Fattal Holdings: Europe Still Carries the Engine, but 2026 Will Be Tested in Israel and in the Funding Layer

Understanding the Company

At first glance, Fattal Holdings looks like a simple story: a large hotel platform still growing in Europe while Israel is temporarily weighing on the numbers. That is only a partial read. By 2025 this is no longer just a hotel chain. It is an international platform with 315 hotels at year-end and 316 hotels by the report-sign date, 55,579 rooms, operations in 21 countries, and roughly 80% of its activity outside Israel. Based on market data from early April 2026, the market cap stood at about NIS 9.55 billion. At that scale, the right lens is no longer just occupancy and room rates. It is also funding structure, access to value, and the ability to turn growth into real cash flexibility.

What is working now sits mainly in Europe. The Europe segment, led largely by Germany, finished 2025 with NIS 3.128 billion of revenue and NIS 1.145 billion of EBITDAR. The UK and Ireland added another NIS 2.354 billion of revenue and NIS 779.8 million of EBITDAR. Together, those two engines generate more than 71% of revenue and about 70% of segment EBITDAR. That is why the company can still talk about growth even while Israel is under pressure.

This is also exactly where a superficial read can go wrong. 2025 was not clean growth. Segment revenue rose, but same-hotel EBITDAR fell by NIS 110 million even before FX. EBITDA before IFRS 16 declined to NIS 1.434 billion from NIS 1.588 billion, and FFO fell to NIS 795 million from NIS 925 million. In other words, 2025 was not just about more rooms and more hotels. It was also about weaker quality in the earnings base already in place.

The active bottleneck has two layers. The first is Israel. Occupancy in the Israel segment fell to 61% from 69.3% in 2024, and for the first quarter of 2026 the company already estimates average occupancy of about 45%, versus 56% in the comparable quarter. The second is the funding layer. Fattal still has a large operating engine, but it also carries NIS 1.7 billion of debt tied to hotels that have not yet contributed a full year, around NIS 1.1 billion of additional expected investment in the coming years, and a rise in net debt to EBITDA to 3.76 on management's measure. At the listed parent level, cash was only NIS 33.1 million, against NIS 212 million of commercial paper and NIS 163.9 million of current bond maturities. That is not the same thing as looking at NIS 931 million of consolidated cash and securities.

Four points need to be clear from the start:

• Europe still carries the economic engine. In 2025, Europe alone contributed 41% of segment EBITDAR and the UK and Ireland added another 29%.
• 2025 was not an operating breakout year. Revenue rose, but same-hotel EBITDAR fell and EBITDA before IFRS 16 declined by 9.7%.
• The leverage story looks different depending on the layer. Bondholder covenants still look comfortable, but management's own debt-to-EBITDA measure is already moving in a less comfortable direction.
• 2026 looks like a bridge year with a proof element. Israel has to recover, new openings have to convert into EBITDA, and the company has to finance that without stretching the capital layer further.

Events and Triggers

The first trigger: the pipeline is still aggressive. In the investor presentation, excluding partnership hotels, the signed openings pipeline shows 10 hotels in 2026, 5 in 2027, 9 in 2028, and another 12 in 2029-2030, for a total of 36 hotels and 6,065 rooms. Management estimates representative annual EBITDA from those openings at about NIS 250 million, but at the same time it also reports around NIS 1.1 billion of remaining expected investment and about NIS 1.7 billion of existing debt tied to hotels that have not yet contributed a full year. So the pipeline creates an option, but it also shifts the center of gravity toward execution and funding.

The second trigger: the hotel partnerships have become a real strategic engine, not a side note. Partnership II includes 19 hotels in 8 countries, 3,515 rooms, asset value of EUR 948 million, and acquisition cost of EUR 815 million. Partnership III already includes 34 hotels in 8 countries, 4,722 rooms, asset value of EUR 1.033 billion, and acquisition cost of EUR 931 million. The company's share of 2025 EBITDA in the two partnerships was EUR 20.1 million and EUR 20.4 million, respectively. This sharpens the expansion engine with less direct capital, but it also reminds investors that part of the value sits at the partnership layer and does not necessarily flow immediately to common shareholders of the listed company.

