Dan Hotels 2025: Tourists Are Back, But Earnings Still Aren't

Getting To Know The Company

At first glance, Dan Hotels looks like a fairly straightforward story: a long-established chain, high-quality hotel assets, a strong brand, a new acquisition in New York, and revenue growth returning. That is only half the picture. What really matters is that the top line recovered, but the internal economics of the business still have not. Eilat is still carrying earnings, catering is helping stabilize the group, and the fourth quarter already looked better, but the urban hotels are not yet generating enough profitability to support heavy CAPEX, a foreign acquisition, and a capital structure that now leans much more on short-term funding.

In numbers, the group finished 2025 with revenue of NIS 1.56 billion, up 4% from 2024. That is the easy part of the story. The less comfortable part is that operating profit before depreciation and financing fell to NIS 163.9 million from NIS 217.3 million, hotel EBITDA fell to NIS 142.6 million from NIS 200.6 million, and net profit turned into a NIS 2.0 million loss. In other words, anyone looking only at revenue growth and the return of tourists is missing that the business is still far from normalized.

This is also not a single-engine business. Dan has two operating pillars: the hotel business, with 16 hotels in Israel plus one hotel in Bangalore and a total of 4,524 rooms, and the institutional catering business through Idit and Tiv Vetaam. Catering helps steady the picture, but it is not the engine that explains the company’s market value, which stood at about NIS 3.48 billion in early April. The central story remains the hotels, and inside that segment the picture is far less uniform than the brand may suggest.

The Economic Map

Inside that map sit several non-obvious findings that define 2025:

1. Profitability is highly concentrated. Four hotels, each contributing more than 10% of company EBITDA, generated a combined NIS 118.8 million of EBITDA, while the other 13 hotels together generated just NIS 23.8 million.
2. Eilat is the core earnings engine. The three Eilat hotels generated NIS 104.2 million of EBITDA in 2025. In the same year, the four Jerusalem hotels posted negative EBITDA of NIS 2.1 million, and the three Tel Aviv hotels posted negative EBITDA of NIS 5.8 million.
3. The group lost its abnormal 2024 anchor customer. In 2024 the Ministry of Tourism represented 25% of hotel-segment revenue because of evacuee hosting. In 2025 there was no material customer. Revenue did not collapse, but neither did profitability recover to prior levels.
4. Operating cash flow did not carry 2025 on its own. The company generated NIS 95.5 million of cash from operations, but still needed a net increase of NIS 243.2 million in short-term bank credit to fund investment, the New York hotel down payment, and debt service.
5. 2026 starts with both strategic upside and operating pressure. Nomo SoHo in New York adds a new platform, but the first half is already being hit by renewed security disruption, and management says it cannot estimate the full-year 2026 outcome.

Events And Triggers

The Shift From An Abnormal Customer Mix To A More Normal Demand Mix

One of the most important changes, and one of the easiest to miss, is the shift from an abnormal demand mix to a more normal one. In 2024 the Ministry of Tourism was a material customer and represented 25% of hotel-segment revenue because evacuees were staying in the group’s hotels. In 2025 that disappeared. On one hand, this is healthier because Dan is no longer leaning on an unusual public-sector customer. On the other hand, it also reopens the question of what true hotel profitability looks like when demand returns to being more dispersed across regular tourism, leisure, and business travel.

That is also visible in guest mix. Israelis still accounted for 82% of overnight stays in the group’s hotels in Israel during 2025, but that was already lower than the 92% seen in 2024. North American tourists rose to 8% from 4%, Europe rose to 7% from 3%, and tourists from other countries rose to 3% from 1%. So inbound tourism is genuinely recovering, and the fourth-quarter jump supports that, but it is still not back to a level that restores the city hotels to healthy profitability.

Government Support Helped, But It Did Not Solve The Core Economic Problem

The Ministry of Tourism support framework for hotels that hosted evacuees is expected to generate about NIS 12.7 million of grants for Dan. Of that, roughly NIS 2.6 million reduced cost of services and roughly NIS 10.1 million was recorded as a reduction in fixed assets. That helps, but it does not change the thesis. When hotel EBITDA falls by roughly NIS 58 million in one year, a grant of that size can soften the blow, not reverse the picture.

