Fattal Holdings: What the Israel Segment Really Looks Like After the War Years

Israel After the Main Article

The main article already established that Israel is Fattal's active bottleneck. This continuation isolates the harder question: did the Israel segment in 2025 already look like a normal hotel business again, or was it still running on an unusual mix of domestic travel, evacuees, and war-distorted comparisons.

The answer is that Israel has still not returned to normal. Revenue rose 3.5% to NIS 1.976 billion and ADR jumped to NIS 873, but occupancy fell to 61% from 69.3%, EBITDA dropped 27.8% to NIS 356.1 million, and EBITDAR fell 22.4% to NIS 471.0 million. When room price rises but occupancy and profitability fall, the problem is not just demand. The problem is demand quality, the breadth of the revenue basket, and the fact that the segment is still far from a full tourism normalisation.

This matters at group scale as well. In the March 2026 presentation, Israel already represented 24% of group revenue, but only 17% of group EBITDAR. The company itself writes that in a normal year Israel contributes around 20% of consolidated EBITDAR. In other words, Israel is still working, but it is no longer carrying the profitability weight one would expect from a segment that had truly returned to normal.

Four points need to be fixed in place before going deeper:

• Israel held revenue, but it did so despite a sharp drop in occupancy, not because operating quality improved.
• Even when looking only at hotels that were fully active throughout the period, revenue fell and profitability weakened. This is not just a story of openings, acquisitions, or one-off closures.
• What returned in 2025 was mainly domestic demand. What did not return was the foreign guest, and that changes the entire economics of the segment.
• 2026 does not begin from balance. It begins after another disruption, with about 23 Israeli hotels closed at the report-sign date and expected first-quarter occupancy of about 45%.

The key point is that the profitability erosion does not stop at EBITDA. EBITDAR, meaning operating profit before rent, also fell sharply. That means the 2025 issue in Israel is not just lease structure or accounting noise. The operating core itself worked less efficiently.

The sharpest data point sits in the table for fully active hotels. If, after stripping out the noise from acquisitions, openings, closures, and physical changes, the existing Israel base still shows a 1.8% decline in revenue and a 25.9% drop in EBITDA, it is difficult to argue that this was merely a temporary glitch around a few individual hotels. This already tells a deeper story about a segment that held price, but lost quality volume and the ability to extract the same profit from each room night sold.

It is also worth noting what did not happen. This does not look like a company-specific competitive problem inside Israel. Average occupancy across Israeli hotels in the broader market was 53% in 2025, while Fattal stood at 61%. That means Fattal still operated above the market environment. The problem is that the market itself remained distorted, and Israel inside Fattal stayed too dependent on domestic travel and emergency demand.

The Real Problem Is Mix, Not Just Occupancy

The best way to understand Israel in 2025 is to look at who actually slept in the rooms and what else they bought once they were there. This is where the picture becomes less comfortable than the headline line.

Within Israel room revenue, 90% of 2025 revenue came from Israeli customers and only 10% from foreign customers. In 2023, the split was 81% Israel and 19% foreign. At the broader industry level, 85% of hotel nights in Israel in 2025 came from Israelis and 15% from tourists. In other words, even relative to a damaged local market, Fattal remained even more domestically skewed.

The important nuance is that not all domestic demand was broken. The company writes that as early as the beginning of 2024, bookings from institutional and business customers started returning, and occupancy from those segments went back to pre-war levels. That trend continued in 2025. So the active bottleneck is not the disappearance of all demand inside Israel. It is the missing inbound tourist, and with that, the missing broader hotel activity that tends to be built around inbound travel.

That also shows up in the service mix. Lodging services rose to 76.3% of segment revenue in 2025 from 69.7% in 2024, while food and beverage fell to 19.4% from 24.3% and other revenue declined to 4.3% from 6.0%. This tells the story of a narrower consumption basket. Not just fewer foreign guests, but a thinner full-service hotel mix of restaurants, events, and ancillary uses.

