Fattal Hotel Group has agreed a €57.4m sale-and-leaseback deal on the 346-room Leonardo Royal Berlin Alexanderplatz with Art-Invest Real Estate.
The sale was part of ongoing plans by Fattal to bolster liquidity, with the group also in talks for two more sale-and-leaseback deals; for a hotel in the Netherlands and a hotel in Munich, totalling €136m.
Fattal said that it was also reviewing the possibility of introducing partners to hotels in Europe.
Earlier this month the group Fattal completed a rights issue and raised NIS 99m (€24.5m), of which controlling shareholder David Fattal invested NIS 57m. The company was also considering issuing a new series of bonds worth NIS 200m.
For the first quarter, Fattal reported Ebitda of -NIS 13m, with revenues of NIS 851m. As at 31 March, the group had NIS1.04bn in cash.
As of June, 86 hotels had reopened out of a total estate of 221, with a further 60 close to reopening.
CFO Shahar Aka said: “Since the company sees a decline in the second and third quarters as well, we have acted and continue to act to cut expenditure and to increase the company's liquidity. These actions include negotiations on the sale and lease-back of three hotels in Europe, reducing rents by NIS 45m and deferring payments amounting to NIS 33m, obtaining state-guaranteed loans in Spain, the Netherlands, Germany, the UK, and Israel totalling more than NIS 400m, refinancing of assets that are not mortgaged or have a low LTV, and deferment of payments to the banks amounting to about NIS 120m.
"Our cash and the additional measures being taken will enable us to meet all our commitments in the coming year. The chain is aware of the resurgence of the spread of the virus in the countries in which it operates, and according to the UN panel of experts UNWTO local demand for tourism will recover more rapidly than international demand, and by the final quarter of 2020 signs of recovery will appear that will mainly be manifest in 2021.”
The CFO said that bookings in Israel for June to August had reached 50% of their levels in the same period last year. In Europe, bookings were at 22% of last year's levels, and in the UK they were at 20%.” He added: “We are currently seeing a further revival in bookings in Europe, but at the moment we are wary of optimistic assumptions.”
In Berlin, the hotel will continue to be operated by Fattal under the Leonardo Royal brand, with the hotel to undergo some refurbishment.
Under the terms of the 25-year agreement, Fattal will not pay any rent until the end of 2020.
From 2021, it will pay rent of 60% of its net operational profit and from 2022 it will pay a fixed rent €2.9m or 24% of revenue (whichever is higher) and from 2023 a fixed rent €3m or 24% of revenue (whichever is higher).
David Fattal, chairman & CEO, Fattal Hotel Group, said: “The Leonardo Royal Berlin Alexanderplatz is one of our leading hotels in the capital. We are pleased that with Art-Invest Real Estate we have been able to win a strong and experienced partner for us who has recognised the promising potential of this house. The extensive planned innovations will make a significant contribution to ensuring that the Leonardo Royal will continue to be an established and popular hotel address on the Berlin hotel market in the future.”
Dr. Peter Ebertz, managing director & head of hotels at Art-Invest Real Estate, said: “We are delighted to have implemented a forward-looking transaction together with the Fattal Hotel Group in this challenging time for the hotel industry.
“We are convinced that tourism and business demand will recover in the medium term - especially in Berlin. In the next few months, we will also work with the operator to refresh the hotel product in a targeted manner in order to participate in the recovery of the market as best as possible.”
Insight: Fattal expanded rapidly in recent years, as you can tell by the variety of jurisdictions in which it received state aid. It moved into sharing-style products, WeWork-style products, you name it, Fattal was piling into it and it is, in part, its pipeline which is helping to back it up in the eyes of lenders, with 40 hotels due to open between now and 2024.
Of those hotels, 25 are leased and oh, the leased-ness of it all. This is not the time for the happy lease dance, as many shocked landlords are currently realising that, when there’s nothing happening at the hotel, there is none of this nice, steady income which they had felt was all but guaranteed.
The future of the lease is currently being played out in the UK through the Travelodge saga. For Fattal, there are a lot of owned assets to provide reassurance, so we are unlikely to see a lot of rebranding. The company is, however, slightly ahead of the curve when other groups start getting into the sell offs later this year.