Luxury throughout

Transcription

Luxury throughout

28th May 2013
PPHE (PPH.L)
Luxury throughout
Despite delivering strong earnings growth (EBIT 27% CAGR FY07-FY12), an
asset strong balance sheet and increasingly growing brand, the shares are
trading on an 42% discount to the reported NAV per share and an 57%
discount to the true NAV per share.
Price:
323p
12m High
12 m Low
Mkt cap
323p
200p
£136m
€159m
42m
Leisure
London (Main)
Investec
www.pphe.com
Shares
Sector
Market
Broker
Website
Description: PPHE owns, co-owns, leases,
franchises and manages a portfolio of 4*
hotels with 8,300 rooms in Europe, with a
strong emphasis on Central London. Net
asser value per share is considerably in
excess of the share price.
Strategy: PPHE has pursued an asset heavy strategy, increasingly wholly
owning the assets it manages. Whilst this depresses the potential RoIC
(relative to an asset-light managed only strategy), it enables management to
drive the long term value of the hotel portfolio.
High levels of customer satisfaction: High service levels are reflected in strong
customer satisfaction. All of the branded hotels managed by the Group
receive high scores on TripAdviser. For example, the six London hotels have an
average TripAdviser score of 4.3. Our analysis shows, that this is higher than
any other portfolio of four-star London branded hotels, which largely explains
why PPHE has been outperforming its peers in this key hotel market.
Projects adding value: The successful launch of Park Plaza Westminster Bridge
demonstrates management’s ability to deliver new projects. Moreover the
renovation of numerous existing hotels highlights their commitment to
enhancing the long term value of the estate. Over the next few years, existing
projects are scheduled to add 510 rooms to the portfolio (11% uplift on
consolidated rooms).
Net debt: Financial leverage has been a concern for equity investors.
However, net debt to EBITDA has fallen from 9.9x in FY10 to 5.4x in FY12.
Given recent deal flow and the pipeline of projects the ratio is likely to move
above 6.0x in FY13 before falling once more. Only a small proportion of loan
facilities (€48.3m, less than 10% of total) are maturing before Dec-14. Late in
FY15 there are repayments of €178m (€203m nominal, 37% of total facilities).
December Year End
Sales (€m)
FY12
FY13E
FY14E
139.8
202.4
242.1
236.6
238.1
37.6
65.1
85.6
81.1
82.2
Operating profit (€m)
22.9
44.1
63.8
57.1
57.7
4.4
13.6
26.6
19.9
21.7
EPS (c)
10.8
32.7
63.3
47.4
51.7
DPS (c)
-
6.0
12.0
12.0
12.0
(460.2)
(492.9)
(479.0)
Net (debt)/cash (€m)
Net debt/EBITDA (x)
P/E (x)
The company has reviewed a draft of this
research note and factual changes have
been made
FY11
EBITDA (€m)
PBT (€m)
Adrian Kearsey
+44 (0)20 7148 0541
[email protected]
FY10
EV/Sales (x)
(373.7)
(387.3)
9.9
6.0
5.4
6.1
5.8
34.9
11.6
6.0
8.0
7.3
3.8
2.7
2.6
2.8
2.7
EV/EBITDA (x)
14.1
8.4
7.2
8.0
7.8
NAV per share (€ cents)
498
483
619
654
691
Dividend Yield (%)
-
1.6
3.2
3.2
3.2
28th May 13
Key data
Occupancy
RevPAR (€)
84%
120
82%
100
80
80%
60
78%
40
76%
FY12
FY13
FY14
FY12
FY13
FY14
FY11
FY10
FY09
FY07
FY14
FY13
FY12
FY11
FY10
FY09
FY08
FY07
74%
FY08
20
0
RevPAR
Occupancy
Average Room Rate (€)
Total revenues (€m)
140
120
100
80
60
40
20
0
300
250
200
150
100
50
Ave Room Rate
Net debt (€m), net debt:EBITDA (x)
EBITDA mgn
Net debt
FY14
FY13
FY12
FY14
FY13
FY12
FY11
0
FY10
0
FY09
0
FY08
20
FY11
0
40
FY10
0
60
30
25
20
15
10
5
0
FY09
80
600
500
400
300
200
100
0
FY08
0
FY07
100
FY07
FY11
Total revneue
EBITDA (€m), EBITDA mgn (%)
EBITDA
FY10
FY09
FY08
FY07
FY14
FY13
FY12
FY11
FY10
FY09
FY08
FY07
0
Net debt:EBITDA
Source: Company data, Hardman & Co
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28th May 13
Key financials
Revenues driven by
additional rooms
and buy-out of JV
stakes
December Year End
FY10
FY11
FY12
FY13E
FY14E
P&L (€m)
139.8
202.4
242.1
236.6
238.1
EBITDAR
46.4
75.0
96.8
92.4
93.5
EBITDA
37.6
65.1
85.6
81.1
82.2
Operating profit
22.9
44.1
63.8
57.1
57.7
PBT
4.4
13.6
26.6
19.9
21.7
EPS
10.8
32.7
63.3
47.4
51.7
DPS
-
6.0
12.0
12.0
12.0
Operating cash flow
22.1
43.8
80.4
79.0
80.1
Interest & tax
Sales
Cashflow (£m)
Operational cash is
inherently strong
(21.8)
(30.5)
(38.1)
(37.2)
(36.0)
Capex / Acquisitions
3.1
(5.2)
(46.4)
(69.0)
(24.0)
Dividends
-
-
(6.1)
(5.5)
(6.3)
Equity
-
-
-
-
-
Other items
23.6
(21.7)
(62.7)
-
-
Change in net debt
27.0
(13.5)
(72.9)
(32.7)
13.8
(373.7)
(387.3)
(460.2)
(492.9)
(479.0)
Closing net debt
Balance sheet (£m)
203.2
201.2
259.9
274.3
289.8
NAV per share (€c)
498
483
619
654
691
Key metrics
FY10
FY11
FY12
FY13E
FY14E
Sales
nm
44.7
19.6
(2.3)
0.6
EBITDAR
nm
61.5
29.0
(4.6)
1.3
EBITDA
nm
72.9
31.5
(5.2)
1.4
Operating profit
nm
nm
44.9
(10.5)
1.1
EPS
nm
nm
93.7
(25.1)
9.2
DPS
-
-
nm
16.7
14.3
EBITDAR margins
33.2
37.1
40.0
39.0
39.3
EBITDA margins
26.9
32.1
35.3
34.3
34.5
Operating margins
16.4
21.8
26.4
24.1
24.3
-
1.0
2.0
3.0
4.0
183.9
192.5
177.1
179.7
165.3
Net debt/EBITDA (x)
9.9
6.0
5.4
6.1
5.8
Interest cover (x)
1.2
1.5
1.7
1.6
1.7
5.4
5.3
3.4
3.2
Net assets
Growth (%)
Operating ratios (%)
Underlying gearing
coming down
Effective tax rate
Leverage + Returns
RoIC (%)
Gearing (%)
EPS/DPS (x)
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28th May 13
Key considerations
Metropolitan hotels, focused on affordable luxury
PPHE has a focused strategy: developing, owning and managing four star hotels.
It does so under one of two brands: Park Plaza and art’otel. These have very
distinct brand identities. Park Plaza hotels are positioned in the mid to upscale
segment of the hotel market, with appeal to both the business and city breaks
element of the tourist market. The art’otel brand is built on the concept of
individually themed hotels, each focusing on a particular artist. The brand is
aimed at a sophisticated clientele with an interest in art and culture.
The Group’s current portfolio comprises of 38 properties, with over 8,300 rooms
(including 2,830 rooms owned via an associate investment in Arenaturist, a
Croatian hotelier). Food and beverage revenues represent 25% of total (FY12),
driven by both room guests and conferencing.
Hotels are mainly located in gateway cities such as London (28% of total rooms,
>50% of consolidated rooms), Amsterdam (9% of total rooms, 17%
consolidated) and Berlin (8% and 15%).
Flexible ownership model
PPHE contract mix
UK
Netherlands
Germany +
Hungary
Other
Total
Wholly owned
6
5
-
-
11
Partly owned
1
-
-
14
15
Operating lease
-
-
8
-
8
Franchise/Managed
2
-
1
1
4
Operational hotels
9
5
9
15
38
Projects
2
1
1
-
4
11
6
10
15
42
Note: PPHE is in the process of acquiring the freeholds to two of the German hotels.
st
Completion is expected by 31 May.
In terms of hotel ownership PPHE has a flexible approach. Eleven of the 38
operational hotels are wholly owned. Six of these are in the UK, five are in the
Netherlands. Fifteen are partly owned. All but one of these hotels is part of the
Arenaturist associate investment, the other is in London (i.e. Park Plaza
Westminster Bridge). The remainder are a mixture of operating lease, franchise
and managed hotels.

