PPHE Hotel Group Limited

Good morning and welcome to the PPHE Hotel Group Limited four-year results investor presentation. Throughout this recorded presentation, investors will be in listen-only mode. Questions are encouraged and they can be submitted anytime just by using the Q&A tab that's situated in the top right corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review the questions submitted today and publish responses where it is appropriate to do so. Before we begin, I'd like to submit the following poll. And now I'd like to hand you over to CEO Greg Hegarty. Good morning, sir.

Good morning and thank you. Good morning, everyone. And welcome to our 2024 full year annual results presentation. I'm Greg Hegarty, co-CEO of the PPHE Hotel Group. And I'm pleased to be joined today by Daniel Koss, our CFO, and Robert Henke, our EVP commercial. 2024 has been an exciting year for PPHE. as we near completion of our £300 million pipeline, delivering four new hotels across four European capitals. So without showing you too much, I think it'll be good to, before we dive into those numbers, I think it'll be good to show you a short video of our up and coming new hotel in Rome and our key investments.

Thank you, Alessandra, for showing that video. As Greg said, this has been an exciting year for PPHE Hotel Group. So allow me to introduce PPHE to those that are new to the story. PPHE is a hospitality real estate company. We're FTSE 250 listed and we currently have a portfolio of 51 properties in operation. The vast majority of those are city center hotels. We also have a number of resorts as well as eight campsites in Croatia. What we do as property owners, we have our properties valued annually by external valuators. So in our books that historical costs, but they're valued against market values. And we're currently sitting at 2.2 billion pounds. What makes PPHE unique in the hospitality real estate segment is that we own, develop and operate hotels. Whereas a lot of our peers tend to focus on just development or owning assets, or maybe operational, sort of agreements for hotels, we manage all of this in our own group. Our vision is to not only grow the real estate side of our business by acquiring and developing properties, repositioning assets, but we also want to grow our in-house management platform and Greg will touch on that a bit later in the presentation. So what sets us apart as sort of owners and operators of assets? There's a number of factors that differentiate us. So first of all, the business model, as I said, typically We operate in one pillar, we operate across all three, keeping all that value within the group. So investors in PPHE have exposure to each element of the value chain, but also the benefits and upside that comes with that. We have a strong preference for developing assets either ground up, so we tend to buy land sites and have ground up developments, But we've also in our history have bought into offices and converted those into hotels or we acquired hotels in need of investment. So we buy a hotel with what we call repositioning potential. So we buy an asset, we invest and relaunch the property in a different market class, generating different returns. So that's where our shareholders benefit. Our key markets are all within Europe. So we have eight countries that we currently have a presence in. And our most important markets from a property point of view are London and Amsterdam, as well as a presence in Croatia, which is strong, and then Germany. And we have seen in the video that we're about to enter Italy as our eighth marketplace. The second part that makes us unique is our capital structure. So our company went public in 2007 and we haven't diluted shareholders since, despite delivering a number of growth phases for the group. How we've been doing this for the past 35 years since our business started is by constantly recycling capital. So we typically buy an asset. We've taken out loans sometimes, and then after a few years, once the property is more established and stable, we refinance, extract some of the capital and reinvest in the next opportunity. Or we have partnered, for example, with JV Partners, bringing us extra capital to fund our future growth. The last part of our pillar is the unique element of our management platform. So it's a one-stop shop that we operate. So in our business, we have all disciplines in-house. to develop, acquire, but then also operate and commercially drive the performance of each of the assets. And we'll go through a bit more detail later. From a commercial perspective, we use a lot of Radisson's brands, some of those on their exclusive agreements, and some of those are very competitive arrangements. So we tap into the different segments in the hotel market, from upscale to luxury, and we have the commercial brands to drive the performance. In a nutshell, This is a fairly dark slide, but this summarizes what we do. We buy, we build, we operate, we extract capital and invest in the next cycle of growth, driving the shareholder returns. In terms of the portfolio geographic spread, as I said, London and Amsterdam are our most important capital city markets. We are currently active in seven capitals, so London, Amsterdam, soon Rome, But we also have a presence in Berlin, in Belgrade, in Zagreb and in Budapest. So we are currently active in 16 cities altogether, as well as some resort destinations in Croatia and a mountain resort in Austria. So more than 70% of our property values sits in London and Amsterdam, which are very high barrier to enter markets. So it's very difficult these days to establish a strong foothold in markets like London and Amsterdam because of planning regulations or hotel stops. We are in the unique position that we have a strong foothold in those places already. and more than 75% of our asset value of the 2.2 billion pounds is on a freehold basis. The remainder tends to be along leaseholds in the form of ground-based structures, which are typically over 800 years. As I said at the beginning, our 2.2 billion pound portfolio is in our books at historical cost minus depreciation, whereas the valuators use a DCF model and you can see the discount rates on this slide. So typically in city centres, the discount rate they use is 7.75 or 7.8, going up to about 11 percentage points in the resort locations. What we'll focus on next is the management arm of our business. Greg, do you want to cover this?