New York Is A Positive Trigger, But Not A One-Way Positive

In February 2026 Dan completed the acquisition of Nomo SoHo in Manhattan. This is an operating hotel with 264 rooms, conference and event halls, and a restaurant, acquired for $125 million. Strategically the move is clear: Dan is signaling that it does not want to remain a purely Israeli story, and it is willing to use its balance sheet to buy a meaningful operating asset abroad.

But two thoughts need to be held at once. The positive case: this opens a new growth arm, creates a Manhattan foothold, and reduces the long-term dependence on the Israeli market alone. The negative case: the move arrives precisely while local profitability is still not stabilized, the working-capital deficit is deep, and financial flexibility is already being supported through short-term bank funding. In other words, New York can become a growth platform, but near term it is also a test of funding discipline and execution.

2026 Has Already Started On The Wrong Foot

The point the market may struggle to absorb is that the fourth quarter of 2025 already looked better, but 2026 is opening under pressure again. After the balance-sheet date, Operation “Shaagat HaAri” broke out, and at the reporting date the company says Ruth Safed and Maayan Nazareth were closed. Beyond that, management explicitly says the security situation has a materially negative effect on tourist arrivals to Israel in the first half of 2026, and it cannot estimate the effect on the full year.

This matters because it means the fourth-quarter rebound does not automatically become a comfortable launch point for 2026. It mainly shows that there is latent demand that can return quickly when skies reopen, not that the system has already fully normalized.

Efficiency, Profitability And Competition

Revenue Recovered, But Profit Quality Weakened

The heart of 2025 is not a shortage of revenue. It is weaker revenue quality. Group revenue rose 4%, but operating profit before depreciation and financing fell 24.6%, and operating profit itself dropped to NIS 29.0 million from NIS 110.2 million. Beyond operational erosion, 2024 also benefited from relatively helpful non-core items, chiefly NIS 12.8 million from investment property fair-value gains and NIS 25.3 million from reversing a prior impairment on the DEN hotel in India. In 2025 only a NIS 0.5 million investment-property gain remained. So even after normalizing 2024, the hotel business still looks weaker in 2025.

The fourth quarter did improve. Hotel revenue jumped to NIS 311.6 million from NIS 244.1 million, and hotel EBITDA rose to NIS 53.4 million from NIS 19.1 million. But that improvement needs two caveats. First, the fourth quarter of 2024 was a weak base because of the fighting in the north. Second, even after that recovery, the full year still ended with average occupancy of just 50.5%, versus 60% in 2024 and 66.2% in 2023. So the right conclusion is not that the problem is behind the company. It is that the recovery exists, but remains uneven.

Eilat Is Earning, Jerusalem And Tel Aviv Are Still Dragging

This is the center of the case. Eilat is currently Dan’s profit machine. The three Eilat hotels finished 2025 with revenue of NIS 423.8 million, average occupancy of 84%, REVPAR of NIS 932, and EBITDA of NIS 104.2 million. By contrast, the four Jerusalem hotels ended the year with revenue of NIS 241.7 million, occupancy of 38%, REVPAR of NIS 398, and negative EBITDA of NIS 2.1 million. The three Tel Aviv hotels finished with revenue of NIS 179.6 million, occupancy of 51%, REVPAR of NIS 418, and negative EBITDA of NIS 5.8 million.

That creates Dan’s true operating thesis. The company is not facing a uniform portfolio-wide slump where every asset is weak to the same degree. Quite the opposite. It has very strong properties, but the urban assets that should justify the profile of the brand have not yet come back to an acceptable level. That is also why revenue can rise without profitability recovering. Earnings are coming from very specific places, and the weakness in the city hotels is still eating up the improvement.

Catering Helps, But It Cannot Carry The Story Alone

The catering segment was better in 2025. Revenue rose to NIS 409.0 million from NIS 391.3 million, and profit before tax rose to NIS 9.3 million from NIS 4.7 million. Management attributes that mainly to a higher price per meal sold and better raw-material efficiency. In addition, more than 70% of activity comes from customers that already have cooking kitchens, which supports a relatively stable activity base.

But the proportions matter. Even after the improvement, this remains a low-margin business with clear exposure to labor costs and food inflation. The company itself states that indexation mechanisms in customer contracts do not fully cover potential increases in food prices. So catering is an important stabilizer, but it is not a substitute for a hotel portfolio that is still not earning enough in the city markets.