This flexible approach enables the management team to leverage and
enhance the brand. That said, there has been a tendency for PPHE to
increasingly adopt an asset heavy model and the number of hotels under
full ownership has increased in recent years. For example, in March 2012
PPHE acquired the 50% interests it did not already own in three of the Dutch
hotels, purchasing them from its long term JV partner Elbit Imaging.

PPHE is currently in the process of acquiring the freeholds to two of the
German hotels (cost €17.5m). These are currently are operating lease units.
In addition, PPHE is in the process of acquiring Hercules House in London.
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28th May 13
This property will be wholly owned and is currently an office property. PPHE
is reviewing options for the site. Completion for these transactions is
expected to be late May/early June 2013.
Service levels driving strong customer scoring on TripAdviser
The advent of social media is transforming the landscape of every industry.
Within the hotel space TripAdvisor is the largest and most dominant travel site,
with more than 60m traveller reviews (source: travel trade journal).

PPHE scores extremely well on Tripadvisor. The UK hotels have an average
score of 4.3 (out of a maximum of five). Westminster Bridge is currently
scoring 4.4, County Hall 4.4 and Cardiff 4.3. Six out of the eight hotels are
scoring above 4.0. The German and Hungarian hotels have an average score
of 4.1, with five out of the nine hotels scoring 4.0 or above. At 3.8, the
Netherlands has a lowest average score within the core portfolio. That said,
this performance is still a respectable one, with two out of the five hotels
scoring 4.0 or above.
TripAdvisor scoring (selected four star London hotels)
4.4
4.2
4.0
3.8
3.6
3.4
3.2
PPHE (5)
Crowne (5)
Thistle (7)
Radisson (10)
Marriott (5)
Hilton (11)
Millennium (6)
Mercure (5)
Holiday Inn (7)
Best Western (7)
3.0

Consumer scores in isolation are rather meaningless. Instead they need to
be compared to scores by similar hotels. Our analysis shows that PPHE is
outperforming its peers in the four-star London hotel market. PPHE London
hotels scored 4.315 on TripAdvisor. The nearest two brands were Crowne
Plaza (4.291) and Thistle (4.184), which have five and seven central London
hotels respectively. The average TripAdvisor score by the chains of four-star
branded hotels in central London is 3.918. The lowest two scores were by
Best Western (3.473) and Holiday Inn (3.750). Clearly PPHE is doing
something right, which is being reflected in the operational performance of
the group.
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28th May 13
Operational performance
High levels of customer satisfaction in London are being reflected in material
operational outperformance. All of the group’s London hotels, except one,
outperformed their peers during 2012 in terms of RevPAR (source: STR Global,
Dec-12).