The third trigger: 2025 is over, but the short read has already moved into 2026. After the balance-sheet date, a new military operation in Israel began, and by the report-sign date only about half of the Israeli hotels, 25 out of 48 active hotels, were open. The company estimates average occupancy in Israel in the first quarter of 2026 at about 45%. The market is not going to read 2025 as a backward-looking report only. It will also read it as the starting point for a year in which Israel enters from a weak base.

The fourth trigger: the comparison to 2024 is not clean. In 2024 the company recorded NIS 231.3 million of other income, mainly from the gain on stepping up to control in Protal. Without that point, the gap in net profit between 2024 and 2025 is still negative, but less dramatic than the headline number. Anyone looking only at the bottom line, NIS 278.1 million in 2024 versus NIS 59.4 million in 2025, misses the distortion in the comparison base.

Efficiency, Profitability, and Competition

Where profitability still works

Fattal's operating strength did not disappear, but it shifted geographically. In Europe, mainly Germany, occupancy stayed at 77%, ADR rose to EUR 126, and EBITDA before IFRS 16 increased to EUR 155.7 million. In the UK and Ireland, occupancy improved further to 82% and ADR rose to GBP 121. The presentation also shows outperformance against peer market sets, with RevPAR ratios of 1.244 in Germany, 1.088 in the UK and Ireland, 1.076 in the Netherlands, and 1.060 in Spain. The group still knows how to manage yield better than its reference markets in several important geographies.

Where quality weakened

The problem is that 2025 weakened under the surface. The same-hotel revenue bridge shows an increase of NIS 344 million, but also a hit of NIS 192 million from FX. Worse, the same-hotel EBITDAR bridge shows a decline of NIS 110 million, plus another NIS 67 million erased by translation, while new hotels contributed only NIS 31 million. Put simply, the system got bigger, but the existing base produced less operating profit.

Israel is the main source of that erosion. Segment revenue rose only modestly to NIS 1.976 billion, but EBITDA before IFRS 16 fell to NIS 356.1 million from NIS 493.3 million. The company explains the decline through the June 2025 military disruption in Israel, lower Israeli profitability versus an unusually strong first quarter of 2024, and a stronger shekel together with higher costs in Europe. That matters because this is not just a volume issue. It is also a terms-and-cost issue.

What the market could miss at first glance

Anyone seeing network ADR at NIS 575, versus NIS 554 in 2024, could jump to the conclusion that pricing power absorbed everything. That is too quick. In the UK and Ireland, segment revenue declined to NIS 2.354 billion from NIS 2.425 billion, and EBITDA before IFRS 16 fell to NIS 259.2 million from NIS 300.7 million, despite slightly higher occupancy. In Israel, ADR even jumped to NIS 873 from NIS 715, but occupancy dropped to 61% from 69.3%. The room rate held up, but the machine did not use the rooms with the same quality.

Cash Flow, Debt, and Capital Structure

Cash flow looks strong, but the right frame here is all-in cash flexibility

In 2025 Fattal produced NIS 1.136 billion of cash flow from operations. That is a strong number, and it is also above NIS 1.038 billion in 2024. But in Fattal's case it is not enough to stop there, because the main question is not only how much cash the business generates, but how much remains after all real cash uses.

On an all-in cash flexibility basis, the picture looks different. Against NIS 1.136 billion from operations, the company posted negative investing cash flow of NIS 1.903 billion, mainly due to hotel acquisitions in Israel and Europe totaling about NIS 1.807 billion. The result is a cash deficit of roughly NIS 768 million even before the financing layer. That gap was closed through positive financing cash flow of NIS 878.9 million, driven by higher bond issuance and loans. In other words, 2025 was not a year in which growth funded itself. It was a year in which the operating business funded part of the path and the debt market funded the rest.

