1

SURREY MAIL

PPHE HOTEL GROUP: WHAT’S IN STORE FOR INVESTORS?

Fotios Ntagiantas – Hospitality Analyst

25th April 2016

PPHE Hotel Group, one of Europe’s few

remaining owner-operator companies with a

strong asset base and access to world-class

brands, continued to please in 2015. In a

recent announcement, the company reported

revenues up 11.8% to €302.5 million year-

on-year; a boost mainly driven by a surge in

room rates (up 11.3%)1. Commenting on the

results, Boris Ivesha, President and CEO of

the company said: "We are pleased to report

another year of progress with double-digit

growth in revenue, normalised profit and

normalised earnings per share2”. With

EBITDA well ahead of expectations and an

increase of 5.3% in dividend despite various

development projects, PPHE’s shareholders

have every reason to smile.

So how has PPHE managed to stand out in

such a fragmented industry? The Group

claims to deliver trusted and recognised

brands through a bespoke approach. Park

Plaza Hotels & Resorts and Art'otel, its two

distinct brands, seem to fit this mind-set with

their vibrant, unique, and continually

evolving concepts. Park Plaza is a dynamic

collection of individual upper upscale hotels

with every property characterised by its own

As PPHE Hotel Group

announces improved

trading performance

for 2015 amid

heightened concern

about European

travel uncertainties,

Fotios Ntagiantas

examines the

secrets of the

Group’s success and

looks at what’s in

store for the full-

service upscale and

lifestyle hospitality

company.

2

creative and cosmopolitan design,

while Art’otel, a contemporary

collection of hotels that fuses

exceptional architectural style

with art-inspired interiors, serves

as PPHE’s response to Millennials’

demand for lifestyle hotel

concepts3. The bespoke approach

also applies to its restaurants and

bars, with Chino Latino, a modern

pan-Asian cuisine and Latin bar

concept available at various PPHE

hotels, proving to be one of the

most popular foodservice

concepts the Group has

launched4. It is this tactic that

enables PPHE to tailor each

product to the market to ensure

that it has local relevancy in order

to maximise its potential. Of

course, extensive employee

training programmes around this

philosophy of delivering a unique

guest experience that exceeds

expectations are in place. And if

the record service levels achieved

in 2015 (8.63 on a scale of 1-10

as rated by guests) are anything

to go by, they seem to work5.

What is striking about PPHE is

that, contrary to hospitality giants

such as IHG and Accor that have

turned into asset-light hotel

operating companies over the

recent years, it invests in every

aspect of the hotel business, from

construction to ownership and

management. Unlike its rivals

that emphasise on franchise

agreements and management

contracts for fee-generated

income, rapid growth and lower

financial risks6, PPHE’s portfolio

comprises owned or partly-

owned, leased, managed, and

franchised assets. This is a capital

intense yet a highly profitable

business model. Admittedly, this

strategy holds back the pace of

expansion. Having opened its first

Park Plaza in Eindhoven in 1989,

the company currently operates

38 hotels offering more than

8,300 guest rooms in European

key markets. 167 of those rooms

opened in 2015 while another

1,067 are expected to enter the

market in 2016. These figures

pale in comparison to key asset-

light players such as IHG, which

increased its supply by 2,503

rooms to almost 107,000 in

Europe during 2015 alone7. So

why does PPHE show preference

for ownership? Simply because

owning demonstrates confidence

in its offering and enables it to

Park Plaza Westminster Bridge, one of the

11 PPHE hotels in the UK

3

establish a foothold in key

destinations, creating flagship

hotels for the brands it operates.

Another equally important reason

is that it puts the company in a

controlling situation, as it ensures

that refurbishments vital for

keeping room rates strong are

ongoing8.

The challenge here lies in

identifying those plots of land and

buildings with development

potential in order to transform

them into profitable hotels. So

where does PPHE look for value?

Key gateway cities and leisure

destinations in Europe, where

capital value is likely to

appreciate over time9.

