PPHE Hotel Group Limited

Good morning and welcome to the PPHE Hotel Group Limited interim results investor presentation. Throughout this recorded presentation, investors will be in listen-only mode. Questions are encouraged and can be submitted at any time by the Q&A tab situated in the right-hand corner of your screen. Just simply type in your questions and press send. The company may not be in a position to answer every question it received during the meeting itself. However, the company will review all questions submitted today and publish responses where it is appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand over to Daniel Koss, CFO. Good morning to you.

Thank you very much, Alessandro. Welcome this morning. Good morning. I'm Daniel Koss, CFO of PPAT Hotel Group. Next to me is Robert Henke, Executive Vice President, Corporate Affairs. We want to take you through a few slides today. We'll start with a short recap of PPAT and its strategy. Robert will then take over and discuss There we go. So we're a hospitality real estate group, a little bit different than others in a way that we focus on developing, owning and operating the assets. And we have our own management platform to do so. There's a few things that set us apart in the industry. 43% of the shares, which makes them true custodians of capital. So their entrepreneurial DNA is fully embraced by our executive team, which have an average tenure of over 10 years. Our business model will give investors exposure and returns across the entire value chain of hospitality real estate. And in this business model, we typically grow without diluting shareholders with a very strong capital recycling approach. Different to many hospitality REITs and real estate owners, we have our own platform to do so, which is an opportunity on its own. Our focus is always on driving equity value. We do that by developing, redeveloping and repositioning assets. This approach gives us the opportunity to drive value increases compared to the acquisition price. We have a very disciplined capital returns even after a two-year COVID period. So real estate really sits at the heart of our strategy. Being a fully integrated developer, owner and operator, we like to have full control over every aspect of the value chain and we have a very strong preference for assets with a development potential. Our portfolio is quite diversified. and the second is the leisure and outdoor segment, which is focusing predominantly on Europe, which is the world's largest growth market. We have a unique approach to our capital structure, which Polar Growth, since IPO, has been self-funded, and we do that by so-called capital recycling. We have not diluted shareholders of BDAC. So we do that by raising capital on the asset basis, And what's special about the group is that we have a fully scalable management platform that has an exclusive relationship with Red Snow Telecom. And this management platform is managing our own real estate, but it also manages the estate of our partners and of third-party asset owners. This platform has long-term management agreements, which typically So this circle really summarizes in a nutshell how our value creation works. We try to find land sites, office blocks, tired hotels. We develop and redevelop these, we brand them, we operate them ourselves, and typically that will give us value gains that we tend to take out and recycle back into the business to do this again. Robert, over to you for a strategic update. Thank you. We finished 2021 with Omicron, which obviously led to a slowdown in base bookings and in some of our operating markets with the lockdowns, which means that when we started the year, it was very slow. So the UK was actually the first market to start gaining momentum from the middle of January, with the UK and Netherlands starting to reopen and drop the measures from March onwards. Croatia, we opened around Easter most of the properties, which is what we normally do pre-COVID. So that was the first time that we were able to do this. It's fair to say that we didn't see really any movement in those markets from May onwards. So Q1 was soft. Q2, on the other hand, was very, very strong across the UK in particular, already hitting very solid performance numbers. How did we deliver this? First of all, we had a rate-focused strategy. So we tried to really generate as much revenue as possible by driving the rate of the rooms and the products. The teams delivering the daily service to our customers, we've been building up and rebuilding already in the course of 2021, but continue to do so in 2022. And we benefited from some of the strategic initiatives that we initiated in in 20, in 21, and even before COVID, such as the insourcing of housekeeping. So we have our own housekeeping company in the London market, which gives us a niche and an edge over our peers because we have more flexibility in allocating the team members across the properties. We've also opened our own sort of career center. So we have a walk-in hospitality career center in central London, adjacent to the Victoria Hotel, where everyone can just walk in and understand market space. In the Netherlands and in Croatia, we provided housing to team members that would join us from other countries. So we've opened up our international network to really cope with the labor pressures that are currently present in the market. I have to conclude that we are in a much better place now than where we were at the beginning of the year. We are now shifting our efforts from recruitment to training upskilling and productivity for the teams we've also been driving some of the esg initiatives including our partnership with zero carbon forum they will help us to achieve net zero status by the soft side where we engage our teams, our operating teams, for them to start making a change in saving energy. And at the same time, we are investing in new heating and cooling systems in solar hotels, taking them off the gas supply in the next few months to two years. So that applies to Victoria London, but also our project in Rome. We've also started to re-engage and recommend shareholder returns, so we've actually started a share buyback programme. At the end of June we started buying back some of the shares in the market at a value of up to 1.7 million pounds and we've declared a dividend this morning that we utilize on the assets. So we'll touch on that on the next slide, because it's quite extensive, but it relates to the Ransom partnership that we've enjoyed for over 20 years. Pipeline project progress is notable. So we have two projects launching this year. The flagship is the Brioni development, which was a