Issta follow-up: The hotel engine that does not flow through the revenue line
On a 100%-activity segment basis, Issta's hotel segments generated NIS 249.1 million of operating profit in 2025 versus NIS 73.0 million in tourism, even though hotel segment revenue was much smaller. That gap sits in fair-value gains, equity-accounted structures, lease economics, and operating events that do not show up as a simple consolidated revenue line.
A hotel engine that barely shows in the top line
The main article argued that Issta's value no longer sits only in tourism. This follow-up isolates the hotel layer, because this is where the gap between the consolidated statements and the actual profit engine becomes especially sharp. In the consolidated accounts, Issta still looks like a tourism group with NIS 586.8 million of revenue. But on a 100%-activity segment view, the two hotel segments generated combined operating profit of NIS 249.1 million in 2025, versus just NIS 73.0 million in tourism.
That is not a presentation quirk. It is how the platform works. The segment note states explicitly that segment results include 100% of the activity of equity-accounted companies, while the adjustments column bridges the numbers back to the consolidated presentation. As a result, Issta's hotel engine often appears through lease income, fair-value remeasurement, profit from associates, refinancing, or operating events, rather than through a clean jump in reported revenue.
That chart is the core of the thesis. Tourism still carries most of the volume, but hotels already carry far more of the operating profit. A reader who stays with the top line may conclude that hotels are a useful side layer. In 2025 they were much closer to being one of the group's main earnings engines.
Why profit rises while revenue does not
The valuation layer
The hotel jump did not come from room revenue alone. The segment note shows fair-value gains of NIS 51.4 million in hotels in Israel and NIS 81.6 million in hotels abroad in 2025. Together that is almost NIS 133.0 million, versus about NIS 21.1 million in 2024. This is why hotel profit surged without a matching rise in revenue.
This is also the main caveat. Hotels are a real value engine, but a large part of the 2025 improvement sits in asset values rather than cash immediately moving up the chain. Put differently, the consolidated revenue line understates the engine, but the segment profit line can look cleaner than the underlying cash reality.
The ownership layer
The bigger distortion sits in the ownership structure. Under the segment note, results include 100% of the activity of equity-accounted companies. That means a hotel can be highly material to Issta's economics without flowing fully through consolidated revenue. This is exactly why in 2025 hotels abroad showed NIS 79.2 million of segment revenue and NIS 155.3 million of operating profit, while hotels in Israel showed NIS 56.9 million of revenue and NIS 93.8 million of operating profit.
The sharper figure is this: combined hotel-segment revenue on a 100%-activity basis fell to NIS 136.1 million from NIS 149.3 million in 2024, yet combined operating profit almost doubled to NIS 249.1 million from NIS 125.2 million. That is the point. Issta's hotel engine grew even when it did not look like revenue growth.
Where the engine actually sits
To understand why hotels do not pass through the top line, it helps to look at contracts rather than just segment labels. In Ayelet Hashahar, for example, Issta Properties acquired half of the partner's rights both in the land entity and in the operating rights, leaving it with 24.5% of the overall rights in the land entity and half of the partner's lease rights. In December 2024 the parties signed a 15-year lease with Isrotel, with an option for another 9 years and 11 months, and the competition approval arrived on February 26, 2025.
The rent formula explains why this is hotel economics that does not look like ordinary hotel revenue. The lease is based on the higher of minimum rent or turnover rent: NIS 10 million in each of the first two years, NIS 11 million indexed from year three, or 18% up to turnover of NIS 55 million, 22% on the slice between NIS 55 million and NIS 90 million, and 24% above NIS 90 million. This is plainly hotel exposure, but in the statements it behaves more like a mix of income property and turnover participation than a classic operating hotel line.
The same pattern appears abroad. In August 2025 construction began at the Nicosia hotel, where Issta Properties is involved through FIH. The hotel is expected to include 161 rooms, and the lease sets rent as a percentage of turnover with a minimum of about EUR 2.4 million per year in the first two years and EUR 2.8 million in each following year. In September 2025 the Thessaloniki hotel opened with 130 rooms, and there too rent is set as a percentage of turnover with a minimum of about EUR 1.085 million per year. Also in September 2025, Issta Properties received 50% of an Italian vehicle developing a wellness hotel in Abano, with about 180 rooms expected only in early 2027.
