ELLA: Why the Hotel Platform Still Does Not Justify the Capital
Hotel revenue recovered and exposure expanded through Sun Bat Yam, but NIS 38 thousand of segment profit, an unsettled operating model at Bat Sheva, and a payment demand around Pablica show that the platform still does not justify the capital tied to it.
Why This Follow-up Matters
The main article argued that ELLA expanded faster than its ability to move clean cash up to the parent. This continuation isolates the hotel layer, because that is where the gap between apparent recovery and actual return on capital is now the sharpest.
On the surface, 2025 offers a few reasons to feel better. Hotel-segment revenue rose to NIS 17.2 million from NIS 12.4 million, occupancy improved at both Pablica and Bat Sheva, and Sun Bat Yam sharply increased the group’s hotel exposure. But one line lower and one layer deeper, the picture flips: segment profit fell to only NIS 38 thousand from NIS 427 thousand, gross margin fell to 0.22% from 3.5%, and the company itself explains that the improvement at Pablica was almost fully offset by Bat Sheva.
That matters because the hotel platform is already large enough to absorb capital, debt, and management attention, but still not mature enough to be treated as a return engine. That is true at the older Herzliya asset, true at Bat Sheva after yet another operating-model reset, and even more true at Sun Bat Yam, which already sits on the balance sheet at a very large size before the hotel itself has opened.
The Recovery Is in Activity, Not in Return
A quick read of the operating pace can be misleading. Hotel-segment revenue rose by almost 40%, but profit nearly disappeared. That is not a minor accounting quirk. It is the first signal that the platform still does not generate economics that justify its weight inside the group.
The weakness also shows up inside the revenue mix. Room revenue rose to 83.13% of hotel revenue from 71.59%, while food and beverage fell to 10.03% from 19.45%. That looks like a narrower recovery: more beds filled, less of a full hotel economic model.
Even occupancy tells only part of the story. Pablica’s average occupancy improved to 61.94% from 55.07%, and Bat Sheva’s rose to 58.04% from 53.02%. So demand did come back. But that demand still did not translate into a return profile that can justify the amount of capital and complexity now tied to this layer.
Three Hotel Assets, Three Open Questions
Pablica still sits between real estate and operations
Pablica is not a clean landlord asset. The company explicitly says that activity there is based on a management agreement with Isrotel, unlike Cramim and Daniel, where it receives rent from operators. That distinction matters. At Pablica, better occupancy does not automatically become protected cash flow. It still depends on execution, on brand strength, and on the return of business and foreign tourism.
The company also says that hotel-segment revenue in the reporting period came mainly from Pablica. In other words, the core hotel asset is also the one whose economics look less like classic income-producing real estate and more like an operating business that still has to prove itself in a more normal demand environment. That helps explain why the improvement at Pablica, which segment analysis says added about NIS 3.1 million to profit, still was not enough to create a convincing segment-level return.
There is also direct friction around the future-rights upside. Close to the publication date, the company received a payment demand from Issta Lines for NIS 5.75 million relating to its share of additional building rights at Pablica, based on a NIS 69 million valuation. The company and RIT 1 dispute the amount and entered discussions. That is exactly what makes the upside less clean than it may first appear: before the company sees cash from future enhancement, it already faces a contested economic leakage around it.
Bat Sheva still has not settled on a stable model
Bat Sheva should have been the simpler part of the hotel story, but in 2025 it actually highlights how unsettled the platform still is. Within a relatively short period, the asset moved from a third-party management arrangement, to a temporary extension with a different fee structure, and then to a new agreement that took effect in August 2025. Under that deal, a third party was meant to bring guests with a floor of NIS 500 thousand per month, and also pay adaptation costs plus 10% and maintenance compensation. A few months later, in September 2025, the arrangement was updated again so that the third party markets the hotel to its target audience, while Ela Hotels manages, operates, and maintains the hotel itself.
That does not look like a model that has already matured. It looks like an asset still searching for a stable operating formula. The company itself states that the updated agreement is not expected to have a material effect on Bat Sheva revenue. So even after another reset, management is not signaling a major economic step-up.