Yeah, thank you. We are an award-winning hospitality management platform. At PPHE, we own and operate our properties through our own in-house hospitality platform, which provides the company with base fees and profit-based incentive fees. We actually are in full operational control and we have direct alignment between the ownership of the asset and the management priorities. Our strategic partnership with the Radisson Hotel Group allows us to leverage our global distribution, our loyalty programs globally, our purchasing power, ensuring we are fit for stability and growth. Moving on to slide nine, thanks Robert. Our strategic and operational update. Despite a challenging macroeconomic environment and tough comparatives from 2023, which included the Kings coronation and the Champions League final, we delivered record revenue of £442.8 million, 6.8% up year on year. and EBITDA of 136.5 million, which is 5.7% up year on year. This was driven from revenue contributions from our newly opened hotels and solid life-for-life performance across our portfolio. Our EPRA NAV increased to 27.51, up 3%, enabling us to increase our dividend to 38 pence per share for the full year. We also improved our EBITDA margins to 32.5%, which is plus 160 bits. Thanks to our supply chain consolidation, new technologies which we've adopted within the business, automation initiatives, particularly in accommodation operations. From an employee and guest experience view, employee engagement rose to 84.5% above the sector average of 82%. helping us retain talent and drive our guest satisfaction within our properties. Our guest rating scores improved to 87.8%, which is a 1.4% year-on-year growth, reflecting strong operational execution. Moving into our strategic progress and expansion, we've seen one of the largest growth cycles in the history of PPHA, diversifying our operation across multiple brands, through our Radisson partnership. Key milestones include the opening of the Artitel Zagreb, which launched fully in May. We opened our first two Radisson Red properties in Belgrade and in Berlin. We completed the Artitel Rome, and I'm pleased to say that is opening fully next week. We successfully refinanced £170 million in loans at favourable interest rates. and we soft opened, we are to tell Hoxton, our £300 million investment after three years of development. Looking ahead, our four key focus areas are leveraging Rome next week and obviously fully completing our property here in Hoxton, stabilising assets across multiple markets, which are expected to deliver an additional 25 million of EBITDA by 2028, driver further efficiencies within the portfolio through technology and automation and advancing on our development pipeline, including the London South Bank project and our New York development site. The pipeline contribution to our long-term strategy, our recently opened hotels are still maturing with strong performance indicators so far. We expect further upside from these properties as they settle into their respective markets. Rome is a major up-and-coming milestone for us, like we've already said, with strong pre-opening demand. Our landslide portfolio, particularly in London and Croatia, holds long-term value for future development and our acquisitions team continually evaluate new opportunities and growth opportunities. As we move to 2024 highlights, the hotel in Hobson successfully opened a phased opening, overcoming multiple challenges with strong client demand and corporate bookings. We've already alluded to the Radisson Red Berlin and Belgrade opening. These have been very well received with positive feedback and growing market traction. We had a planning win in the London South Bank. We secured approval for 186 bedroom hotel, strengthening our future pipeline. We also made our New York site development ready. We're also constantly assessing our strategic options here for this site, and we look forward to further explanation in due course. And Croatia is starting its £12 million investment in campsite upgrades, enhancing our premium offering. Thank you, Robert.