In sterling terms the UK average room rate increased from £126.7 in FY11 to
£137.1 in FY12, with occupancy broadly flat, RevPAR increased from £104.0
to £112.0.

Outside of the UK RevPAR is broadly trending with local markets (e.g.
Germany + Hungary RevPAR increased 5.1% in FY12, Netherlands RevAR
reduced 3.9% in FY12).

Operational efficiencies and the benefits of scale are driving EBITDA margins
higher. In FY09 EBITDA margins were 20.2%. Since then they have expanded
each year and had reached 35.3% in FY12.
Carlson relationship
In 2002 the Park Plaza brand was sold to Carlson, the global hotel chain. Later
that year the agreement was extended and PPHE entered into a strategic
marketing and reservations license with Carlson. This provides the group with
access to a large-scale and effective distribution network.

Bookings via the Carlson system account for approximately 40% of group
revenues and approximately 30% of room occupancy. In recent years the
number of members of the Club Carlson system has increased. However, we
suspect that many of these are lower spending individuals/smaller
corporates and so the uplift in membership numbers will have a
proportionally smaller impact on revenues. That said, it cannot be
understated how important the Carlson relationship is to PPHE.
Club Carlson Membership
12.0
45%
40%
10.0
35%
8.0
30%
25%
6.0
20%
4.0
15%
10%
2.0
5%
0.0
0%
FY05
FY06
FY07
FY08
Club Carlson membership
FY09
FY10
FY11
FY12
Revenue contribution (RHS)
Contribution to occupancy (RHS)
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28th May 13
Building the portfolio, enhancing the portfolio
Since coming to the market in 2007, PPHE has systematically expanded the
portfolio. Including the Arenaturist portfolio of Croatian hotels, it has increased
the number of hotels by 14 (net gain) and the number of rooms by over 4,000
(net gain).

Although the size of the new hotels has varied (range: 165 to 1,019), the
company has focused on its two brands (Park Plaza and art’otel). Moreover,
it is firmly committed to the four star “affordable” luxury segment of the
market.

During the period a few franchise and managed hotels have exited the
portfolio (e.g. Park Plaza Astrid, 229 rooms, managed and Park Plaza Belfast,
106 rooms, franchised).
9000
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8000
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7000
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6000
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5000
20
4000
15
3000
10
1000
5
0
0
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2000
Hotels
Rooms

As with any well run hotel chain, PPHE has a rolling programme of hotel
improvements (over and above normal repair and maintenance, which is
typically 2%-4% of revenue). However, the long term focus of management
means that they will consider projects with longer pay back periods.

For example, within the Arenaturist segment of the portfolio (held as an
associate investment), PPHE is re-modelling and re-branding a number of
the hotels. Hotel Palma, which has 127 rooms and is located next to the
Park Plaza Histria Pula, has been temporarily closed for renovation. Upon
completion (expected pre summer 2013) it will be integrated into the
neighbouring closed Park Plaza Histria Pula.
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28th May 13
Pipeline of new projects and renovation of existing sites
Rooms
Location
Progress
Western Avenue
158
London
Two acre site adjucent adjacent to A40, planning
permission received 2012, completion due
2014/2015
art’otel hoxton
352
London
London’s first art’otel, completion due
2014/2015
New projects
Park Plaza
Nuremberg
Hercules House
Fourth Park Plaza branded hotel in Germany,
due for completion 2014.
tbc
London
Apr-13 acquired office block on a 1.09 acre site,
management looking tonto possible options for
the site
Renovation work
Hotel Palma
art’otel budapest
127
Croatia
Hungary
Located next to re-branded Park Plaza Histri,
Hotel Palma will be re-branded and integrated
into its sister hotel. Completion due pre summer
season.
A few floors and public areas
Trading environment: mixed but stable
Difficult trading conditions during the recession meant that earnings fell. EBITDA
margins contracted from 29.2% (FY07, pro forma) to 20.2% (FY09). However, the
management team have traded through the recession, occupancy and RevPAR
have grown and earnings have rebounded.

Given the macro outlook we anticipate occupancy trends and average rates
per room remain broadly flat. That said, with additional room capacity
coming on stream towards the end of 2013 and some more coming through
in 2014 we expect revenues will show positive growth FY14 vs FY12.

During 1Q13 total revenues increased 4.1% to €48.6m. The increase was
principally driven by the increased ownership in three Dutch hotels (where
PPHE bought out its 50% JV partner in March 2012). This represents a 6.3%
uplift to consolidated room numbers. On a like for like basis, revenues
decreased 2.9%, reflecting “a soft trading environment” across a number of
the regions, notably in the Netherlands.