five-star result in the 70s. It was a two-star operation when we closed it down two and a half years ago. We spent 30 million pounds and transformed it into a premium luxury hotel. So back to its five-star rating and we managed to get a Radisson collection hotel. The second investment is in Arena Stoja campsite, which is the third campsite that we've invested in as a business. We have a number of eight campsites in Croatia. We'll touch on the progress on the pipeline shortly. Moving on to the Radisson agreement that we went into. For 20 years we've enjoyed an exclusive license for the Park Plaza brand in Europe, Middle East and Africa. Our objective was to leave that intact because we've seen the benefits of this arrangement. So that is still in force. But over and above, the new agreements give us a few benefits. So we went into agreement with Radisson on Art Hotel, which is a brand that we own, but Radisson will take a development interest. So we don't allow franchising, but Radisson will be allowed to develop and manage and lease Art Hotels in markets around the world, which for us will lead to greater brand awareness and greater footprint for the brand. more customer awareness and ultimately the fee-based income for the group. So there is a fee mechanism in place that if any artist or brand will manage the lease, we will have a share of the fees collected. In addition, we've also secured favorable commercial terms to start using some of the other Radisson brands in the portfolio. So we had the first hotel where we applied this which was originally supposed to open as an independent hotel, we felt it was appropriate to look for some greater awareness, recognition, brand equity, and entered into an agreement to partner with Radisson Collection, which is the best brand in the Radisson stable. So Brioni sits alongside some of Radisson's most premium products. We are also interested in pursuing other opportunities, current and in the future, with potentially other On the management side, this is probably an under-highlighted part of our business from time to time. We are an asset-heavy asset owner, but all of our assets, as well as those owned by third parties or co-owned, are also serviced by our internal team. So we have our internal management company, where we believe there is a lot of growth opportunity moving forward. And a good example is the Battersea development here in London, which we're about to open. That hotel, when it opens, will be serviced by our management company, but it's not a hotel we own. It's a third-party home. We don't have to scale up the team. We typically employ a hotel team that runs the day-to-day operations, but all of the central and back-of-house functions are provided through the platform. including all the commercial benefits derived from the relationship, such as the reservation system, but also the buying power, purchasing power for FF&E, but also for OTAs and travel agent commissions. The pipeline update is as follows. We've completed Brioni and Stolia this year. We also had a slight or a light refurbishment of the art hotel in Budapest. Phase one was completed. which is all the public areas and meeting spaces, and we created a wellness facility area. Phase two is planned for later this year, where we will renovate all the bedrooms. Bigger projects are the Battersea development, which is at its final stages. In the last two months, we've announced the signature artist, which is a core part of our Architel brand positioning. So we announced the signature artist, the interior designer, as well as the executive concept chef. This will be an amazing to tell london auction we've reached the highest point of the building and as a reminder it is a 27 story building in the heart of shoreditch offering just under 350 bedrooms as well as some extensive office space various restaurants bars and wellness we've started sealing the building so the cladding is now in place up until floor 8 with the rest to follow in the next few months to come park royal and one near waterloo adjacent to our waterloo hotel these are longer term projects so we'll continue to refine the plans go through planning in one of the two instances the other one has planning so it's more of a longer term project for us zagreb is more imminent so in zagreb we are converting an office into a hotel this hotel will open in the first half of next year as a center of Zagreb, shortly followed by Rome. This is a hotel that we acquired in November last year, kept operating as an independent. We closed it at the end of June. First of July, the builders went in. We are now starting demolition of the interior and we're looking to open and start in June, July next year. Simultaneously with the development in Pula, which is the city center hotel that we own in that market. From an ESG perspective, I touched on some of the investments we're making. We're committing £2 million to Victoria London to take drastic action to change the energy, heating and cooling systems in that hotel, taking in all gas as well. We are equally committed to do this in Rome, in Hoxton, and we have additional projects on the radar. And there's more detail on here which I'll leave for you to review. Daniel will talk us through the performance So on the financial performance, the six months have a very clear division in the first quarter and the second quarter. Obviously, I almost forgot already, but the first quarter we were pretty much shut. So in Germany and the Netherlands and in Croatia, all our hotels were shut. The UK was open, but government advice was work from home, stay at home. So a very slow business. And the second quarter really is where we saw the traction. Germany and the Netherlands needed a bit of time so I would say around May onwards they started to track up. The UK was much sooner because we never closed it and that's also very visible in our results today. So I'll start off with the key property KPIs. We've reported a NAV per share of £21.88 which is slightly down from the year end. This is just So external valuations are done annually in December, so also this December we will do an annual external valuation and update the NAV. Then looking at the earnings per share, cash flow per share, we reported 1B, first time positive since the start of COVID. We're also looking at our current trading. starting with a $1.7 million buyback and now complemented with a $1.3 million dividend. 