Fattal in the First Quarter: Israel Hotels Reopened, Asset Financing Defines Cash Flexibility
Fattal opened 2026 with a weak cash quarter hit by Israel, while all Israeli hotels had already reopened and the annual outlook still depends on seasonality, 16 openings, and asset refinancing. The useful read is the gap between a possible operating recovery and a funding structure that must keep working while the company also advances a non-binding PPHE proposal.
Fattal did not publish a quarter that can be judged as a straight run-rate for 2026. The first quarter is seasonally weak even in normal years, and this one was hit in Israel by Operation "Roaring Lion", ending with negative FFO of NIS 220 million and negative operating cash flow of NIS 94.5 million. The change is that the Israeli closure is no longer the company's current state: by the report approval date all Israeli hotels were open, and management says May revenue in Israel was close to budget. The report is therefore not a story of a broken business, but of an outlook that needs strong cash proof later in the year. That proof has to come from Israel's recovery, 16 hotels expected to open in 2026, and asset and debt refinancing that covers the current deficit without adding more leverage pressure. Above all of this sits the non-binding PPHE proposal, which could expand the European asset base and make capital sources more important than the first-quarter net loss.
Company Orientation
Fattal is an international hotel company that owns, leases, and manages hotels in Israel, Europe, the UK and Ireland, and the Mediterranean basin. As of March 31, 2026, the group included 315 hotels, of which 276 were active, with about 55 thousand rooms. By the report approval date, the count had risen to 318 hotels, of which 279 were active, with about 56 thousand rooms.
The company is a machine of occupancy, room pricing, hotel openings, leases, partnerships, and financing. Value is created in the hotels, but cash arrives only after rent, leases, investments, interest, repayments, and debt refinancing. The prior annual analysis flagged Israel and financing as the two proof points for 2026. The first quarter confirms that Israel was indeed a pressure point, and shows that the financing structure is still far from covenant stress but depends on asset refinancing and strong seasonality later in the year.
Israel Reopened and the Outlook Needs a Seasonal Step-Up
The consolidated number is weak, and the source is clear. Network revenue, including the company's share in associates, fell to NIS 1.454 billion from NIS 1.502 billion in the comparable quarter. EBITDAR, operating profit before rent, depreciation, and other expenses, fell to NIS 271 million from NIS 332 million. In Israel, revenue fell to NIS 301.7 million from NIS 361.1 million, and EBITDAR turned negative at NIS 5.3 million compared with positive NIS 50.7 million.
Occupancy in Israel fell to 43% in the first quarter, compared with 56% in the comparable quarter and 68% in the first quarter of 2024. At the end of March, 23 Israeli hotels were closed. By the report approval date all Israeli hotels had reopened, the company says May revenue in Israel was close to budget, and it expects second-quarter Israeli occupancy of about 60% compared with about 58% in the second quarter of 2025. Reopening solves the physical closure problem, but demand quality still has to improve: tourist nights were about 15% of Israeli room nights in the first quarter of 2026, compared with 35% in the first quarter of 2023.
Europe and the UK do not show a collapse. In Europe, revenue rose to NIS 580.2 million from NIS 567.9 million, while EBITDAR slipped modestly to NIS 131.6 million from NIS 135.5 million. In the UK and Ireland, revenue fell to NIS 439.1 million from NIS 454.9 million, and EBITDAR fell to NIS 97.4 million from NIS 101.9 million. The center of gravity in the quarter is therefore Israel, currency, and the pace of contribution from new assets.
The chart sharpens the gap between the future growth outlook and what has already contributed in the quarter. New properties added NIS 34 million of revenue and only NIS 3 million of EBITDAR, while same properties reduced EBITDAR by NIS 51 million and currency reduced it by another NIS 13 million. The 2026 outlook, revenue of NIS 8.0 to 8.4 billion and FFO of NIS 900 million to NIS 1.1 billion, requires a sharp step-up over the next three quarters. It depends on seasonality, 16 hotels expected to open during the year, and future hotels that could add about NIS 240 million of annual EBITDA against expected investment of about NIS 0.9 billion.
Asset Refinancing Holds Cash Flexibility
The important cash framework here is all-in cash flexibility: operating activity, investments, lease repayments, debt repayments, and actual financing raised or repaid. First-quarter operating cash flow was negative NIS 94.5 million, already after NIS 171.4 million of lease-related financing paid and NIS 112.9 million of other net financing paid. In addition, the company used NIS 312.4 million for investing activity, including NIS 112.6 million for property, plant, equipment and investment property, NIS 57.8 million of ongoing investments in existing assets, and NIS 145.5 million net in loans and investments in associates and partnerships. Lease principal repayment was NIS 143.9 million.
Financing activity closed the quarter's gap, generating positive cash flow of NIS 399.4 million through short-term credit, long-term loans, and bond issuance, net of repayments. Cash therefore declined by only NIS 20.5 million. This is not a liquidity failure, but it does show that the quarter was funded more than it generated cash.
| Cash source or use | Amount | Economic meaning |
|---|---|---|
| Cash and securities near the approval date | About NIS 650 million | Existing liquidity cushion, below the working-capital deficit |
| Consolidated working-capital deficit | About NIS 2.22 billion | The board does not view it as a liquidity problem because of defined funding sources |
| Loans against 13 hotels in Germany and the Netherlands | NIS 284 million of current maturities | The company has begun bank refinancing, from about 34% LTV to about 60% LTV |
| Subsidiary Series D bond | NIS 180 million due at the end of September 2026 | Assets worth NIS 595 million are pledged against the series |
| Commercial paper | NIS 212 million due in June 2026 | The company expects to replace it with new debt near maturity |
Covenants are not the immediate problem. For Series D and E, adjusted net financial debt to adjusted EBITDA stands at 3.24, versus a cap of 9 or 10, and debt to net CAP stands at 59.6%, versus a 76% cap. The bond rating as of March 31, 2026 was A2.il with a stable outlook. The yellow flag is the dependence on asset refinancing, commercial-paper replacement, and whether seasonal cash flow actually arrives in the second half.
The same point applies to growth. In Partnership III, the company invested about EUR 30 million in the first quarter, and by the report approval date it had invested about EUR 115 million out of a EUR 158.8 million commitment. Partnership IV is expected to be larger, with equity of EUR 700 to 900 million and the consolidated company's share of EUR 150 to 200 million. The non-binding proposal to acquire PPHE at GBP 22 per share, for total consideration of about GBP 930 million, adds a broader strategic option: PPHE holds ownership or leasehold rights in hotels with about 9,625 rooms, mainly in the UK, Croatia, the Netherlands, and Germany. As long as the proposal is non-binding, it is not a deal. If it advances, funding sources will become a central part of the thesis.
Conclusion
The first quarter closes one issue and opens two others. It closes the Israeli hotel reopening issue: all Israeli hotels were open at the report approval date and May revenue was close to budget. It opens the question of whether that return is enough to turn negative FFO and negative operating cash flow into strong profit and cash in the second half. It also sharpens the fact that Fattal's flexibility depends less on covenants and more on asset refinancing, replacing short debt, and seasonal cash flow.
2026 can still be a recovery year if new hotels start contributing, Partnership III moves closer to the end of its investment period, and debt refinancing passes without shortening duration or adding funding pressure. The strongest counter-thesis is that the first quarter is seasonally weak and distorted by a security event, so stable Europe, reopened Israel, and covenants far from stress could make this report temporary noise. The near-term market read will be shaped by Israeli second-quarter data, a PPHE update by late June 2026, European asset refinancing terms, and whether cash flow recovers before new investments require more debt.
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