After reporting good results earlier this week, Isrotel Ltd. (TASE: ISRO) today announced the launching of five new hotels: four in Tel Aviv and one in Jerusalem. The chain currently has 19 hotels, including eight in Eilat. The company's target for Tel Aviv is 1,500 hotel rooms.
Including the hotels announced today, Isrotel will have 920 hotel rooms in Tel Aviv, meaning that the chain has a long way to go before reaching its target, and will continue its construction boom in the White City section of Tel Aviv. The cost of the expansion is estimated at NIS 1.5 billion. Most of the hotels are being opened in equal partnership with the land developers. Isrotel's nationwide total of hotel rooms is currently 4,222. The chain has 5,000 employees, and its financial statements report a total payroll of NIS 600 million in 2017. The company's net profit was up 14% to NIS 138 million in 2017.
Isrotel CEO Lior Raviv said today, "Hotels have become an attractive investment. Developers once kept away from this sector, but today they are contacting us in search of hotels. Return in the industry is 5-6%. The security risk that had a big effect on the sector has also been reduced."
The hotels announced by Isrotel, which are slated for opening in the next three or four years, include one in the northern Hayarkon area in Tel Aviv (opposite Yordei Hasira Street). The 57.5-meter high hotel will have 17 floors and 154 rooms, including two penthouse apartments. The hotel was also zoned for residences, but the chain selected hotels in an equal partnership with the land developers at a joint investment of NIS 91 million for building the hotel.
Another hotel will be built on Jerusalem Boulevard in Jaffa opposite the Noga Theater in a building designated for preservation (the Shekem building). Here, too, the building has a residential building permit, but Isrotel regards hotels as a profitable instrument, especially in Tel Aviv. Preservation measures for the building have been completed, and the focus at present is on interior decoration. This luxury hotel, which will have 125 rooms, will be opened in 2021 at a NIS 100 million investment, excluding the land. This is also an equal partnership project.
On the beachfront, Isrotel has signed an agreement for construction of a five-star hotel in Leon Towers near the Royal Beach Hotel. Investment in the project totals NIS 1 billion, including the land. The hotel will contain a convention hall for 1,000 people and a parking lot. The project is on a 25-year rental lease. "We can't buy all of the properties we want, because not everything is for sale," Raviv explains. "In places where we aren't buying, the model is to rent for 25 years."
Another hotel reported by the chain earlier this week on the rental model, on Nahalat Binyamin Street, includes 87 rooms in a building designated for preservation. "It's a rather small hotel, but we stand to earn a lot of money on it because of its strategic location," Raviv explains.
Aviv also announced a hotel in Zion Square in Jerusalem scheduled for opening in 2022. The hotel, with 250 rooms, is a combination of a building designated for preservation with a new building. A convention center will also be built on the site. Investment in the project will amount to NIS 350 million.
None of these hotels are included in the extension of the Ministry of Tourism's program for grants of up to 10% in converting office buildings to hotels in Tel Aviv. Aviv praised the program, but noted that it was rare to find office buildings in Tel Aviv whose owners were interested in converting them into hotels. "A hotel can't pay NIS 200 per square meter. Whenever we tried to enter an office project, we quickly realized that it wouldn't work. We tried to replace the planned Indigo Hotel in the new Azrieli Towers with 120 rooms. The CEO there told us that the floors were being snapped up for offices," Raviv said.
Commenting on the Ministry of Tourism's plan to encourage construction of medium-rated hotels, Ravid declared, "It isn't worthwhile building such hotels in Tel Aviv. Even the Ministry of Tourism's restriction of up to NIS 250,000 per room reflects simple hotels. With us, the average investment per room is NIS 1 million."
With respect to the high prices of overnights in Israel, Raviv explained, "The prices are the result of the cost of living in Israel, wage costs, and all the other costs." It appears that with the tourism boom, Raviv has no reason to lower prices. "Eilat is in a very good period. At the Beresheet Hotel (in Mitzpe Ramon), our average occupancy rate is 97%. After the holidays, prices in Eilat will plummet by 70%. The open skies policy put pressure on us, but we changed strategy and brought more groups than in the past. It worked in our favor. We improved our results in Eilat from 2016 to 2017, so that people may be traveling overseas more, but they're also vacationing in Israel."
Talking about tourism outside the main focuses of Eilat, Tel Aviv, and Jerusalem, Raviv says, "It's less interesting. We get offers for managing hotels all round Israel, We almost opened one in Kfaar Szold, but we select only what fits our DNA. We don't want to open a hotel in Petah Tikva, Netanya, Akko, Ashdod, or Rishon Lezion. There are less choosy companies that might go to those places. In addition to the main tourist centers, we've learned to generate demand for hotels like Beresheet and Kramim (in the Jerusalem hills), where we generate demand through luxury branding."
The Mizpe Hayamim Hotel (in the Galilee), which Isrotel acquired in an estimated NIS 100 million deal, will be part of the chain's exclusive category. The hotel will close down next month for seven months for major renovations, including the addition of 17 rooms at a total investment of NIS 40 million.
In view of its positive results last year, Isrotel is distributing a NIS 25 million dividend. The group's revenue turnover totaled NIS 1.322 billion in 2017, compared with NIS 1.246 billion in 2016. Its EBITDAR rose from NIS 289 million in 2016 to NIS 317 million in 2017, a 9% increase. Operating profit jumped from NIS 166 million in 2016 to NIS 187 million in 2017, a 12% rise.
Isrotel's net profit was up 11.5% to NIS 135 million in 2017. Profit on apartment sales in Jerusalem amounted to NIS 19 million on five apartments sold and delivered in the Orient JerusalemHotel (six more are in the process). Isrotel's share price rose from NIS 37.02 to NIS 39.16. "Investment houses have also entered as an investor, which shows what can be done with hotels," Raviv summed up.