The last IMS update from InterContinental Hotels Group shows a mixed
trading update. During Q1: group RevPAR was up 3.1% driven by +4.1% in
the Americas, negative 2.2% (in part due to the shift in Easter), Asia/Middle
East/Africa +5.5%. In April trends improved: group RevPAR was up 6.2%,
Americas +7.9%, Europe +3.3% and Asia/Middle East/Africa +7.1%.
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28th May 13
Gearing has been a concern but is moving lower
Financial leverage has been a concern for equity investors. However, net debt to
EBITDA has fallen from 9.9x in FY10 to 5.4x in FY12. Given recent deal flow and
the pipeline of projects the ratio is likely to move above 6.0x in FY13 before
falling once more.
Debt maturity profile (€m)
Net debt
Net debt:EBITDA
250
200
150
100
50
>FY20
FY20
FY19
FY18
FY17
FY16
FY15
0
FY14
FY14
FY13
FY12
FY11
FY10
FY09
FY08
30
25
20
15
10
5
0
FY07
600
500
400
300
200
100
0
FY13
Net debt : EBITDA (x)
Debt: maturity profile

Only a small proportion of loan facilities (€48.3m, less than 10% of total) are
maturing before Dec-14. Late in FY15 there are repayments of €178m
(€203m nominal, 37% of total facilities). We expect management will be
looking to re-finance approximately one-third of their total facilities (by
value) next year.

Based on the market values of the hotel portfolio (€878m) we estimate the
loan to value is 58% (gross debt basis), 53% (net debt). The 2015 maturing
facilities have loan to gross debt covenants of sub-68% (see note 17 in the
FY12 report and accounts) and the company is operating within these
facilities.

PPHE is in compliance with all of its banking facilities, other than the debt to
service ratio test for the €21.0m facility borrowed against the Parkvondel.
This loan, which represents only 3.6% of total facilities, was taken out in
2008 and is set to mature in September 2013 (see note 17 in the FY12
report and accounts). The lender has waived this test until maturity.
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28th May 13
Trading on a material discount to NAV
Over the last 12 months the shares have appreciated nearly 50%, reflecting
positive news flow from the London hotels, value enhancing deal flow and
earnings upgrades. That said, the current value looks undemanding on both an
earnings multiple and share price to NAV basis.

We calculate the true asset value of the company to be 877 cents per share
(751 pence), mainly driven by prime freehold properties in central London.
The main assumptions are: hotel estate value of €870m (based on asset
valuations), prospective net debt (including derivative liabilities) of €550m,
carrying value of intangible fixed assets of €38m, carrying value of the
working capital adjustment of €18m. Note that in our calculation we have
assumed that Hercules House is worth £23.5m (i.e. the price paid) but the
since there will be an equal and opposite outflow of cash the net impact on
NAV will be zero. A similar position will exists for the two German properties
which are currently being acquired.

Clearly the shares are trading on a substantial (57%) discount to the true net
asset value of the business.
Net assets (€m)
NAV per share analysis
Hotel valuation
870.1
Number of shares
42
Intangible assets
38.2
877
Investment in associate
21.6
NAV per share (pence)
751
Working capital
(17.9)
Current share price (€ cents)
377
Net debt (FY12)
(505.1)
Current share price (pence)
323
Restricted cash (FY12)
6.6
Cash movement (1H13)
(45.0)
True net asset value
368.4
Discount to true NAV
57%
Management and shareholdings
PPHE has an extremely experienced management team. For example, the
Chairman, CEO and CFO have over 70 years collective hotelier experience
between them.


Park Plaza was formed in 1989 by combining the hotel management
expertise of the PPHE Group, with certain hotel assets of the Red Sea Group
(a privately held Israeli real estate company).
PPHE was founded by CEO Boris Ivesha (owns/controls 18% of PPHE Group
shares). Red Sea was founded by Chairman Eli Papouchado (owns/controls
44% of PPHE Group shares). Therefore, together these individuals control
62% of the shares in PPHE. Whilst this creates a very small free float and
impacts on liquidity it ensures that managements interest are closely
aligned with the other shareholders.
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28th May 13
Background
Strategy
PPHE owns and manages a portfolio of 4* European hotels, with a
metropolitan focus. The hotels can be characterised as offering “affordable
luxury”, mainly situated in prime City locations. The Group has the exclusive
rights to utilise the “Park Plaza” brand in 56 countries in the EMEA region. This
is through a territorial license agreement with Carlson, a leading US hospitality
company. In addition to the brand itself, PPHE’s relation with Carlson allows it
to benefit from Carlson’s global brand infrastructure, reservation system and
sales and marketing platform. The Group also owns the “art’otel” brand (with
certain minor conditions, limitations and exclusions) on a global basis.
Business and operations
PPHE Group
Brand
Park Plaza
art'otel
Typical size:
150-500 rooms
100-200 rooms
Concept:
Fresh, design-led properties
offering a blend of modernity
and comfort
Fusion of travel, architecture
and contemporary art
Target customers:
Busisness and leisure
Discerning traveller, with a
focus on creative and artful
design
Location:
Key European leisure and
business destinations
European leisure and business
destinations
Facilities:
State-of-the-art facilities
throughourt public areas and
in all guest rooms
Excellent conference facilities
"art rageous" service (open and
friendly)
Collection of design and
origonal artwork
Comment:
Service led destinations, with
impecable levels of
dedications, driving superior
levels of consumer satisfaction
Destinations in their own right,
attracting discerning
consumers for the design of the
hotels
Source: Compa ny da ta, Ha rdma n & Co
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28th May 13
A brief history
The current PPHE group was created in 2007 by the combination of the hotel
management and operating interests of PPHE and certain hotel assets of the
Red Sea Group. Collaboration between these two business dates back to 1989,
with the Mandarin Park Plaza in Eindhoven (The Netherlands), which was
acquired by Red sea Group and managed by PPHE.