The other side also matters. If one strips out growth investments and acquisitions and looks only at the cash-generation power of the existing business, the base operation still looks strong. EBITDA before IFRS 16 stood at NIS 1.434 billion, FFO at NIS 795 million, and cash plus securities at the end of the period at NIS 931 million. That is exactly why the company does not look immediately strained. But that is also why investors should not confuse operating power with capital freedom.

Covenants are comfortable, economic leverage is less so

The non-obvious point in the report is that the key issue is not whether Fattal is close to breaching covenants, but which leverage ratio actually captures the economics. Under the bond covenants, the company remains comfortably inside all limits. Adjusted net financial debt to net CAP stood at 55.68% versus a 76% ceiling, and adjusted net financial debt to adjusted EBITDA stood at 2.90, well below the 9x to 10x thresholds in the relevant series.

That is not the same ratio management chooses to foreground in the presentation. There, adjusted net financial debt to EBITDA reached 3.76 at the end of 2025, versus 2.13 at the end of 2024. At the same time, the equity-to-balance-sheet ratio declined to 32.9% from 34.1%. The conclusion is that the company is still far from covenant stress, but it is no longer operating with the same economic comfort it had a year earlier.

Leases and the listed parent layer

There is another layer the market could easily miss. Group lease liabilities remain enormous, NIS 458.5 million current and NIS 12.615 billion non-current. Even after buying some hotels that had previously been leased, net right-of-use assets still stand at more than NIS 11 billion. That does not mean the company is in trouble, but it does mean a large part of the capital structure still sits on long-duration lease obligations.

And at the listed parent itself, the picture is even sharper. In the solo statements, cash and cash equivalents were only NIS 33.1 million, against NIS 212 million of commercial paper, NIS 163.9 million of current bond maturities, and NIS 1.449 billion of non-current bonds. On the asset side, the parent holds NIS 2.102 billion of loans to subsidiaries and NIS 379 million of current receivables from subsidiaries. That tells investors the listed entity is not a cash-rich top company. It is a funding layer built on debt rollover and on access to value sitting lower in the structure.

Outlook and What Comes Next

Five points need to be anchored before getting into the 2026 numbers:

• The 2026 revenue outlook of NIS 8.0 billion to NIS 8.4 billion implies a range from about 2.8% down to 2.1% up versus 2025. That is not a top-line acceleration story.
• The 2026 EBITDAR outlook of NIS 2.8 billion to NIS 3.1 billion already requires improvement of about 2.3% to 13.3%. The EBITDA outlook implies a sharper improvement of 4.6% to 25.5%.
• The FFO outlook of NIS 900 million to NIS 1.1 billion already assumes a jump of about 13% to 38% versus 2025. That is a quality-improvement expectation, not just a volume expectation.
• Management builds 2026 on 291 active hotels, versus 274 at the reporting date and 276 at the report-sign date. That means the guidance already assumes a meaningful wave of openings this year, not a side bonus.
• The company itself says that, if the current military operation ends in the coming weeks, the main impact should fall on the first and second quarters of 2026 in Israel, and to some extent on the Other segment in the second quarter. So the guidance implicitly leans on a better second half.

What kind of year this really is

2026 looks like a bridge year with a proof test. The bridge runs from a very weak start in Israel to a recovery narrative in the second half. The proof test is whether Fattal can deliver better EBITDA and FFO without a major jump in revenue, and without taking leverage materially higher just to support the expansion plan.

What has to happen for the guidance to hold

The first thing that has to happen is recovery in Israel. The company explicitly says that the return of tourists to Israel, assuming the operation ends in the coming weeks, should begin gradually in the second half of 2026. That is a heavy assumption, because tourist nights in Israel remained very weak through 2025: only 9% of guest nights in the first quarter, 11% in the second, 7% in the third, and 13% in the fourth.