So going over to the results, as Greg already alluded to in the earlier side of this presentation, we had another record year of performance with total revenue up 6.8% to £443 million. This number includes the newly opened art details that we had in London and in Zagreb. So if we look on this on a like-for-like basis, revenues increased to £428 million, up 3.3 percentage points. In all territories, we had strong growth in occupancy, which was particularly strong in Germany. Room rates, on the other hand, moderated as we anticipated earlier in the year already. And it is also negatively impacted by a stronger sterling euro exchange rate. As a result of this, the like-for-like rev part for the group was up 1% at 122 pounds. Going to EBITDA, like-for-like EBITDA is up 8.7% to 139.3 million. That's up from 128 million last year. The reported EBITDA was slightly lower, coming in at 136.5 million, which is negatively impacted by the typical opening losses we have of the hotels that recently opened. So in terms of margins, I'm very pleased to say that we reported a like for like margin increase. It increased with 160 basis points to a margin, an EBITDA margin of 32.5%. And I'm very pleased with these margin increase because these were negatively impacted in the year by double digit minimum wage increases in all our territories. And that was offset by lower utility costs and ongoing automation implementation, which increase our labor efficiency. So going on to APRA earnings, we reported an adjusted APRA earnings per share of £1.25, which is up 5.9% versus last year when we reported £1.18 per share. And this increased APRA earnings is also the basis for our progressive dividend policy. which we typically pay 30% of adjusted APRA earnings. So also for this year, we're proposing an increased final dividend of 21 pence per share, which together with the interim dividend brings the total dividend over 2024 to 38 pence per share. This is 5.6% higher than last year. If you move on to the next slide, Robert. In this slide, we reported the APRA earnings. So we reported 53.3 million of adjusted APRA earnings, which increased 6.4% versus the 50.1 million reported in 2023. So as I alluded to, on a per share basis, this comes down to £1.25 per share. But as you can see in the first waterfall chart, the APRA earnings were positively impacted by a 7.4 million net income growth, If you translate this to a per share amount, that's 17 cents per share. But they were negatively impacted by the opening losses of new hotels in 2024. And if you reflect that in a per share amount, that's 10 cents per share. So on a like-for-like basis, EPRA earnings went up to 1.35. These losses will likely turn into profits, obviously, in the near future when the properties are stabilizing tradings. And with that increase after earnings, we are also likely to increase our dividends. So if you can see in the lower bar chart is that adjusted after earnings are driven mainly by our share in the EBITDA of the properties that we own. And our share in the 25 million pounds of growth expected for all our new openings is about 51% is PPHE share as these assets are jointly owned with a partner. Moving on to the next slide, thank you. Our cash flow, our strong cash flow was positively impacted obviously by our 137 million EBITDA, but negatively impacted by working capital payments around the construction projects that we had in this year for 12 million. We had another year of substantial capital expenditure of which the vast majority reflects the expansion cap. You can see that 63 million out of the 79 million was expansion and CAPEX. And I'll detail that a bit later on the next slide. And that CAPEX is partly funded by new bank facilities. Given the completion of our significant pipeline, CAPEX is expected to decrease in the running year. So we expect another 15 million for the tail of the current pipeline. And in terms of new committed expansion CAPEX, we intend to invest around 10 million pounds, 12 million euros, in the camps in Croatia. And on top of that, we will have our regular maintenance capex, which we typically model around 4% of total revenues. You can see that we paid around £95 million in debt service, ground rents and unit holder payments. Out of this £95 million, £41 million relates to regular bank loan repayments. and about 13 million to the variable profits that we paid to unit holders in Park Plaza, Westminster Bridge. The regular bank loan payments are completely in line with our debt strategy, and I'll detail that, and it will go down in the future, which I'll detail later on. Go to the next slide. You can see on the slide here, and unfortunately the years dropped off, but you can see on this slide, which is the capex cycles that we have over the last decade. So you can see that, as alluded to earlier in the presentation, we had a significant expansion cycle with most of those that were under construction in the last years are now opening. So this chart shows you our historic expansion cycles and the consequential EBITDA growth following those cycles. So also after this cycle, we expect EBITDA growth during the period of stabilization of trading. And as communicated earlier, Stabilizing is expected within three years and at least £25 million of EBITDA. Moving on to the next slide, we reported a NAV per share of £27.51, which is slightly up from last year and externally valued in December 2024. The valuations increased slightly and are based on a discounted cash flow approach. And the discount rates used in these valuations remain largely unchanged from last year, which, as Robert already alluded to, in city center locations such as Amsterdam and London, sit between 7.75% and 8.25%. These valuations also include Article Hoxton for the first time, which has been measured at cost over the construction period. And as you can see here, net debt stayed relatively stable, and that's even considering the substantial expansion capex that we had in the period. Going to the next slide and zooming into our debt position, we have around 890 million pounds of gross debt. Of this, around 200 million pounds relates to the hotels that we are opening, that we have opened and are opening in this year. 590 million pounds of this debt is sterling denominated and 300 million euro and 300 euro denominated and we have an average interest rate of 3.8 percent and nearly all of the debt has a fixed rate so if you look at the net debt we have around 750 million pounds of net debt and if you translate that to a loan to value with the assets at fair value We get to a conservative 33.1% load to value. As Greg already mentioned, in the year, we have successfully refinanced a 160 million euro facility, which was due to mature in 2026. We had already pre-hatched this facility back in 2022 against lower interest rates And we have now also pushed the maturity out to 2031. Again, this loan will have a fixed rate of interest. The bar chart in the middle shows you the maturity profile of the remaining facilities. And for the upcoming £200 million of refinance in 2026, we have already pre-hitched the interest until 2031. Again, those hedges were taken early 2022 at significantly lower interest rates compared to the current market. And the other 100 million loan refinancing is held together with our 49% partner. And as such, the impact on earnings on the higher interest is shared with that partner. And as you can see in the maturity tables, maturing loans have a relative low LTV, so we expect no issues in refinancing this debt.

