• Rising markets help NH

A combination of refits, repositioning and smarter pricing are all helping NH Hoteles turn around its performance. The company’s mood will also have been lifted by the signing of a EUR225m deal to sell NH’s property in Sotogrande, putting it ahead of its asset disposal plan.

In key European city centres, refurbishments of NH and NH Collection hotels have been completed and are delivering an average 26.1% revpar uplift, ahead of expectations, the company reported alongside third quarter figures. The NH Collection Abascal in Madrid performed particularly well in September. New brand standards and signage have also helped improve room rates, up 9% at NH Collection properties as a result.

And a new pricing project is already lifting revenues, ahead of full implementation across the estate by the year end.

Asset disposals have continued and, apart from the major sales, the company had exited 28 hotels by the end of the third quarter, of which 13 have been retained as operational hotels. Deals on a further three hotels are expected by the end of the year. These transactions have contributed a greater than expected EUR9.9m in annualised savings.

The results of the incremental improvements were that revpar was up 5.4% like for like, with many regions seeing stronger pricing. Spain and Portugal, and Italy were the strong performers in the quarter, with like for like revpar up 4.58% and 6.15% respectively. Latin American hotels were weaker, up just 0.79% as improved occupancy failed to offset lower room rates.

Benelux was the weakest region, showing a decline of 1.26% due to softer room rates. NH explained this as being down to strong comparables in Amsterdam in September 2013, noting that the city’s August and September rates were stronger.

Shortly before the results announcement, NH revealed it has sold its interests in the Sotogrande resort. A deal with Cerberus and Orion Capital was struck at EUR225m, which sees NH sell up the property interests it held in the Andalusian resort, while retaining the management of the two NH branded hotels, for at least two years.

The deal is significant as it means NH is now ahead of the asset disposal plan agreed with lenders, which committed it to return EUR125m through disposals in 2014. In June it took a major step towards the target, selling the NH Amsterdam Centre in a deal netting EUR62m. “The cash generated will be allocated to financing shareholder value-creating investments, including the possible early repayment of part of its debt,” said the company in a statement.

The company had also not expected to retain the operational assets. The retention of the hotel assets, which NH calls “highly profitable”, will have a positive impact on group ebitda. CEO Federico Gonzalez Tejera added: “This transaction gives the group’s business plan a strong boost as this cash inflow was not contemplated when the plan was originally formulated: the proceeds will enable us to tackle the company’s transformation from a position of even greater strength and visiblity.” 

The sale of holding company Sotogrande SA has excluded its hotel properties outside Spain, in Mexico, the Dominican Republic and Italy, which NH will retain. For the buyers, the deal includes not just the standing hotel properties, golf courses and leisure facilities, but land zoned for further development.

 

HA Perspective [by Chris Bown]: NH has toughed it out through the doldrums of its home Spanish market, and is now starting to enjoy an uplift as demand begins to improve. It is also beginning to see the benefits of its various business improvements feeding through to the bottom line. So long as there is not a eurozone wobble, or more disruption in South America, the fundamentals should continue to improve, as the better management and repositioned hotels feed through further performance enhancements.

Some judicious asset-light additions to the portfolio are in the pipeline, as is the medium term promise of Chinese openings, in conjunction with major shareholder HNA. With a partner that has major market presence, it is to be hoped that NH won’t catch a cold in the Chinese market, and will be less exposed than the global brands, as supply begins to catch up with demand in the country.

NH clearly didn’t expect to sell Sotogrande this year; and from the chief executive’s comments, it did not expect such a good outcome from the ultimate sale. Being ahead of what always looked a somewhat punishing debt repayment schedule will doubtless cheer up the NH management – and give comfort to the consortium of lenders – as they tackle the other aspects of the group’s recovery plan.

NH will need to work the two hotels at Sotogrande hard. Their new landlords have given them just two years of management contract initially, to prove their worth. NH shouldn’t expect the new owners to be sentimental about reflagging the properties, if there is any hint that another, more internationally linked brand could deliver a better performance.

Aside from a possible reflagging play, the buyers have themselves a leisure facility that is generally reckoned to be among the classier developments on the Spanish coast, with potential for further development. The Andalusian resort development has withstood the downturn better than most other parts of Spain, with property prices dipping by far less than other parts of the Costa del Sol. Expect them to be bidding aggressively on other Spanish debt packages and portfolios, to add to this landmark Spanish holding.

 

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