the activities of the hotel companies has been seasonal in 2019. The second and third quarters, which include the summer vacation and some of the Jewish holidays, have customarily been strong, with high hotel occupancy rates (and high prices, too). The improvement in their activity this year stood out because the Jewish holidays fell in October in the fourth quarter, after being in the third quarter in 2018. The hotel chains used expansion to counteract the timing of the holidays. Another important influence on their results was the new accounting standard for leasing of properties (IFRS 16).

33% increase in Fattal's profit

In contrast to Dan and Isrotel, the Fattal chain, controlled by founder, chairman, and CEO David Fattal, also has substantial overseas hotel business, mainly in Europe, which is larger than its business in Israel. Still, Fattal has more hotels in Israel than its competitors: 46 at the end of the third quarter, out of 216 worldwide, compared with 40 at the end of 2018.

In its local activities, Fattal reported 17% revenue growth to NIS 503 million in the third quarter and 15% growth to NIS 1.3 billion in the first three quarters of the year. Fattal's operating profit from activity in Israel (before depreciation, amortization, and other expenses) grew 33% to NIS 108 million in the third quarter and 20% to NIS 244 million in the first three quarters.

Fattal says, "The group's vacation hotels in Israel are affected by a clear seasonal trend in the spring, summer, and a large proportion of Jewish holidays, with an increase in revenue turnover."

Looking ahead, Fattal is planning to continue increasing its activities in Israel, and reports that it will open nine more hotels in Israel with many hundreds of rooms between 2019 and 2023, mainly in Tel Aviv and Jerusalem, but also in other locations.

Dan's quarterly profit leaps 155%

Dan Hotels, which calls itself "one of the largest and longstanding hotel companies in Israel," attributes the improvement in its revenue from hotel activity mainly to "adding more hotels." Earlier this year, Dan acquired most of the properties of the Hachsharat Hayishuv Hotels chain, which held the Rimonim hotel chain, for over NIS 200 million.

This acquisition supported a 20% jump to NIS 334 million in Dan's third quarter revenue from hotel activity, on top of the improvement in Dan's second quarter activity in the catering sector, thanks to new customers. Its quarterly revenue grew 27% to NIS 412 million, with improved profits in both of its activity sectors. The trend since the beginning of the year is similar, with a 19% rise to NIS 1.1 billion in the chain's revenue and an increase in profit.

Isrotel's quarterly profit almost unchanged

Isrotel's revenue was up 2% to NIS 426 million in the third quarter and up 2% to NIS 1.1 billion in January-September.

Isrotel, controlled by the Lewis family, attributes most of the improvement in its third quarter revenue to activity by its luxury hotels (Beresheet Hotel, Carmel Forest Spa Resort, Cramim Resort & Spa, and Mizpe Hayamim Spa Hotel), which offset the negative effect of the timing of the Jewish holidays. Isrotel also reports improvement in gross profit and gross profit ratio, while its operating profit ratio remained stable in the quarter and grew in the first three quarters of 2019.

Published by Globes, Israel business news - en.globes.co.il - on December 12, 2019

© Copyright of Globes Publisher Itonut (1983) Ltd. 2019

Fattal's Herods hotel in Eilat
Fattal's Herods hotel in Eilat
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