Moving on to the outlook to you, Greg. Thank you, Daniel. So despite the recent macroeconomical and geopolitical uncertainties, we remain well positioned for future growth in 2025. Revenue and EBITDA is expected to grow, supported by the newly opened hotels within the portfolio, including Rome, which is due to open next week. Q1 was a little soft, predominantly driven from the low domestic UK demand from Storm Irwin. However, future booking momentum improves in Q2 and we remain optimistic. The board remains confident in delivering results in line with market expectations for 2025 and beyond. Thank you.

That concludes the presentation. We'll now move into Q&A. A number of questions have come in already, but if you have questions, use the right-hand side of your panel and submit your questions to us. We will try to answer as many as we can. I'll start with the forward-looking development pipeline, Greg. What regions are the company's priorities for expansion and why?

Yeah, so we look at this in two ways, usually where we have a geographical presence. So obviously London is an area of development for us, usually where we already have a management presence and scale. So for example, the likes of London, Amsterdam, Germany, Croatia are easy areas for us to grow. However, Italy is a new territory for us. It's the first time we've moved into a new territory like this. So usually where we have an asset, we would like to grow around it. So Italy is a target market, as well as all of the other usual suspects around Italy, such as, for example, Milan, etc. and Florence.

So key cities in Italy is what the focus is amongst others. There's a question here on occupancy, which I'll take. in 2024 how does this compare to industry averages and what strategies do you have in place to sort of sustain or improve occupancy rates moving forward um it's a good question uh i think when we look at the history of our business we've achieved higher occupancies but it's we have to break it down in each market so in our presentation in the appendix we showed you sort of the like-for-like occupancy by region and what you'll see is that the uk holland so mainly driven london amsterdam are very high occupancy levels already. So they're typically mid 80s. So if you take into account that Sunday night in our industry is very low, it means that we're pretty much full all week. So there's a limited scope in the Dutch and UK regions to drive further occupancy. So our view is to try and maintain occupancy and start building rates a little bit as much as we can. So it's a fine balance between the two. Where we see more room for occupancy growth, it is in the newly opened hotels. So when you look at our reported numbers, you can see that they're a bit softer, and that is really the impact of the newly opened hotels, because they need to mature, they need to stabilize, they need to grow in their respective marketplaces. And there's a little bit more room for growth in occupancy in Germany and in Croatia. Again, that has to do with the investments that we've done and the return of the assets there. In terms of our business model, it is always finding the balance between occupancy and rate.