Labor Pressure Is Not Going Away

The hotel business alone employed an annual average of 3,252 workers and 3,006 full-time positions in 2025, excluding about 350 outsourced manpower workers in the hotels and about 280 employees in Bangalore. The company paid sector agreement wage increases of 2.25% in April and 0.5% in August 2025, and minimum wage is set to rise to NIS 6,444 in April 2026. At the same time, the company itself describes broad staffing difficulties, particularly in housekeeping and cleaning.

The implication is simple: even if occupancy improves, that does not guarantee an automatic rebound in margins. For profitability to recover, Dan needs not only more demand, but demand that returns at prices and mix strong enough to cover a more expensive labor base.

Cash Flow, Debt And Capital Structure

I am using an all-in cash flexibility framework here, meaning how much cash is really left after actual cash uses. That is the right framing for Dan because the central thesis is not theoretical cash generation from a hotel asset base. It is financial flexibility while the company is simultaneously investing, servicing debt, and adding a new foreign property. The company does not disclose maintenance CAPEX separately, so there is no basis for pretending a maintenance cash generation bridge is a reported number.

Accounting Profit Does Not Explain The Cash Picture

In 2025 Dan generated NIS 95.5 million of cash from operations. That is positive, but far from sufficient on its own. In the same year it invested NIS 148.4 million in fixed assets and investment property, paid a NIS 41.8 million advance for the New York hotel, repaid NIS 77.3 million of long-term loans, and repaid NIS 43.7 million of lease principal. The most important line in the cash flow statement is therefore not the year-end cash balance of NIS 55.7 million. It is the fact that the path there ran through a NIS 243.2 million net increase in short-term bank debt.

That is exactly the difference between a business that earns money and a business that can afford strategic moves without rolling still more short-term funding. Dan is not there yet.

Debt Has Shifted From Long To Short

On the consolidated balance sheet, short-term bank credit rose to NIS 516.3 million from NIS 300.1 million. At the same time, long-term bank loans fell to NIS 38.0 million from NIS 88.3 million. That can help in the short run when short-term rates look preferable, but it also shifts more weight onto day-to-day bank relationships and working credit lines. The company stresses that it has no financial covenants and no material restrictions on additional borrowing. That matters. It means there is no immediate covenant-cliff story here. But it does not mean the financing structure has become more comfortable. It has become more bank-dependent and less locked in over time.

That picture also needs to be read together with the working-capital deficit. Current assets stood at NIS 450.9 million against current liabilities of NIS 903.6 million. That means a working-capital deficit of NIS 452.7 million. The company presents this as a deliberate funding choice, preferring short-term financing over longer-dated debt. That may be true. But for investors the implication is still the same: if profitability does not improve, the capital structure will continue to rely on credit management rather than internal cash surpluses.

Even After The Acquisition, The Real Question Is Not Whether There Are Assets But Whether There Is Access To Value

Dan has a meaningful asset base. Fixed assets and right-of-use assets totaled NIS 1.983 billion, investment property and related right-of-use assets totaled another NIS 119.9 million, and equity stood at NIS 1.275 billion. On top of that, the company has unutilized building rights at Dan Accadia, Dan Caesarea, Ruth Safed, and Neptun Eilat. But value on paper is not the same as accessible cash. The Accadia and other development plans remain subject to planning processes with no firm timetable, and the company itself says it cannot currently estimate the economic impact of the Accadia plan.

In other words, there is real asset optionality here, but it cannot substitute for a hard discussion about near-term funding.

Outlook

Before getting into 2026, four points need to be fixed in place:

1. The fourth-quarter improvement is real, but part of it comes from an easy comparison base.
2. 2026 is beginning weaker than late 2025 suggested.
3. New York opens a strategic option, but it does not solve the near-term weakness in Jerusalem and Tel Aviv.
4. The key test is not revenue growth. It is whether the recovery converts into cash and reduces dependence on short-term debt.

For that reason, 2026 currently looks like a bridge year. Not a breakout year. Not a reset year. A bridge year in which the company is trying to hold together three processes at once: inbound tourism recovery, stabilization of the city hotels, and integration of a new property in New York.

What has to happen for the thesis to strengthen? First, the city hotels need to recover in a real way. Jerusalem and Tel Aviv do not have to become major profit engines immediately, but they do need to stop being an earnings drag. Any improvement in occupancy and REVPAR in the city portfolio will have a strong operating effect, because the 2025 base is already weak.

