• PPHE sees ‘softer’ Brexit market

PPHE reported a “softer performance” in the UK, but said that it was confident of long-term performance in Europe and would continue to expand in London.
The results came as JLL reported that 72% of overseas investors saw the fall in sterling as an opportunity to invest in the UK.
At PPHE, president & CEO, Boris Ivesha said: “Notwithstanding some uncertainties in our international markets and our industry, we are confident about the long term appeal of the European hospitality sector as we prepare for our London hotel openings.”
He added that trading for the rest of the year was in line with expectations, but that due to slightly delayed hotel openings, for which pre-opening expenses had been incurred without a significant amount of revenue contribution to offset such expenses, “the board expects that this timing difference may result in the group’s results being behind market expectations”.
In the first half to 30 June, PPHE saw revenue increased by 9.2%, to GBP111.6m, with Ebitda down 7.4% to GBP32.5m, which the company attributed to a softer performance in the UK. The UK saw Ebitda for the region decreased by 13.8% to GBP21.0m and revpar declined by 4.7% – 3.5% in greater London. Group revpar decreased by 16.0% to GBP73.0m, which PPHE said was a result of the seasonal nature of its Croatian operations.
During the period the company completed the refinancing for the development of the Park Plaza London Park Royal, as well as refinancing the 10-year facility at Park Plaza Victoria London and 12-year facility at Park Plaza Westminster Bridge. The group also acquired the 80% interest in its Croatian joint venture which it did not already own.
The company saw net debt increase by GBP134.0m to GBP531.6m primarily due to the acquisition and consolidation of the Croatian operations and the group’s development pipeline relating to construction works at Park Plaza Riverbank London, Park Plaza London Waterloo and Park Plaza London Park Royal.
The work will take PPHE’s overall room count in London to over 3,100 rooms. It is also in the planning stages of expanding the Park Plaza Sherlock Holmes London.
Ivesha concluded: “The recent weakening of sterling presents potential opportunities for the UK with increased appeal for visitors from the US and Asia in particular. We are confident about the long term appeal of the European hospitality sector and we remain focused on revenue generation and providing exemplary service to our guests.”
The view was shared in a survey of international investors’ attitude to UK property, undertaken by JLL. This found that 72% of overseas investors see the fall in sterling as an opportunity to invest in the UK. Twenty seven per cent of those surveyed said that it was an immediate opportunity, with 45% agreeing but planning to wait.
Sixty three per cent of those surveyed are not planning on making any changes to their investment strategies until a new UK and EU relationship is drawn up, although a significant minority of 25% said that they would reduce allocations to the UK in the near term.
Fifty five per cent expected that while occupier demand may decrease as a result of Brexit in the short term, it would bounce back.
Thirty nine per cent believed that London would remain the entry point for the majority of investors only if the UK has access to the single market, while 35% felt that London would remain the entry point for the majority of investors regardless of the new relationship.
Commenting on the findings, JLL UK CEO Chris Ireland, said: “The survey shows that some investors are very much keeping their powder dry until they see more details of a new agreement between the UK and the EU.
“Investment turnover has reduced in the immediate aftermath of the referendum, but we continue to see robust demand from private overseas investors in particular. Larger institutional investors are taking a more cautious approach and will need time to evaluate market sentiment. This will impact liquidity for larger lot sizes in the near term, but pricing will continue to be supported by record low long term interest rates and the depreciation of the pound.”
Ben Burston, director, JLL’s research team added: “Notwithstanding short term volatility, London remains firmly in the sights of global investors looking to build their allocations to real estate over the long term, and a deep pool of equity capital stands ready to step in when signs of stability emerge.”

HA Perspective [by Katherine Doggrell]: With the politicians off the streets and back at work hopes are high for a bit of clarity on what ‘Brexit means Brexit’ might mean. So far David Davis, secretary of state for exiting the EU, has only managed to repeat that Brexit does indeed mean Brexit.
The investment community has instead done what it always does and assume that this latest state of play must, in some way, lead to a bargain. And, if you are planning to buy cheap and exit once sterling has recovered (whenever that may be), the deals done so far – notably the Doubletree in Docklands – suggest that you are correct.
For those disappointed that the return of the politicians has not meant clarity – and, despite past expectations, there must have been a few out there – there is some consolation to be had as September digs in. As Mark Brumby, analyst, Langton Capital, pointed out, September is the first ‘normal’ month since the referendum. No holidays, no (expected) political frights. This will be the first chance to view what post-vote trading looks like. And what investors’ expectations may need to adjust to.

Additional comment [by Andrew Sangster]: There are two phases to Brexit: the one we’re in right now, which is all about the uncertainty and the second one, which is about the reality of the UK outside the EU.
Uncertainty has real economic effects but these are mostly felt on a medium to long term basis. In particular, the reduced levels of business investment have slowed the deals market and raised yields but will mostly manifest in the reduced levels of business in the months and years ahead.
The one area where we have a clear pricing signal is foreign exchange. And this has signaled loudly and clearly that a UK outside of the EU is not worth as much as one inside. The 10% plus drop is probably overdone but FX markets have always been volatile.
In the meantime, the lower value of sterling is helping hospitality assets and the hospitality business in the UK. Profitability does seem to have shot up during July. According to HotStats, hotels in London saw gross operating profit leap by 9.0% for July, year-on-year. Elsewhere in the country was just as strong. Nottingham hotels, for example, saw GOP up 15.5%.
Given these operating stats it is hard to see why PPHE is blaming Brexit. Hotel performance ought to be up. Brexit is, however, one of those handy fig leaves for a performance slip. Expect to see it deployed many more times.

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