Undoubtedly, the UK, the

Netherlands, and Germany, the

Group’s core markets, are all

established markets with strong

economic fundamentals and

robust tourist activity10. London,

one of the world’s most popular

tourist destinations and Europe’s

top performer in terms of

trading11, is understandably

PPHE’s primary market and

greatest revenue contributor.

Thus, the recent statement of Eli

Papouchado, PPHE’s Chairman,

highlighting that the company is

on the verge of substantial

expansion in London should come

as no surprise12. In addition, the

company looks further in East

Europe to accelerate growth, with

Croatia, an emerging tourist

destination on the Adriatic coast,

in the forefront. Earlier this year,

the company agreed to buy the

remaining 80% interest of its

joint venture with Croatian

holiday company Arenaturist for a

sum of €51 million – it already

owned 20% since 200813. This

deal will enable the Group to

enhance its presence in Europe by

transforming Arenaturist rooms

into Park Plaza properties. With a

third of holidaymakers in Croatia

reckoned to come from Germany,

there may well be logic in building

the Park Plaza brand more

substantially in that country,

where the brand has a modest

presence and some brand

awareness among German sun

seekers14.

The Arenaturist deal is not the

only joint venture for PPHE.

“The acquisition of

further shares in

Arenaturist provides the

group with the

opportunity to accelerate

the growth of the Park

Plaza brand in Central

and Eastern Europe”,

Boris Ivesha, PPHE

President and CEO

4

Indeed, partnerships have played

an instrumental role in the

company’s success. In 2002

Carlson, one of the industry’s

largest travel companies (Carlson

Rezidor Group) and the world’s

largest business travel agency

(Carlson Wagonlit Travel), took

hold of the Park Plaza brand and

granted PPHE an exclusive licence

to develop and operate Park Plaza

branded hotels and resorts in

Europe15. Together, they have

created a strong global marketing

and distribution platform through

which PPHE markets its hotels

while sharing considerable costs

and expertise. In a time that

hoteliers vigorously seek to

eliminate costs incurred by third

party bookings (tour operators,

OTAs, and Opaque to name a

few) by promoting direct business

and implementing customer

loyalty programmes, this has

certainly been a bold move on

PPHE’s part16. In a 2013 report,

analysts reckoned bookings from

the Carlson system were worth up

to 40% of the Group’s revenues,

accounting for around 30% of

room occupancy17.

So what’s next for PPHE? The

outlook remains upbeat for the

Group, as the shares continue to

look lower-rated than its peers

yet growing faster18. The

company is set to progress its

various renovation projects to

ensure its hotels continue to

improve on their strong market

position. Three new hotels are

expected to open in 2016 while

its development pipeline includes

the Art’otel London at Battersea

Power Station following a recent

highly competitive operator

selection process. Meanwhile, the

Arenaturist acquisition perhaps

unveils potential to grow the

resort business elsewhere around

the Mediterranean. Fast forward

to 2019, and the company

expects to have nearly 10,000

rooms in operation19. However,

the Group is in need of more

franchise agreements and

management contracts if it is to

stimulate growth. Leveraging its

partnership with Carlson is also

deemed necessary to further

improve revenues while synergies

with TripAdvisor and Google are

set to enhance its direct

business20. Current political

instabilities and increased

acts of terrorism may adversely

affect the Group’s performance in

the short term; however, given

that tourism has a track record of

fast recovery, PPHE should be

well on its way to accomplish its

vision of becoming one of the

leading hospitality companies in

the full-service upscale and

lifestyle hotel segments.

5

References

1 Hotel Analyst (2016) “PPHE boost”, 10 March. Available at: http://hotelanalyst.co.uk/2016/03/10/pphe-boost/ (Accessed: 15 April 2016).

2 PPHE Hotel Group (2016a) Audited Annual Results for the year ended 31

December 2015. London: PPHE Hotel Group. Available at: http://otp.investis.com/clients/uk/park-plaza/rns/regulatory-story.aspx?cid=130&newsid=681342 (Accessed: 15 April 2016).