In 1994, the PPHE Group obtained the rights to use the Park Plaza brand in
the Benelux countries, the UK and Israel from its creator and then owner. In
2000 it entered into a territorial licence agreement to operate the brand in a
further 56 countries and took over the management of a number of hotel in
Germany and Hungary. These were then run (and still are) under an
operating lease arrangement.

Later that year the territorial licence agreement was renegotiated and the
PPHE Group entered into a strategic alliance with Carlson.

Since coming to market has continued to expand the portfolio of hotels. The
most significant hotel project has been the opening of the Park Plaza
Westminster Bridge hotel in September 2010. This 1,019 room hotel (12.2%
of group total) has been well received by guests, who have given the hotel a
TripAdvisor score of 4.41 (out of a maximum of 5.00).

PPHE has also taken a 20% stake in Arenaturist, a Croatian leisure focused
hotel and holiday resort business. This has added 2,830 rooms, eight
campsites and 52 food and beverage outlets to the portfolio.
PPHE portfolio
9000
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Park Plaza Hotels & Resorts
The Park Plaza Hotels & Resorts brand is positioned in the upscale segment of
full-service hotels. The hotels are typically located in the heart of business and
tourist centres, and are easily accessible to central railway stations, airports and
major ring roads. A cornerstone of the Park Plaza & Resorts brand is to offer
high quality standard rooms at attractive rates. These properties usually have
100-400 rooms with state-of-the art facilities and are targeted at both business
and leisure travellers.

The Group’ rights to the Park Plaza Hotels & Resorts brand stem from the
“Territorial Licence Agreement” with Carlson. Under this agreement, the
Group has the exclusive right to use the Park Plaza & Resorts trademark in
56 countries with the EMEA region. The rights granted under the agreement
are in perpetuity (or for the maximum period allowed by the laws of the
relevant jurisdiction).

The agreement also allows the Group to use and to others to sub-license the
Carlson Reservations, marketing, training and advertising system.

Outside these territories Carlson has the right to own/manage hotels under
the Park Plaza brand. Carlson has continued to open new Park Plaza hotel.
For example, in FY12 it opened new hotels in Bangkok and Delhi. This
expansion programme is strengthening the brand and expanding crossmarketing and sales opportunities.
art’otel
The art’otel brand is built on the concept of individually themed hotels, each
focused on contemporary artists. The art’otel brand seeks to appeal to a
sophisticated clientele with an interest in art and culture. As with Park Plaza, the
hotels operate in the four-star price category and aim to provide excellent value
for money with a unique blend of service and design.

The art’otel branded hotels is usually smaller that the Park Plaza Hotels &
Resorts branded hotels with typically 100-200 rooms. They tend to be
located close to main shopping streets or tourist attractions. The art’otel
hotels also benefit from the Carlson Central Reservation System on broadly
similar terms.