So Issta's hotel activity is not one uniform operating line. Some assets are already income-producing, some are still under construction, some sit in joint structures, and some create value through lease economics or fair-value changes more than through visible operating revenue. Reading that whole engine only through consolidated revenue growth misses the core of it.
| Asset / layer | Position at end-2025 | How the economics show up | Why it does not look like a simple revenue line |
|---|---|---|---|
| Hotels in Israel | NIS 56.9 million of revenue and NIS 93.8 million of operating profit on a 100% basis | Segment revenue plus NIS 51.4 million of fair-value gains | Part of the improvement comes from asset revaluation, not just current operations |
| Hotels abroad | NIS 79.2 million of revenue and NIS 155.3 million of operating profit on a 100% basis | Segment revenue plus NIS 81.6 million of fair-value gains | Part of the activity sits in associates and joint structures |
| Ayelet Hashahar | Lease active from February 2025 | Higher of NIS 10-11 million minimum rent or turnover-based rent | Hotel exposure arrives through a lease contract and a land entity, not through full consolidation |
| Nicosia / Thessaloniki | Nicosia under construction, Thessaloniki opened in September 2025 | Turnover-linked rent with euro-denominated rent floors | The income base is built through long-term contracts and partner structures |
| FIH in Cyprus | Refinancing completed in June 2025 | EUR 120 million five-year loan and repayment of about NIS 230 million of shareholder loans to Issta Properties | Part of the hotel value emerges through financing and loan recovery, not turnover |
| Abano in Italy | 50% investment made in September 2025, opening expected in early 2027 | Equity plus shareholder loan into a joint vehicle | Value starts building before there is visible consolidated revenue |
The post-balance-sheet clues also sit in hotels, not in revenue
One of the clearest signs that hotels have become a platform of their own is that the meaningful late-2025 and early-2026 updates came through contracts and operations, not through a clean jump in sales. In New York, the company notified tenant Sonder on November 10, 2025 that the lease was terminated immediately after missed rent and the tenant's notice that it was stopping US operations and entering liquidation. On January 27, 2026 the company signed a replacement tenant into the existing lease, and that tenant undertook to pay the rent for the unpaid months when the hotel did not operate. This does not create a new revenue line, but it is exactly the kind of event that determines whether hotel value continues to turn into rental cash flow.
Cyprus shows the same pattern. In June 2025 the Cypriot companies controlled by FIH received a EUR 120 million five-year loan. That financing allowed repayment of about NIS 230 million of shareholder loans to Issta Properties, and the company expects gross savings of about NIS 19 million over five years, or about NIS 12 million net after the prepayment fee. That is hotel economics as well, just expressed through financing structure and recovered loans rather than through another revenue spike.
What has to be proven next
Issta's hotel thesis is stronger than the consolidated statements suggest, but it is also less straightforward than the segment-profit line suggests. For the market to grant the engine full quality, four things need to be demonstrated in 2026. First, Thessaloniki has to move from a partial opening year to a full rental year. Second, Nicosia has to progress from construction to income under its rent-floor framework. Third, Ayelet Hashahar has to show that the minimum-or-turnover formula really converts the asset into recurring income. Fourth, the New York issue has to settle as a tenant replacement rather than a lasting hit to earnings quality.
All of that still needs to be read carefully. In 2025 hotels in Israel and abroad produced almost NIS 249.1 million of operating profit on a segment basis, but about NIS 133.0 million of that was shaped by fair-value gains. So the consolidated revenue line understates the engine, while the segment-profit line can overstate the quality of earnings if it is read without separating value, rent, and cash.
Bottom line
The short conclusion is that hotels are no longer an appendix to Issta's tourism business. They have become a value platform in their own right, but that value flows through consolidation methods, revaluations, lease contracts, and operating events rather than through the line the market usually checks first. A reader who looks at Issta only through NIS 586.8 million of revenue misses the engine. A reader who looks only at NIS 249.1 million of hotel operating profit on a segment basis misses how much of it still sits in value rather than cash.
That is the whole story. Issta's hotel engine is materially larger than the top line implies, but it also requires more analytical discipline. The real question for the next few years is not whether value exists here, but how much of that value turns into recurring rent, rising cash flow, and accessible earnings rather than staying mainly as profit that looks stronger in segment reporting than in consolidated revenue.
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