Second, Nomo SoHo needs to become a platform-building move rather than a new financing problem. The fact that after the balance sheet date the company took two long-term loans totaling about NIS 235 million at prime minus a margin for three years is positive in one sense: Dan has already begun shifting part of the financing load into longer tenor. But that does not erase the fact that the 2025 balance sheet still showed an unusually heavy reliance on short-term credit.

Third, the improvement in guest mix is still incomplete. Tourist share improved versus 2024, but it remains well below 2023 levels. If skies remain partly constrained or inbound tourism stays soft in the first half, the city hotels will continue to weigh on results.

Fourth, the catering segment needs to keep executing. It is not supposed to save the year, but it can preserve a more stable floor as long as labor and food inflation do not compress margins again. That matters because the company itself says contract indexation does not fully cover food-cost inflation.

Risks

Security And Demand

This is the biggest risk, and the company ranks it that way. When the security environment worsens, not only inbound tourism but also booking patterns, flight availability, hotel operations, and staffing all suffer. That was visible in June 2025, and it has already returned at the start of 2026.

Funding And Liquidity

There are no covenants, and that clearly lowers immediate risk. But a capital structure without covenants is not necessarily a capital structure without pressure. Dan ended the year with NIS 516.3 million of short-term bank credit, a NIS 452.7 million working-capital deficit, and interest-rate sensitivity showing a NIS 9.2 million hit from a 50% increase in the average rate on floating debt. That is not a funding collapse. It is also not a wide cushion.

FX And Foreign Activity

As of December 31, 2025 the company had excess dollar liabilities over dollar assets of NIS 57.4 million. Management says the main exposure is accounting rather than cash-based, but it still creates earnings volatility. On top of that, translation of the India business contributed NIS 15.3 million of translation differences within net financing expense in 2025.

Labor Cost And Competition

Minimum wage pressure, labor shortages, and competition from Israeli and international hotel chains, together with short-term rental alternatives in Jerusalem and Tel Aviv, all push in the same direction: it becomes harder to raise price without losing demand, and harder to keep the cost base flexible.

Legal And Regulatory

The main disclosed legal risk at the moment is a motion to certify a class action in which alleged damages are estimated at about NIS 51 million, relating to hotel services and check-in and check-out hours. The company states that, at this stage, the risk cannot be estimated. This is not the risk that defines the thesis, but it is not immaterial either.

---

Conclusions

Dan Hotels is not a collapse story, but it is also not a clean recovery story. What is working today is Eilat, part of the resort portfolio, and the catering segment. What blocks a cleaner thesis is the persistent weakness in the urban hotels together with a funding structure that leans too heavily on short-term credit while the company is adding a new overseas asset. In the short to medium term, the market will likely focus on whether the fourth-quarter surge was the start of a trend, or just a short window between two security shocks.

Current thesis: Dan holds strong assets and a strong brand, but in 2025 real profitability was concentrated in a small number of hotels while financial flexibility leaned on short-term credit rather than internally generated surplus cash.

What changed: In 2024 the company benefited from abnormal demand and a material customer in the Ministry of Tourism. In 2025 demand became more diversified and more tourist-driven, but that transition still did not return Jerusalem and Tel Aviv to acceptable profitability. At the same time, the company added a new strategic move in New York just as the balance sheet became more dependent on short-term financing.

The strongest counter-thesis: one can argue that 2025 weakness is mainly temporary, that the city hotels will recover quickly once tourism normalizes, and that a Manhattan asset together with the absence of covenants puts Dan in a stronger position than current numbers imply. That is a legitimate objection, but it still needs operating and cash evidence.

What could change the market reading: sustained improvement in occupancy and REVPAR in the city hotels, smooth integration of Nomo SoHo without another step-up in short-term debt, and signs that the company can fund a larger share of investment and debt service from operations.

Why this matters: Dan is now being judged less on whether it owns good real estate and more on whether it can turn brand, property, and returning tourism into stable cash that is actually accessible to shareholders.

Over the next two to four quarters three things need to happen together: the city hotels need to move back into profitability, New York must not open a new funding hole, and the company has to reduce its dependence on short-term credit. If those three happen at once, the market’s interpretation of Dan can change materially. If they do not, 2025 may end up looking less like a trough and more like the first stage of a longer bridge period.