The Group owns the art’otel brand worldwide.
13
28th May 13
Ownership models
A flexible approach to ownership
PPHE has a flexible approach to ownership and has entered into a range of
different ownership models. As a consequence, it owns, co-owns, leases,
franchises and manages 38 four-star deluxe and boutique hotels with 8,300
rooms in key gateway cities in Europe and the Middle East. A further four
hotels with 510 rooms are due to open during the next few years.
Flexible ownership model
PPHE contract mix
UK
Netherlands
Germany +
Hungary
Wholly owned
6
5
Partly owned
1
-
Operating lease
-
-
Franchise/Managed
2
-
Operational hotels
9
5
2
1
1
-
4
11
6
10
15
42
Projects
Other
Total
-
-
11
-
14
15
8
-
8
1
1
4
9
15
38
Note: PPHE is in the process of acquiring the freeholds to two of the German hotels.
Completion is expected late May/early June.
Wholly owned and co-owned
PPHE has 11 wholly / owned hotels (2,378 rooms) and has 15 co-owned hotels
(3,849 rooms). With wholly owned hotels management in full control of the
business and receives 100% of the upside of the value being created. However,
this model is capital intensive, which depresses RoIC during the early roll-out
phase of the group.
Co-owned hotels require less capital outlay from PPHE, with the acquisition
jointly financed with the partner. JV partners can also bring skills and expertise
which benefit the performance of the hotel. However, the model requires a high
degree of co-operation with the JV partner. Disagreements over strategy can
result in under investment and impact on operational performance of the hotel.
That said, PPHE has demonstrated very capable of working with its partners to
deliver both new hotel projects and healthy operational performance.
Management services are provided to most of the hotels in the group’s
owned/co-owned portfolio charged on a percentage of room/total revenues
plus an incentive fee typically based on gross operating profit. The precise
percentages will vary between management contracts. A reimbursement fee of
up to 3% of gross operating profit to cover central overheads is also payable.
Where a hotel is wholly owned, the management fee is eliminated in the
group’s consolidated accounts. With co-owned hotels, management fee income
is reported in the Management and Franchise division equal to the group’s
percentage ownership.
In terms of the profit and loss account, PPHE recognises 100% of the revenues
and costs attributable to its wholly owned hotels and only the percentage
ownership share of revenues and costs for co-owned hotels.
14
28th May 13
In terms of the balance sheet, PPHE does not routinely revalue its owned and
co-owned hotels. Consequently, both wholly owned and co-owned hotels are
included in the balance sheet at depreciated cost, with co-owned hotels
included in the balance sheet equal to the group’s percentage ownership. The
balance sheet, therefore, considerably underestimates the true value of the
group’s assets.
Operating Leases
PPHE has 8 hotels run under operating leases (1,273 rooms). With these hotels
PPHE essentially rents the hotel from the owner of the property. At present all
of these hotel types are located within the German-Hungarian division. PPHE is
currently in the process of acquiring the freeholds to two of the German hotels
(cost €17.5m). Completion is expected to be late May / early June 2013.
Whilst this model requires little capital outlay, is does result in a lower
achievable EBITDA margin. Operating lease arrangement typically last between
15-25 years. Monthly rental payments to third party property owners are based
either on a minimum percentage of operating revenues or a minimum
percentage of gross operating profit. PPHE manages all of the hotels in its leased
portfolio and receives a fixed base fee and an incentive fee typically based on
profit. As with the owned/co-owned hotels, these management fees are
eliminated in the group’s consolidated accounts. Hotels operated under
operating leases are not included in the group’s balance sheet.
Managed Hotels
PPHE has one managed hotels (County Hall, 398 rooms). Managed hotels are
classified as hotels owned by third parties but managed by PPHE and operated
under the Park Plaza or art’otel brand.
The managed hotel model enables PPHE to extend the brand (whether Park
Plaza or art’otel) without the cost of acquiring the property. However,
management contracts can be lost to competitors due to price. That said, if the
hotel is being run well, pricing becomes less of an issue.
With managed hotels contract terms vary. In broad terms there will be a fixed
base fee and a variable incentive fee. The hotel owner is responsible for all
operating costs including the funding of expansion/maintenance capex.
Management hotel contracts are terminable on six months’ notice plus payment
of an additional payment equivalent to 12 months fees.
Franchised Hotels
PPHE neither owns, leases nor manages any of its franchised hotels. Instead,
these hotels are both owned and operated by a third party hotel operators who
pay a basic franchise fee (calculated are a percentage of hotel revenues) to
operate under the Park Plaza or art’otel brand in return for a fixed period
licence (typically ten years). On entering a franchise agreement, PPHE will also
typically receive a one-off fee. This is calculated on a per room basis (starting
from US$100 in MENA and up to €200 in Europe). Three of the Group’s hotels
are subject to franchise arrangements.
15
28th May 13
Business Models
Full
ownership
Joint
ventures
Management
contracts
Operating
Leases
Franchise
arrangements
PPHE fully owns
and manages the
hotel. Enables
management to be
in full cotrol of the
operational
performance of the
hotel.
PPHE jointly owns
the hotel with
external investors.
In these instances,
PPHE acts as
manager of the
hotel.
The hotel is owned
by third parties
but managed by
PPHE and operated
under the Park
Plaza or art’otel
brand.
PPHE essentially
rents the hotel
from the owner of
the property.
PPHE neither owns,
leases nor
manages any of its
franchised hotels.
These hotels are
both owned and
operated by a third
party hotel
operators.
Will typically be
able to leverage
ownership.
Historic debt
facilities have
been for 68%-75%
of loan to value.
PPHE receives a
basic fee (typically
2% of room
revenues); a
further fee of gross
operating profit
(up to 7%) and a
reimbursement fee
(up to 3%) to cover
centrla admin
costs.
PPHE receives a
basic fee (typically
2% of room
revenues); a
further fee of gross
operating profit
(up to 7%) and a
reimbursement fee
(up to 3%) to cover
centrla admin
costs.
PPH manages all
of the hotels in its
leased portfolio
and receives a
basic fee of up to
3% and an
incentive fee of up
to 10% of profit.
These are
eliminated on
consolidation.
The hotel operator
pays a basic
franchise
(typically 3.5% of
hotel revenues) to
operate under the
Park Plaza or
art’otel brand.
Contracts typically
= 10 year fixed
licence.
Benefits to PPHE:
Management in
full control of the
business and
receives 100% of
the upside of the
value being
created.
Benefits to PPHE:
Jointly finance the
acquisition of the
hotel. JV partners
can also bring
skills and
expertise which
benefit the
performance of the
hotel.
Benefits to PPHE:
Able to extend the
brand, without the
cost of acquiring
the property.
Benefits to PPHE:
Very little capital
outlay.
Benefits to PPHE:
Leverages the
brand.
Disadvantage to
PPHE: Capital
intensive, which
depresses RoIC
during the early
roll-out phase of
the group.
Disadvantage to
PPHE: Requires a
high degree of cooperation with the
JV partner.
Disagreements
over strategy can
result in under
investment and
impact on
operational
performance of the
hotel.
Disadvantage to
PPHE:
Management
contracts can be
lost to
competitors. That
said, if the hotel is
being run well,
pricing becomes
less of an issue.
Disadvantage to
PPHE: Rental costs
reduces EBITDA
margins.
Disadvantage to
PPHE: Lack of
control.
16
28th May 13
Sales and marketing
Multiple sales channels
PPHE utilises a number of sales channels to drive occupancy. Firstly, its
relationship with Carlson provides it with access to Carlson’s large-scale and
effective reservation and distribution system. This provides both global reach
and access to lucrative major corporate accounts. PPHE also sells through tour
operators (for both business and tourist guests). It also has increasingly
developed its in-house marketing team, which utilises many routes to market
including the internet.
Club Carlson
In a global market where major corporates are consolidating their supplier
relationships, being part of a global marketing and reservation network is
crucial. Participation ensures that the Group’s hotels remain within the
corporate travel programmes and improves the Group’s positioning with global
travel consortia.
Since 2007 the Group has participated in Carlson’s guest loyalty programme,
which has a marketing database of over 10m customers worldwide. The Carlson
network has a cross-selling strategy at all customer touch points for the
different brands within the Carlson family. This include reservation call centres,
global distribution system point of sale, the brand websites managed by Carlson,
the network of on-property sales staff and Carlson’s own global sales force.
One third of all hotel room bookings worldwide currently take place through
corporate booking systems. Intercontinental Hotels (IHG.L) estimates that this
will rise to 50%. Therefore, being a member of a group loyalty scheme run by
one of the multinational hotel brands is critical to a hotel.
12.0
45%
40%
10.0
35%
8.0
30%
25%
6.0
20%
4.0
15%
10%
2.0
5%
0.0
0%
FY05
FY06
FY07
FY08
Club Carlson membership
FY09
FY10
FY11
FY12
Revenue contribution (RHS)
Contribution to occupancy (RHS)
The steady growth in the importance of these schemes explains why the hotels
with access to one of these booking engines are consistently able to operate
with higher occupancy levels than the independents which rely on their own
17
28th May 13
means of marketing. Hotels that are members of central booking systems may
take between 60% and 80% of their booking through their group reservation
systems.