From an accounting standpoint, Bat Sheva did stabilize. In 2025 the full NIS 2.606 million impairment booked in 2024 was reversed, and the recoverable amount of the right-of-use asset was set at NIS 47.582 million. But economically that still was not enough. Segment analysis explicitly says that the decline in hotel-segment profit came from Bat Sheva, which carried about NIS 2.8 million of additional depreciation expense. In other words, the accounting optics improved faster than the return profile.
Sun Bat Yam expands exposure before proving returns
Sun Bat Yam is no longer an abstract option. It is already a very large asset sitting on the balance sheet. The company’s share in the project is carried at NIS 286.3 million at year-end. At the same time, interim uses generated NIS 12.3 million of revenue and NIS 5.3 million of NOI, net operating income. Those are reasonable transitional numbers, but they are still not the numbers of a hotel that has proven its economics.
That is the core issue. Sun is already as heavy as an operating asset, but it still behaves like a project. Against it sit loans of NIS 223.7 million and another NIS 19.15 million, a first-ranking lien to Bank Hapoalim on the property rights and the asset income, and an explicit restriction on cash withdrawals without bank consent. The future financing logic is also clear: loan-to-value (LTV) below 75% and coverage above 1.2. So Sun does not yet add a proven earnings layer. It adds tied capital, project debt, and an execution test that still lies ahead.
Where the Capital Is Already Tied Up
The correct way to read the hotel layer is not only through profit and loss, but also through the balance sheet. Once the values directly tied to the three hotel assets are put together, the capital footprint is far larger than the segment profit suggests.
At Pablica, the asset balance in the financial statements stands at NIS 93.8 million for ELLA’s share. At Bat Sheva, the asset balance stands at NIS 43.1 million. At Sun Bat Yam, book value already stands at NIS 286.3 million for ELLA’s share. Together, that is roughly NIS 423 million of balance-sheet exposure around hotels, even before bringing in the complexity of future rights, management agreements, leases, and project financing.
Against that footprint, the hotel segment itself contributed only NIS 38 thousand of profit in 2025, while Sun Bat Yam produced NIS 5.3 million of interim-use NOI, not full hotel operating economics. That is why it is still too early to argue that the hotel platform justifies the capital tied to it. A more accurate read is that it remains an option on better years, not a proven 2025 value engine.
| Asset | What is already tied up | What improved in 2025 | What is still unresolved |
|---|---|---|---|
| Pablica | NIS 93.8 million asset balance for ELLA’s share | Better occupancy and better operating contribution | The model is still operational rather than clean rental income, and the Issta demand sits on top of it |
| Bat Sheva | NIS 43.1 million asset balance | Impairment reversal and another operating-model reset | The model changed again, and the company itself is not signaling a material revenue change |
| Sun Bat Yam | NIS 286.3 million book value | Interim-use revenue and initial NOI | The hotel is not yet open, while the capital is already tied up against debt and bank restrictions |
What Has to Change Before Hotels Can Earn Their Capital
First, Pablica has to move from better occupancy to better margin. More room nights are not enough on their own. The improvement has to hold once the hotel leans again on business activity and foreign tourism, rather than on a still-distorted demand mix.
Second, Bat Sheva has to stop changing format and start producing a clear economic answer to who operates the asset, who brings the guests, and how that revenue survives depreciation, lease burden, and maintenance. As long as the company itself does not attribute a material revenue effect to the updated agreement, it is difficult to call this a return engine.
Third, Sun Bat Yam has to move from interim-use status to an operating hotel with NOI that can be judged against the size of the investment and the financing structure. Until that happens, it mainly enlarges the group’s hotel bet. It does not yet validate it.
Conclusion
ELLA’s hotel platform now looks bigger, not more mature. Revenue recovered, occupancy improved, and Sun Bat Yam materially expanded the exposure. But NIS 38 thousand of segment profit, sharp margin erosion, an operating model that is still moving at Bat Sheva, and a payment demand around Pablica all indicate that this layer is still consuming more capital than it is proving in return.
That is not the same as saying the hotel platform cannot work later on. It is a narrower, more important point for reading 2025 correctly: as of year-end, hotels remain a thesis that still needs proof, not a value engine that can already be underwritten with confidence.
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