• NH ups ebitda target

NH Hotels Group said that it was on track to achieve its Ebitda target of EUR250 in 2017/2018, up from its previous target of EUR200m
The news came as former chairman Charles Mobus wrote a letter on behalf of HNA Group expressing its deep concern over the new management contract between NH Hotel and Hesperia.
In an update on the company’s strategic plan, NH Hotels said that it expected its Ebitda target to
be achieved via the ramp up from capex investments this year in Benelux and Central Europe and a higher contribution from the organic growth plan. It added that its deleveraging was also progressing, with plans to reach 3.0-3.5time net fdebt/Ebitda by the end of 2017.
The company saw a EUR76m reduction in net debt in the first nine months of 2016 due to favourable cash generation in the period, with capex being financed with non core asset disposals – transactions amounting to EUR125m have so far been closed reaching 90% of the sales target.
Next year is not expected to see any radical deviation from the strategy, but a “continuation of recent trends”, which would include further consolidation of revpar strategy to further increases in ADR, of between 4% and 5% (75% of revpar growth is expected through ADR), cost savings and selected renovations. Forty per cent of the Ebitda growth expected next year is forecast to come from hotels refurbished this year, taking the company to between EUR220m, to EUR225m.
Next year will see refurbishments mainly concentrated in Italy – including a key hotel in Rome funded by the owner and New York, where refurbishment is assumed due to a leaseback scenario.
The new targets came as the company’s shareholders continued their public battle. NH has agreed a deal with 9.27% shareholder Hesperia to revise management of 28 of its hotels. A penalty payment of EUR31m will terminate existing contracts on the properties. The fresh agreement will have a nine year term, and be on better terms to those previously applied in a 2009 agreement. Urban hotels included in the deal will be rebranded to NH formats.
In a statement to the National Securities Market Commission, NH said that in the first year there would be one payment of EUR11m, followed by two of EUR10m at yearly intervals.
Hesperia acted alongside NH shareholder Oceanwood Capital to take control of the NH board earlier this year, using the rationale that that there was a conflict of interest with HNA Group board members, amid concerns that they would push a merger with Rezidor Hotel Group, should HNA acquire it as a result of its deal to buy Carlson Hotels.
This latest deal was described in the letter from Mobus as “a sweetheart contract that rewards [Hesperia owner Jose Antonio] Castro for his support of [Alfredo] Fernandez and Oceanwood”.
It added that, for more than a year, NH Hotel’s previous CEO Federico Gonzalez had attempted to negotiate a management contract with Castro that would provide EUR24m of capital for required investments to the 24 hotels, to be paid over a period of three years. In return, Hesperia would have been obligated to have NH Hotel manage the hotels under a long-term management contract.
The terms included protections which guaranteed that: the cash payments to Hesperia were used to renovate the hotels, “not to service Castro’s substantial outstanding debt which comes due in December 2017”; Castro could not terminate the management contracts before NH Hotel recouped its EUR24m payment to Hesperia through appropriate and financially secure termination penalties; Castro did not receive an accelerated lump-sum payment at the expense of NH Hotel’s non-Hesperia shareholders through a less stringent early termination provision upon a change of control (such as a transaction with HNA) and restricted Castro’s ability to receive payments from NH Hotel and then terminate or default on the contract in order to “sell” it to a new third-party, thereby profiting the same management contract twice.
The letter added that, by repeatedly rejecting these terms, “Castro created an impasse with NH Hotel’s previous board that could only be solved by taking insurgent action to reconstitute the board and empower a more amenable chair, Alfredo Fernandez”.
Mobus also said that he understood that “virtually all” of Castro’s assets, including his NH stock and any real estate holdings, were already pledged to Banco Santander which owns the loan coming due in December 2017.
He reiterated calls for a formal search for a new CEO and concluded: “To put it bluntly: The process of reconciling the interests of HNA and the non-HNA shareholders cannot begin until the corporate governance problem at NH Hotel is solved”.

HA Perspective [by Katherine Doggrell]: Observers of the situation at NH Hotels Group, and those who would write letters on the matter, have long looked to Castro’s debt as one of the motivators for the current animosity between the players and something which HNA Group would have sought to resolve before making a move on the rest of the company’s shares.
Mobus pointed out that Castro apparently recently released 50% of his NH Hotel shares to Santander in order to cover part of his debt repayment. With the value of his remaining stake in NH Hotel falling along with NH Hotel’s share price, he is becoming neutralised.
The company’s planned Ebitda growth is predicated on 1% to 1.5% GDP growth in the EU, in line with the current EC thoughts. At this short range, the situation in the UK seems to be in a holding pattern ahead of plans to fire the starter gun on Brexit in March and, even if the French go the way of Marine Le Pen, it is not likely to have an immediate impact. President-elect Trump, of course, remains a wild card. The current view from the West is that this is his entrenched position and will not change for four years.
Messy clarity is starting to appear at the Spanish group.

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