Cost effective marketing: The loyalty schemes are the cheapest and most
effective method of marketing available. The fees paid to the brand owner
will be more than compensated for by the extra letting, and food and
beverage income.

Greater access to corporate accounts: Booking systems also extend access
to significant corporate accounts. The brand operators will each year
negotiate with corporate customers, offering rate reductions and other
deals in exchange for becoming a preferred supplier. Whilst these deals will
usually non-exclusive, they provide access to clients, whom otherwise would
be taking their business elsewhere.

Bankability: A hotel developer or franchisee will gain considerable security
and bankability by joining a corporate booking network.

Minimum standards required: The hotel operator will need to maintain
certain standards in order to be able to use the brand, but a professional
operator would be expect to do this anyway.
Internet bookings
All hotel operators use sites such as lateroom.com, Expedia and lastminute.com
to fill rooms. Whilst these provide fast and effective sales generation and allow
easy and rapid comparison of room rates between hotels, they cause a drift
among those important corporate users away from loyalty schemes.

Room rates and discounts offered have always changed during the course of
the day. These decisions used to be exclusively the preserve of the hotel
manager. Now, these decisions have largely been taken out of the hands of
the hotel managers and place in centralised departments which have the
computer power and manpower to continually monitor competitor rates on
line and the flow of traffic through the outside booking systems. This further
advantages the individual operator.
In house sales and marketing
In addition to the Group’s access to the Carlson reservation staff, the Group has
an experienced in-house sales and marketing team with over 50 employees.
Each member of the team focuses on particular areas of the Group’s business or
target customer group and team members receive regular training to improve
their selling skills.

The in house team has been responsible for driving social media
recognition. The group mow has a social media “fan base” of over 100,000
members, which is helping drive incremental occupancy.
18
28th May 13
Sources of revenues
More than just beds
Whilst room revenue represents 69% of total revenues (FY12), other sources
of income are hugely important to the group. Indeed certain sources of
revenues have a cross-sell effect. For example, food and beverage activities
(24.9% of FY12 total), includes a conference, events and banqueting activities,
with events guests often choosing to stay in the hotel the day/night of the
event.
Sources of revenue (FY12)
Rooms
Food &
beverage
Other
Room Revenue
The Group’s customer base is a mixture of business and leisure customers.
Although business customers tend to pay higher room rates than leisure
customers, management seeks to retain a balance between the two. Leisure
customers tend to occupy rooms at times when business customers do not (e.g.
at weekends and on public holidays), thereby maximising occupancy rates and
revenues.

The Group seeks to negotiate preferential rates with major corporate
customers and currently has a number of such arrangements in place with
major multinational companies. PPHE has in place arrangements with a
number of tour operators. Although room rates under such arrangements
tend to be lower than for other customers, these arrangements provide a
cornerstone for occupancy rates.
Food and beverage
The conference facilities offered by the Group’s hotels produce substantial
revenue (24.9% FY12). Over the last few years, conferencing and banqueting
facilities have been materially extended. For example, Park Plaza Westminster
Bridge has a 1,200m sq ballroom. To put this into context: The Great Room at
the Grosvenor = 1,779m sq; the Ballroom at the Hilton = 1,062m sq; and The
Ballroom at the InterContinental Park Lane 840m sq.
If conference and banqueting facilities at Park Plaza Westminster Bridge London
are at full capacity, the Group can host additional guests at the nearby Park
Plaza County Hall London and the Park Plaza Riverbank London (including Plaza
on the River) thereby maximising from large events.
19
28th May 13
Customer satisfaction
Happy customers = building the brand, driving repeat
business
The advent of social media and consumer opinion sites is transforming the
landscape of every industry. Within the hotel space TripAdvisor is the largest
and most dominant travel site, with more than 60m traveller reviews (source:
travel trade journal).

Given the scale of TripAdvisor we consider its review system to be as
important as Google and the Carlson marketing relationship. It also serves
as an objective (and independent) yardstick by which to judge the level of
customer satisfaction.

