ELLA: Sun Bat Yam's Path to Refinancing

The main article argued that ELLA’s real test still sits at the parent layer, not in the consolidated balance sheet alone. This follow-up isolates the asset that is already too large to remain a side note: Sun Bat Yam. If it reaches a proper operating opening and then a workable refinancing, it can justify why 2025 was real value creation. If not, it may remain mainly a capital-consuming engine that prolongs the transition period.

What can mislead a first-time reader is that the asset already produces numbers. In 2025 it generated ILS 12.3 million of interim-use revenue and ILS 5.3 million of NOI attributable to ELLA’s share. But those figures do not yet describe a fully opened hotel. They come from rent and maintenance, the gym, and the spa, while the final operating model of the hotel itself was still unresolved.

That is the core of the story. Sun Bat Yam is not just another income-producing property that entered the balance sheet and now waits to pay off. It is a staged financing contract, with an opening model that is still open, with a lender willing to finance comfortably today in order to test execution tomorrow, and with a roughly ILS 18 million waiver that disappears only if the project stays on track. The refinancing path therefore starts not with the question of what the asset is worth on paper, but with the question of how it will actually operate.

Four points matter immediately:

• 2025 revenue is not yet full hotel revenue. It is based on interim uses, not on a final operating model.
• The bank gave a grace structure, not a permanent exit. For 4 years the project mainly pays interest, and then refinancing arrives.
• The roughly ILS 18 million waiver is not a benefit that has already been captured. It depends on compliance throughout the financing period.
• Even the owner-equity bridge is not coming back quickly. By year-end 2025 about ILS 85 million had been injected out of the ILS 130 million initial funding commitment, and about ILS 39 million of that was recorded as a debt from Sun to ELLA Bat Yam that will be repaid only from the partnership’s free cash flow.

This chart shows why 2025 is still not a proof year for the hotel. Cash is coming in, but it is coming from relatively temporary uses and from an asset that has not yet moved into a full operating format.

What Is Actually Open, And What Is Still Open

At year-end 2025, one tower in the project was designated for hotel use and only partially equipped and furnished, while the second tower was intended for vacation apartments. At the same time, the commercial areas were already leased to various tenants, and the year’s actual revenue came from rent and maintenance and from the gym and spa. That means the asset is alive, but not yet alive in the way that truly tests the hotel model itself.

The more important point is that the company still has not closed the operating question. The parties were in advanced negotiations to cancel an existing hotel-management agreement and replace it with a franchise agreement under the Swissotel brand, yet as of the report date the company still had not decided whether the hotel would be run through self-operation or by a third party. That is not a side operational detail. It is the variable that will shape revenue quality, management costs, distribution structure, and the ability to produce a stable coverage ratio.

The real analytical point is the gap between the 2025 numbers and what a refinancing lender will want to see at the next stage. Interim uses prove that the asset is not empty. They do not yet prove that the hotel can run as a full operating machine. That is why ILS 12.3 million of revenue and ILS 5.3 million of NOI do not answer the central question. They only buy time to answer it.

The Financing Looks Calm, But It Pushes the Test Forward

The Bank Hapoalim financing agreement is built exactly that way: comfort now, test later. On January 26, 2025, ELLA Bat Yam received a main loan of about ILS 222.8 million together with an additional layer of about ILS 17.9 million. The financing period is 4 years. During that period the project mainly pays interest, only 1.5% of principal is scheduled to be repaid in the fourth year, and then refinancing is expected to take place.

On paper that sounds almost too comfortable. But it has to be read correctly. The bank was not saying the project was already mature. It was saying the project had received a window of time to turn from a property under development into an asset that could support regular financing. That distinction matters. The real test does not come while interest is being paid. It comes when Sun Bat Yam has to prove that it deserves the next layer of debt.

This chart does not show one single stack. It shows four different layers that frame the transition period. The recognized bank debt is only the first floor. Above it sits the contingent amount owed to the bank, next to it sits owner capital that has already been injected, and under the surface there is also the partner-related receivable that is supposed to be repaid later out of free partnership cash flow.

