Israeli hotel companies move confidently into Europe
 
Israeli hotel companies move confidently into Europe
03 APRIL 2018 7:42 AM

The Israeli hotel industry historically has focused on domestic development. But recent acquisitions by Fattal Hotels and LRC Group have changed the global hospitality landscape.

REPORT FROM ISRAEL—The Israeli hotel industry is flexing its muscles, and Fattal Hotels is leading the push, according to sources.

Fattal turned heads last December when the company—together with Swedish firm Pandox—bought a 37-hotel portfolio for £800 million ($1.1 billion) from U.S. private equity firm Lone Star. A total of 36 of the assets comprise the entire Jurys Inn brand. Fattal now owns the portfolio’s operations platform and will manage all Jurys Inn hotels via long-term lease agreements.

Since the Jurys Inn acquisition, Fattal has been working on another deal. On 25 February, parent company Fattal Hotel Management placed 11.5% of the company on the Tel Aviv Stock Exchange. At press time, the market capitalization of its publicly traded shares—not the entire company’s value—is 5.3 billion Israeli shekels ($1.5 billion).

Joseph Fischer, CEO of Israeli business consultancy Vision Hospitality, said Israeli shareholders often have been lukewarm about hotel ownership.

“Until now, shareholder attitudes have not been positive,” he said. “They do not really like hospitality stock, as (the Israeli tourism industry has) seen quite a fluctuation in performance, be that from an Intifada, a missile out of Lebanon, problems with Iran, peaks and troughs, banks not so keen to give money for new development and not much stock coming into the market.”

Fischer said it makes sense why Fattal is taking some part of the company public, especially for David Fattal, chairman and CEO of Fattal Hotels, a company he founded almost 20 years ago.

“Currently, 83% of Fattal is in holding group, with 18.5% owned by Israeli’s largest insurance company, Migdal Insurance & Financial Holdings,” Fischer said. “(David Fattal) will use the money to pay his loans.”

Speaking of the Jurys Inn deal, Fattal said, “it is a big expansion for us. We really looked for the ability to penetrate our strength in the (United Kingdom) and Ireland market. We continue to expand, with the idea of having several hotels in the strong cities.”

But that expansion does not yet include the Americas, Fattal said.

“For now it is Europe and Israel; we are in 17 countries and very focused on city and airport hotels,” Fattal said, adding that the company’s Leonardo brand is its main hotel brand in Europe.

As for the move to the stock market, Fattal said, “the idea of this is to have more penetration in the bond market. Plus, with a higher rating comes lower interest rates.”

Currency climate
Chris Dimitriadis, director of operations and head of acquisitions, U.K., at LRC Group, is one of the movers behind another Israeli firm’s push into Europe. LRC is based in Cyprus but owned by Israeli businessman Yehuda Barashi.

In February, LRC bought 25 hotels from Lone Star for €676 million ($831.7 million). The properties were part of Lone Star’s Amaris Hospitality portfolio, which also contained the assets sold in the Fattal-Pandox deal.

“This is a major milestone in LRC’s strategy to expand its presence in the U.K. and to increase its European hotel portfolio,” Dimitriadis said.

LRC also has 25 hotels in Germany and a strong U.K. presence in office and residential real estate, Dimitriadis said.

“The current portfolio has set up LRC’s hospitality platform, and we are looking to build out our existing book with complementary assets and portfolios,” Dimitriadis said.

Both Fattal and LRC executives said they are intrigued by Europe’s strong business fundamentals and the ever-growing travel volume both for business and leisure.

More movement is coming from Israel because its currency is at a historic high against the U.S. dollar, euro and pound, sources said.

“That makes it very good for (David Fattal) to get capital in Tel Aviv and pay for his loans in Europe and the U.K.,” Fischer said.

Brand boost
Fattal Hotels’ portfolio—which comprises approximately 170 hotels and 32,000 rooms—includes Hotel Rothschild 22 in Tel Aviv and brands Leonardo, Herods, U Hotels and lifestyle brand Nyx. Nyx has properties in Tel Aviv, Prague, Milan, Munich and Madrid, with upcoming hotels in Bilbao and Düsseldorf, among other cities.

In Europe, Leonardo has approximately 130 hotels. A total of 59 assets are in Germany, while 39 are in Israel, with 21 of those being owned by the company, 11 leased and seven under management agreements.

Before the Jurys Inn deal, Fattal Hotels had only seven assets in the United Kingdom and Ireland, Fattal said.

Originally a pure management company, Fattal moved into acquiring assets, purchasing its first European hotel in 2006.

“Being an operator gives us comfort,” Fattal said. “When changes happen, we are better able to deal with them.”

Fischer said Fattal has in some ways been a pioneer of hotel ownership and development in Israel.

“From day one, (Fattal) was the first one to guarantee to owners management with minimum lease agreements,” Fischer said. “No one else had wanted to do this.”

After becoming the largest hotel firm Israel, Fattal saw opportunity while Europe was in the midst of a recession, Fischer said.

“It went first into Germany with minimum guarantees and leases,” Fischer said.

Fattal’s next move was to court institutional capital and banks, and then in February 2013 it bought its first portfolio: 20 former Queens Moat Houses’ assets in Germany for an estimated €265 million ($326 million).

“(David Fattal) has a very good reputation. No one is even close to him in Israel,” Fischer said. “He buys whatever and moves into leases. He looks for deals all the time.”

According to data from STR, the parent company of Hotel News Now, in 2017 Israel hotels saw a slight performance dip in average daily rate but positive occupancy and revenue-per-available-room numbers.

During the year, Israeli hotel occupancy rose 4.6% to 70.1%, while RevPAR grew 3.6% to 528.19 Israeli shekels ($150.03). ADR fell 1% to 753.76 Israel shekels ($214.10).

In Tel Aviv, 2017 hotel occupancy increased 3.3% year over year to 72.2%, while RevPAR grew 1.9% to 629.12 ($178.68). ADR fell 1.3% to 871.15 ($247.42).

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