3P dividend is quite modest still, but with the cash flow And what you'll see in the current trading, which we'll talk about later, is that we are currently at 19 level REFBAR-wise. You do see that REFBAR is very strongly driven by room rates. So we reported room rates up 16% compared to 2019. In Q2 they were up 18% compared to 2019. But REVPAR is completely made up with the increased rates that we're seeing. But there's still some place to go on the occupancy. So, total revenue increased to 113 million in line with REVPAR, actually. If we look at the EBITDA, it's 17 million. If we divide that between the two quarters, it's 5 million negative in the first quarter and it's 22 million positive in the second quarter. So if we just translate the second quarter into EBITDA margins, we're looking at the margin of 27%. And that's versus a Q2 2019 margin of 36%. So we're still about 9% behind in margins. And there's, I would say, two reasons for this. One is obviously the Netherlands stored months on those two territories and secondly it's the different demographic that we are dealing with currently in the uk so in the uk after brexit we can only recruit domestic which we are but we do see in the demographic a lot of younger people and a lot of people that are new to the industry in its entirety so productivity is really something we're focused on and over the summer months our margins normalizing. On cash flow, we show the positive cash flow in H1. If we look at the capex and funding cash flows, they mainly relate to our two projects, one completed in Riyoki and Hoxton. These are the biggest one in here. You'll see the debt service everything we've been through over COVID we're catching up right now. So our guest position declined with 10 million to 126, which is still a healthy balance, I would say, with a further access to 77 million pounds of on-ground credit facilities. Going to our guest structure, obviously we're in a rising interest rate environment. Just wanted to reiterate that 86% of our debt is fixed rate debt. The other 14, the majority of that is the Hoxton development debt, which is variable rate until opening April of 2026. But most of our debt is fixed rate. The average maturity of our debt still has five years to go. And we report a net bank debt leverage of 35%, slightly up from last year. So obviously the interest rates are increasing currently in the market. So we decided to already start forward hedging our interest rate exposure. So one forward starting we did So then on outlook, we had quite strong months in July and August, both months trading above 2019 same period. July was particularly strong in the UK with double digit bread bar increases compared to 2019. And Croatia recorded a record season in both July and August. These two months, I have to say, are typically leisure driven, which is a segment forward since COVID. So the forward booking phase also looks solid. We see a growing number of corporate bookings and requests for M&E space, but September is a very important month for us to see how far that's back. So September is usually the month that leisure Then on the industry-wide inflationary pressures, they will definitely not pass us. We are particularly concerned and trying to buy energy on the wholesale market, but directly by energy producers like solar or wind. There are just a few initiatives that could materially impact our costs next year, so we would like to wait until the end of Q3 in October, when we will update Obviously, besides the energy efficient measures, we are still very focused also on implementing technology and automation to further mitigate all the cost pressures that are coming at us. So from a payroll perspective, we think we should be okay. Also, our large focus on our productivity is That was it for the presentation. We intend to build a hotel there. The pandemic caused the New York market to be very, very volatile from a real estate market perspective. I would say residential is quite strongly back at the moment, but hotels are still suffering. We've decided to pause the development until there's more clarity around the hotel real estate market. We do not intend to invest if this project higher price than what we're going to invest. So we currently pause the New York development. So with the market recovery as such a discount to EFRA valuation, what do you see as the catalyst to narrowing the gap? One of the reasons that we started providing this to the market back in 2018 was to show that our business model is very much real estate and operations, not purely operations. What closes the gap? That's probably market dynamics on which we're not in control. We feel that the gap is too big. We feel that the NAV that we're giving to the market is quite conservative. It's a NAV based on going concern. It's not a NAV of selling assets. So we feel it's a fair reflection So what balance do you see between rate and occupancy growth and initiatives to drive towards the occupancy of circa 70% pre-pandemic? Strategically, currently, we are highly focused on rate driven because there is a lot of the net out there. So strategically, we have a rate driven strategy right now. The reason also for that is that gives us kind of a cushion for the inflationary pressures that we experience currently. Obviously, a part of the occupancy drop in the UK has also to do with the labor pressures that we've experienced throughout the year. I will say they are stabilizing, but still on productivity, like I said before, we still have some work to do. So driving race versus occupancy same revenues in, however, with less stock. So that's pretty much where we are right now. Obviously, going further into 2023, we tend to drive the occupancy, but we like to keep and stick to the rates that we currently have. So whenever we're back, I don't know, it depends really on the market. Ref car wise, we aim to be back at 19, predominantly driven by roof rates currently.

thank you for that daniel and robert i think you've addressed those questions from investors and of course the company will review all for all questions submitted today and we'll publish those responses on the investor meet company platform but just before redirecting investors provide you with their feedback which i know is particularly important to you both daniel could i just ask you for a few closing comments yeah thank you very much for your attendance uh today uh exciting times ahead i would say uh we at the end thank you very much thank you annual robert thanks once again for updating investors today could i please ask investors not to close the session as you know i'll be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations this will only take a few moments to complete but i'm sure will be greatly valued by the company on behalf of the management team of pphd hotel group limited we'd like to thank you for attending today's presentation and good morning to you all