That gap between room price and operating quality explains why higher ADR did not translate into higher profitability. When a segment becomes more dependent on lodging and less on ancillary revenue, each room night sold carries less surrounding economics. That is exactly why revenue can still look reasonable while EBITDAR and EBITDA fall sharply.

The quarterly tourist-night split reinforces the same point. In 2025, tourist nights in the company's Israeli hotels represented 9% of nights in the first quarter, 11% in the second quarter, 7% in the third quarter, and 13% in the fourth quarter. The first three quarters remain far below 2023, when the comparable shares were 35%, 27%, and 17%. The fourth quarter of 2025 was above the fourth quarter of 2023, but that is an easy comparison because late 2023 already reflected the initial wartime collapse. The right read of 2025 is therefore straightforward: the foreign guest only partially returned, and certainly not at a pace that restores Israel to a normal profitability model.

This is the core thesis. Israel in 2025 does not look like a segment that lost its ability to sell. It looks like a segment that can still sell the room night, but cannot yet sell the full hotel experience again in the mix it had before the war.

2024 Distorted the Base, and 2026 Already Opens with Another Disruption

Another easy mistake is to read 2024 as a normal base and 2025 as the deviation from it. That is not right. The company itself stresses that in late 2023 and in the first quarter of 2024, hosting thousands of evacuees lifted occupancy and profitability in the Israel hotels in an unusual and one-off way, against normal seasonality. So part of 2025 weakness is real, but part of it also reflects an inflated comparison base.

2025 itself was not a clean year either. When the June 13, 2025 military operation began, the company closed 19 hotels out of 46 active Israeli hotels. After about two days it started hosting evacuees whose homes had been damaged, reopened hotels gradually, and by June 30 all Israeli hotels were back in full operation. Hosting evacuees continued until August 2025, and payment was received directly from local authorities under the existing arrangement.

The implication cuts both ways. On one hand, this created a cushion that softened part of the hit. On the other hand, it is not a cushion that signals a return to normal tourism. Hosting evacuees, even when it produces occupancy and payment, is not the same as a return of full tourism demand.

After the balance sheet, another disruption arrived. On February 28, 2026, a new military operation began, and by the report-sign date about half of the Israeli hotels were open for domestic leisure, evacuees, and US soldiers, while 23 hotels were closed. The company estimates average occupancy in Israel in the first quarter of 2026 at about 45%, versus about 56% in the first quarter of 2025, and expects the return of tourists to Israel to begin only gradually in the second half of 2026.

There is also another mitigating layer. The state set a rehabilitation budget of up to NIS 175 million for hotels that hosted evacuees during the war, and the company is in the process of applying for grants. That can help on the cost side and in bringing assets back into operation. It does not solve the more important question, which is how quickly Israel returns to a normal demand structure.

This is where technical recovery and real recovery need to be separated. Technical recovery means reopening closed hotels, bringing back domestic travel, and using compensation arrangements to soften the damage. Real recovery means the return of foreign tourists, a broader revenue basket, and pre-rent profitability that moves closer to what the segment should generate in a normal year. As of the report-sign date, Fattal is still not there.

Conclusion

Fattal's Israel segment after the war years is not a collapse story, but it is not a normalisation story either. It can still hold domestic demand, and it still operates above the sector's average occupancy. But that is not enough to restore the segment's full economics. In 2025 room price rose and revenue held, yet occupancy, EBITDAR, and EBITDA still weakened. That happens when only part of demand returns, and the part that did not return is exactly the part that broadens mix and profitability.

That is why the right question is not just whether Israel was hurt or whether it recovered. The right question is whether Israel is becoming a full tourism segment again, or whether it is remaining a relatively strong domestic activity that is narrower and less profitable. As long as room revenue is still 90% Israeli, tourist-night share remains single digit to low double digit through most of 2025, and management itself assumes only a gradual return of foreign tourists from the second half of 2026, the answer still leans toward the latter.

The bottom line is that Israel remains Fattal's active bottleneck, but for a deeper reason than the headline of another round of fighting. The issue is not only how many rooms were sold. It is what kind of night was sold, what else was sold around it, and how much profit remained before rent. On that test, the Israel segment still has not passed.