The second thing is that the new openings have to start contributing at a reasonable pace. The company attributes around NIS 250 million of representative annual EBITDA to the future hotels. If those openings slip, Fattal remains with the investment and debt layer ahead of the profit layer.

The third thing is that Europe has to hold the line. If Europe keeps occupancy and ADR in a solid range, the group can absorb a weak Israel. If Europe also starts to erode operationally, the guidance range looks more aggressive.

How to read 2029

The 2029 guidance, with NIS 11.0 billion to NIS 11.5 billion of revenue, NIS 3.9 billion to NIS 4.2 billion of EBITDAR, NIS 2.4 billion to NIS 2.6 billion of EBITDA, and NIS 1.6 billion to NIS 1.8 billion of FFO, is a direction-of-travel statement, not a clean valuation base. The company itself ties it to macro stability, current FX rates, full contribution from partnership projects, completion of projects under construction, and a return to stability in Israel. This is not guidance that can be treated as close to contracted cash flow. It is an option map.

Risks

• Israel and inbound tourism: the company itself says that by the report-sign date only about half of the Israeli hotels were open, and that the main hit should fall on the first and second quarters. This is the clearest immediate risk point.
• Earnings-quality erosion: same-hotel revenue rose, but same-hotel EBITDAR fell. If that continues, even new openings will not clean up the read on the core business.
• Funding and accessible value: the asset value of the hotel portfolio, more than NIS 18 billion including associates according to the presentation, does not automatically equal value that is accessible to common shareholders. First it has to work its way through debt, leases, refinancing needs, and partnerships.
• Dependence on David Fattal and governance: the company itself identifies dependence on Mr. David Fattal. In addition, in August 2025 it received a request to approve a derivative action in connection with the Migdalei Hayam Hatichon transaction, with alternative relief of about NIS 93 million or transfer of the shares to the company. Even if it is too early to draw hard conclusions, this is an external warning signal that cannot be ignored.
• FX and cost pressure in Europe: in 2025 the company already reported a NIS 192 million hit to same-hotel revenue and a NIS 67 million hit to same-hotel EBITDAR from exchange rates. That is not a theoretical exposure.

Conclusions

Fattal exits 2025 as a stronger international hotel platform in terms of footprint, but a less clean one in terms of earnings quality. Europe still carries the business, and the openings pipeline plus the partnerships keep a visible growth path in place, while financial covenants remain far from stress. On the other side, Israel enters 2026 from a weak starting point, same-hotel EBITDAR has already eroded, and the listed parent relies much more on funding access than on cash sitting at the top.

Current thesis: Fattal still has a strong European engine, but 2026 will test whether the pipeline and the partnerships can offset a weak Israel without putting another layer of pressure on the funding structure.

What changed: a year ago Fattal could still be read mainly through top-line and asset growth. After the 2025 report, the discussion shifts toward earnings quality, economic leverage, and the gap between value created inside the assets and value actually accessible to shareholders.

Counter-thesis: one can argue that this read is too severe, because the company still shows solid operating performance in Europe, covenant leverage remains comfortably away from stress, and the openings pipeline is large enough to repair 2025 already over the next year.

What could change the market's reading in the short to medium term: the pace of openings in 2026, the depth of the hit in Israel in the second quarter, and whether second-half EBITDA and FFO actually begin to look like management's own guidance.

Why it matters: in Fattal's case, value will not be determined only by room count or real-estate value, but by the ability to turn a large international platform into accessible cash after leases, partnerships, debt, and the public-company funding layer.

If Israel stabilizes in the second half, if the 2026 openings begin contributing on time, and if leverage stops climbing despite the investment program, the read on Fattal can move back toward a higher-quality growth story. If Israel stays weaker than expected, or if the pipeline needs another layer of debt before it produces EBITDA, the market will continue to see a strong hotel platform with a transition year that runs longer than planned.