3 PPHE Hotel Group (2016b) Brands. Available at: http://www.pphe.com/brands

(Accessed: 15 April 2016). 4 PPHE Hotel Group (2016c) Restaurants & Bars. Available at: http://www.pphe.com/brands/restaurants-and-bars (Accessed: 15 April 2016). 5 PPHE Hotel Group (2016a) Audited Annual Results for the year ended 31 December 2015. London: PPHE Hotel Group. Available at:

http://otp.investis.com/clients/uk/park-plaza/rns/regulatory-story.aspx?cid=130&newsid=681342 (Accessed: 15 April 2016). 6 Deroos, J.A. (2010) “Hotel Management Contracts Past and Present”, Cornell Hospitality Quarterly, February, 51, pp.68-77.

7 IHG (2016) Annual Report and Form 20-F 2015. Denham: IHG. Available at: http://www.ihgplc.com/files/reports/ar2015/files/pdf/annual_report_2015.pdf

(Accessed: 17 April 2016). 8 Brown, C. (2016) “PPHE looks east for further expansion”, Hotel Analyst, 15 March. Available at: http://hotelanalyst.co.uk/2016/03/15/pphe-looks-east-for-further-expansion/ (Accessed: 17 April 2016).

9 PPHE Hotel Group (2016a) Audited Annual Results for the year ended 31

December 2015. London: PPHE Hotel Group. Available at: http://otp.investis.com/clients/uk/park-plaza/rns/regulatory-story.aspx?cid=130&newsid=681342 (Accessed: 15 April 2016).

10 JLL (2016a) Hotel Investment Outlook 2016. London: JLL.

11 JLL (2016b) Hotel Intelligence London – March 2016. London: JLL. 12 Gerrard, N. (2016) “PPHE Hotel Group looks to London expansion as 2015 revenue and profit rise”, The Caterer, 10 March. Available at:

https://www.thecaterer.com/articles/366227/pphe-hotel-group-looks-to-london-expansion-as-2015-revenue-and-profit-rise (Accessed: 18 April 2016). 13 Edison Investment Research (2016) PPHE Hotel Group - Resorting To Type. London: Edison Investment Research. Available at: http://www.iii.co.uk/equity-

research/lse:pph/pphe-hotel-group-resorting-type (Accessed: 23 April 2016).

6

14 Brown, C. (2016) “PPHE looks east for further expansion”, Hotel Analyst, 15 March. Available at: http://hotelanalyst.co.uk/2016/03/15/pphe-looks-east-for-

further-expansion/ (Accessed: 17 April 2016). 15 Hardman & Co (2016) PPHE Hotel Group 2015 Final Results: Continuing to deliver. London: Hardman & Co. Available at: http://www.hardmanandco.com/docs/default-source/company-docs/pphe-

documents/22-03-16-2015-final-results-continuing-to-deliver (Accessed: 17 April 2016).

16 Tranter, A. K., Stuart-Hill, T., and Parker, J. (2014) An Introduction to Revenue Management for the Hospitality Industry: Principles and Practice for the

Real World. Harlow: Pearson. 17 Hardman & Co (2013) PPHE: Luxury throughout. London: Hardman & Co. Available at: http://www.hardmanandco.com/docs/default-source/company-docs/pphe-documents/pphe-28may13 (Accessed: 18 April 2016).

18 Hardman & Co (2016) PPHE Hotel Group 2015 Final Results: Continuing to

deliver. London: Hardman & Co. Available at: http://www.hardmanandco.com/docs/default-source/company-docs/pphe-documents/22-03-16-2015-final-results-continuing-to-deliver (Accessed: 17

April 2016). 19 Gerrard, N. (2015) “London's first art'otel to open at Battersea Power Station”, The Caterer, 20 October. Available at: https://www.thecaterer.com/articles/366227/pphe-hotel-group-looks-to-london-

expansion-as-2015-revenue-and-profit-rise (Accessed: 20 April 2016). 20

Brown, C. (2016) “PPHE looks east for further expansion”, Hotel Analyst, 15 March. Available at: http://hotelanalyst.co.uk/2016/03/15/pphe-looks-east-for-further-expansion/ (Accessed: 17 April 2016).