If I can add to you Robert, in 2019, it's a long time ago, but pre-COVID, we reported an occupancy of near 81%. So as you can see in the occupancies reported, we still have some room for further growth.

Greg, one on competition from Airbnb. How do you ensure that we as a business differentiate ourselves enough from Airbnb or is it not a competitor in your view?

Well, listen, anything which delivers supply into a market is a competitor. Usually where we've been competing against Airbnb, we actually managed to have a lot more augmented services. So people who actually traditionally usually come to hotels do come to hotels, for example. We differentiate ourselves versus other hotels, which is the main competitive factor here for PPHE. We drive leisure, we have swimming pools, we have spas, we have destination restaurants and bars, so we offer a great deal of augmented services. But the predominant success factor of our company versus likes of an airbnb is our hotels are located in amazing locations so usually people like to come and stay in our properties because they're directly on the south bank on the gateway of shoreditch right in the center of amsterdam so you don't actually have any burden of commuting in and out to an airbnb for example in addition to this one of our core markets is amsterdam where the the local city can

and even on the outer outskirts it's completely controlled and regulated with a number of times a year that you can rent out Airbnb so as a relatively new market entrant their presence in certainly in Amsterdam has really been reduced heavily. Daniel over to you for a question on New York so the question is if you can expand a bit more what the company's vision using our balance sheet or equity to invest in it. I know some of this may be premature, but I could tell you to give the historic context.

Yes, exactly. So just to start with the historic context, we bought a site in New York back in 2019 together with a partner. The strategic idea was to grow the Art Hotel brand in key cities like New York, London, Paris, Berlin, Amsterdam. So that was the original idea. We bought our partner out in January 2020, and unfortunately, two months later, we were severely affected by COVID. That meant for the New York market specifically two things. One is that development costs substantially increased since then. And secondly, the legislation around unions changed significantly. So it completely changed our business case, building something in New York. At this moment, I think it's unlikely that we will build a hotel in New York. So we are sitting on this land side, which last year we prepared to make it development ready. We demolished the existing structures on the property. We're looking to extend the footprint to buy more air rights next year. And then we were looking to dispose. Disposal can be in a one-off sale, but it can also be to develop it with a partner with a view to exit in that way. We are not in a hurry. So if the prices that we're getting are not right, we will likely keep the land in our books for a longer period of time.

which is not uncommon in our DNA. Absolutely. We're sat here today speaking to you from our Hoxton Hotel. This is a piece of land we bought in 2008. And we actually, over that time, assessed the market, looked at what the market needed in terms of property, where we saw best position our shareholder funds to develop the assets, So therefore, you know, it's not uncommon for us to sit on a land bank until we know it's the best time to strike.

And it's a superb location in New York. So, yeah, we feel it's, yeah.

So we'll keep its value. It will be a valuable site for us or for someone else. Yeah. There's a question here, which is of a fairly practical nature, whether we offer a loyalty scheme for shareholders. Currently, we don't have that in place and we don't envision doing that by the minute, so we don't have shareholder hotel benefits at this point in time. That brings us to the end of the presentation, because I think there are no further questions that have been added to the Q&A.

Perfect. I'd just like to thank you for answering those questions from investors. Of course, the company can review all the questions submitted today, and we will publish out the responses on the investor meet company platform Just before redirecting investors to provide you with their feedback, which is particularly important to the company, Greg, could I just ask you for a few closing comments?

Yes, I would just like to say thank you for tuning in this morning. Thank you for your time. I really just want to say we are very excited about the opportunities ahead and we look forward to delivering continued value to all of our shareholders. especially now our £300 million pipeline is nearing a completion end. So with that in mind, thank you very much, and I appreciate you tuning in.

Perfect, and thank you once again for updating investors today. Could I please ask investors not to close this session? I shall now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations. This will then take a few moments to complete, but some shall be greatly valued by the company. part of the management team of PPHE Hotel Group Limited. We'd like to thank you for attending today's presentation, and good morning to you all.