• PPHE buoyed by east as London falters

PPHE Hotel Group reported strong performance in Germany and Croatia as it continued to raise funds to expand in Europe.

The group maintained faith in London,  announcing construction of its Hoxton art’otel, despite reports that the capital had recorded its first decline in revpar after four consecutive quarters of growth, in the final quarter of 2017.

PPHE has exchanged contracts to buyout its joint venture partner, Aspirations, at its Hoxton site, for GBP35m. The company initially entered into the joint venture in 2008 by investing GBP11m for a 50% interest. The group said that the deal would allow it to control the timetable for construction of the 318-room hotel, with the site also including office and commercial space.  Construction is now expected to commence in the second quarter of 2018.

Boris Ivesha, president & CEO, said: “We are excited about this latest transaction which is part of realising the next phase of growth for our group. Construction of art’otel london Hoxton is now expected to commence in the second quarter of this year and this lifestyle hotel, located in one of London’s most exciting neighbourhoods, will complement our other art’otel already under construction, the landmark art’otel London Battersea power station.”

For the full year PPHE saw reported group hotel revenue up approximately 19.0% year-on-year, as the result of new room inventory in London. In addition, it benefited from improved trading across most of our operating regions and the first full year contribution of Park Plaza Nuremberg. On a like-for-like basis, group hotel revenue increased by approximately 10.0%.

Like-for-like revpar increased by 11.5% to GBP92.40 (2016: GBP82.90) mainly as a result of revpar growth in the German and Croatian regions, alongside the continued weakening of sterling against the euro. This revpar growth was achieved through a 7.8% increase in average room rate to GBP119.7 (2016: GBP111.0). Occupancy increased by 260 basis points to 77.2% (2016: 74.6%).

Growth continued in London, with the full openings of the 494-room Park Plaza London Waterloo and the 212-room Park Plaza London Park Royal, bringing 706 additional rooms into the portfolio. Renovations continued during the year at Park Plaza London Riverbank and works commenced at the Park Plaza Sherlock Holmes London.

The company has continued to raise development funding across its estate, including through the sale-and-leaseback of Park Plaza London Waterloo and refinancing its 51.97% subsidiary Arena Hospitality Group’s debt in Croatia and Germany, raising approximately GBP85m.

Arena also raised EUR106.0m through a public offering of its shares on the Zagreb Stock Exchange; described by the group as the largest public offering in Croatia in recent years and the largest of its kind in the tourism sector. Arena intends to invest the capital raised in renovations, upgrading its hospitality portfolio and pursuing new opportunities in Central and Eastern Europe.

Ivesha said: “The refinancing of debt, in particular within the Croatian region along with the sale-and-leaseback of Park Plaza London Waterloo, has provided us with significant available capital to invest in and to add to our portfolio.

“Whilst we recognise that certain cost pressures and renovation programmes may have an effect on our performance, we are confident about our long term prospect and as we enter 2018, we will remain focused on providing exemplary service to our guests, revenue generation and the delivery of our renovation projects.”

While PPHE was continuing to build its estate in London, the AlixPartners, STR, AM:PM and HVS Q4 2017 Hotel Bulletin reported that, after four consecutive quarters of growth in revpar, London recorded a 1% decline in Q4. The company said that, with its numerous tourist hotspots “this decline is likely to be partially attributable to the returned strength of the pound which means that overseas visitors are no longer getting the bargain exchange rates enjoyed previously in London and across the UK”.

Graeme Smith, managing director at AlixPartners, said: “In 2017, hotel performance in the UK was bolstered by the depreciation of sterling. Building top-line growth off strong comparators is likely to be challenging, particularly given the returning strength of the pound. Given this, and escalating cost pressures, 2018 is likely to be a softer year for profitability; experienced investors appear to be calling the top of the market due to the barrage of exits in the second half of the year.”

The combined value of transactions in the hotel industry for 2017 was nearly double that of 2016 at GBP4.6bn. On a quarterly basis transaction values were also high at GBP1.3bn for Q4 2017, the highest since Q4 2015.

HA Perspective [by Katherine Doggrell]: PPHE has been busy raising cash through a variety of routes – eager readers will remember last year’s ground lease deal, tapping the institution’s growing taste for the sector. That they have been successful is a good sign amidst growing caution amongst banks to lend into the sector, certainly for developments.

According to the European Hotel Lending Survey 2018, published by HVS Hodges Ward Elliott, the average loan size from major international banks has started to decrease slightly, as the investment cycle reaches its ninth year in 2018 and “the end of the prolonged era of cheap money in Europe is becoming apparent”.

Unlike at AlixPartners, the top of the market was not being called yet, at least for wider Europe. There was also hope for the likes of PPHE, which is well established. Peter Szabo, associate at HVS Hodges Ward Elliott and one of the report’s authors, told us that banks remained eager for: “Anything in a major city, anything in the capital cities in Western Europe and Southern Europe. Anything which has a brand. Where there is no brand or the property has not stabilised, they are more cautious.”

PPHE must hope that betting on London does not leave it over-exposed, as it leans on its geographic diversification. What will prove of growing interest as the company looks to all means necessary is what impact Carlson Rezidor’s future plans will have on PPHE, with more detail expected at IHIF this year (and Rezidor Hotel Group announcing a return to leases at the beginning of this year). Daniel Kos, CFO, told us: “We enjoy a strategic partnership with the Carlson Rezidor Hotel Group, one of the world’s largest hotel groups, and through this partnership we benefit from global distribution and successful marketing and reward programmes. We look forward to the next phase of development for the Carlson Rezidor Hotel Group under its new ownership.”

And we look forward to finding out what that means.

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