The disclosed financial conditions on the project look narrow and clear: loan to value below 75% and coverage above 1.2. The project disclosure also says there are no other central triggers of the type of tenant departures or property value, and the company stated that it was in compliance as of December 31, 2025. That is the reassuring side of the story.

But that reassuring side can also mislead. The bank’s real control does not sit only in those two numbers. It also sits in the fact that cash cannot be withdrawn without the bank’s consent, that the Ministry of Tourism grant may be used only for the project, and that payments to contractors and service providers as well as lease agreements with tenants are subject to bank or bank-inspector approval. In other words, this is not a structure that signals blind trust. It is a structure that grants time while keeping a hand on the cash valve.

The Roughly ILS 18 Million Waiver Is the Core Read-Through

This is the easiest figure to miss. In the December 31, 2025 statements, Sun Bat Yam carried a long-term liability of about ILS 224 million. At the same time, an additional amount of about ILS 18 million was treated as a contingent liability and was not recognized as a financial debt because as of year-end the company had not breached the conditions that would make it payable.

That accounting is correct. Analytically, however, it says something sharp: part of the relief the project appears to enjoy today is not debt that has truly vanished. It is debt the bank is prepared to waive only if the project stays compliant throughout the financing period. Put differently, the waiver is a reward for execution, not a gift delivered on day one.

That makes the waiver mechanism a measurement tool as much as a credit feature. If Sun Bat Yam reaches the refinancing stage while remaining below 75% LTV and above 1.2 coverage, the amount really does disappear from the story. If not, it comes back exactly when the company will want to present a mature, stable asset ready for the next debt layer. That is why it is not enough to read Sun’s debt only through the number already sitting on the balance sheet.

Even the Equity Bridge Is Not Truly Liquid Yet

The story does not stop with the bank. Under the partnership agreement, ELLA Bat Yam committed to provide initial funding of up to ILS 130 million in order to complete construction, cover financing costs, and repay suppliers and service providers. By year-end 2025, about ILS 85 million of that amount had already been injected, which means nearly two thirds of the initial commitment had already been used.

Here another important detail appears. As a result of that funding, a long-term receivable of about ILS 39 million was recorded, reflecting a debt from Sun to ELLA Bat Yam. That debt is supposed to be repaid in the future out of the partnership’s free cash flow. So even the money that has already gone down is not money that quickly comes back up. Before it can truly improve group liquidity, the partnership first has to generate free cash and only then repay the internal bridge.

This adds another layer to the refinancing path. The project does not only need to satisfy the bank. It also has to generate enough surplus to repay the funding partner that already moved capital down. Until that happens, part of the value remains trapped inside the transition period.

The Refinancing Path Runs Through Four Checkpoints

The first checkpoint is operational. The company has to close a final operating model for the hotel, because it is hard to price a refinancing when it is still unclear whether the hotel will be self-operated or run by a third party and how the revenue and risk-sharing structure will ultimately look.

The second checkpoint is moving from interim-use income to full hotel income. The commercial space, the gym, and the spa already prove that the property has economic life, but they are not a substitute for a hotel operating at scale. For refinancing to be credible, the lender and the partners will need to see not just activity, but repeatable activity.

The third checkpoint is continuous compliance. It is not enough to arrive at one moment in time with good-looking numbers. The waiver on roughly ILS 18 million is judged throughout the financing period, which means the path matters, not only the finish line.

The fourth checkpoint is upstream cash. In February 2026 the public company received an ILS 48 million credit line running through June 30, 2027, subject to minimum equity of ILS 275 million and net financial debt to net CAP of no more than 75%. That facility clearly strengthens parent liquidity. But it does not change Sun Bat Yam’s own test. It is a corporate bridge around the project, not a substitute for the project refinancing itself.

The bottom line of this continuation analysis is straightforward. Sun Bat Yam is no longer just a fast-growing asset. It is a staged financing contract. In 2025 ELLA bought time, interim revenue, and what looks like a calm banking framework. But that time is conditional: the company still has to choose an opening model, operate a complex asset, preserve coverage and LTV, and turn a leveraged partnership into free cash flow. Only if that happens will 2025 look in hindsight like a successful financing phase. If not, Sun Bat Yam may remain the main reason the balance sheet grew faster than liquidity.