In some ways these sites threaten the power of brands, since the reviews
cannot be directly influenced by the brand owners/managers. However, as
long as a brand is effectively run, the reviews can serve as an important
promotional tool, enabling consumers to make informed purchasing
decisions and supporting the brand manager.
Therefore, TripAdvisor can provide an positive feedback loop for hotel
owners driving incremental business across the portfolio.
TripAdvisor® score (by geography)
4.4
4.2
4.0
3.8
3.6
3.4
3.2
Croatia
(rebranded)
UK +
Ireland
Germany +
Hungary
The
Netherlands
Croatia
(all hotels)
3.0

PPHE scores extremely well on Tripadvisor. The UK hotels have an average
score of 4.3 (out of a maximum of five). Westminster Bridge is currently
scoring 4.4, County Hall 4.4 and Cardiff 4.3. Six out of the eight hotels are
scoring above 4.0. The German and Hungarian hotels have an average score
of 4.1, with five out of the nine hotels scoring 4.0 or above. At 3.8, the
Netherlands has a lowest average score within the core portfolio. That said,
this performance is still a respectable one, with two out of the five hotels
scoring 4.0 or above.

Within the portfolio, Croatia has the lowest average score at 3.3. However,
the rebranded hotels (Park Plaza Histria Pula and Park Plaza Medulin) have
20
28th May 13
an average TripAdvisor score of 4.3. This is comparable to the flagship hotels
in London.
Putting the scores into context
Consumer scores in isolation are rather meaningless. Instead they need to be
compared to scores by similar hotels. Therefore, in order to provide some
market context for the TripAdvisor scores, we analysed the scores being
generated by PPHE’s competition within the London market.

We created a universe of 69 four star hotels. Each of these trades under
well-known brands and form part of a wider portfolio of hotel assets. As at
the time of analysis (4th May) TripAdvisor had received 61,528 reviews on
the selected universe of stocks, with an even distribution of scores across all
of the hotels analysed. Therefore, we consider the analysis to be statistically
significant.
TripAdvisor scoring (selected four star London hotels)
4.4
4.2
4.0
3.8
3.6
3.4
3.2
PPHE (7)
Crowne (5)
Thistle (7)
Radisson (10)
Marriott (5)
Hilton (11)
Millennium (6)
Mercure (5)
Holiday Inn (7)
Best Western (7)
3.0

The analysis shows that PPHE is outperforming its peers in the four star
London hotel market. TripAdvisor shows the nearest two brands were
Crowne Plaza and Thistle, which have five and seven central London hotels
respectively.

In terms of scoring PPHE’s London hotels have a score of 4.291, Crowne has
4.184 and Thistle 3.985. The average four star branded hotel portfolio has a
TripAdviser score of 3.918. The lowest two scores were by Best Western
(3.473) and Holiday Inn (3.750). Clearly PPHE is doing something right, which
is being reflected in the operational performance of the Group.
21
28th May 13
Valuation
Valuation considerations
Over the last 12 months the shares have appreciated nearly 50%, reflecting
positive news flow from the London hotels, value enhancing deal flow and
earnings upgrades. That said, the current value looks undemanding on both an
earnings multiple and share price to NAV basis.
Implied fair value
Implied
value
Methodoly
Implied
upside
Comments
Net Asset Value
751p
UK quoted hotel
chains (PER basis)
726p
Stocks considered: InterContinental, Millenium
& Copthorne (PER = 17.9x CY13)
Int’l quoted hotel
chains (EV basis)
614p
Stocks considered: Accor, Marriot, Sol Melia,
Starwood + Wyndham (EV/EBITDA = 9.8x CY13)
Implied fair value
697p
116%
Note: PER basis for UK hotel comparison = cheapest valuation, EV/EBITDA much more expensive
EV/EBITDA basis for international hotel comparison = cheapest valuation
Trading on a ~60% discount to NAV
We calculate the true asset value of the company to be 877 cents per share (751
pence), mainly driven by prime freehold properties in central London. The main
assumptions are: hotel estate value of €870m (based on asset valuations);
prospective net debt (including derivative liabilities) of €505m; carrying value of
intangible fixed assets of €38m; carrying value of the working capital adjustment
of €18m.

Clearly the shares are trading on a substantial (57%) discount to the true net
asset value of the business. For a detailed discussion on our NAV calculation
please see below.
Net assets (€m)
NAV per share analysis
Hotel valuation
870.1
Number of shares
42
Intangible assets
38.2
877
21.6
NAV per share (pence)
751
Working capital
(17.9)
Current share price (€ cents)
377
Net debt (FY12)
(505.1)
Current share price (pence)
323
Restricted cash (FY12)
6.6
(45.0)
True net asset value
374.4
Discount to true NAV
57%
Selected quoted hotel companies
22
28th May 13
Calendarised
Year
end
Sales
(m)
Dec-11
Dec-12
Dec-13E
Dec-14E
Ticker
ACCP.PA Dec-11
Price (€)
27.30 Dec-12
Mkt cap (€m)
6,210 Dec-13E
EV (€m)
6,531 Dec-14E
EV/
EV/
Sales EBITDA
(x)
(x)
Net
Divi
debt/
yield EBITDA
(%)
(x)
EBITDA
(m)
PBT
(m)
EPS
DPS
Net cash
(m)
Cal. Year
PER
(x)
202.4
242.1
236.6
238.1
65.1
85.6
81.1
82.2
13.6
26.6
19.9
21.7
32.7
63.3
47.4
51.7
6.0
12.0
14.0
16.0
(387)
(460)
(493)
(479)
CY11
CY12
CY13
CY14
11.5
6.0
8.0
7.3
2.7
2.6
2.8
2.7
8.4
7.2
8.0
7.8
1.6
3.2
3.7
4.2
5.9
5.4
6.1
5.8
5,568
5,649
5,467
5,323
767
794
950
1,016
515
526
682
748
437
239
395
461
1.5
0.8
1.4
1.6
(226)
(421)
(321)
(221)
CY11
CY12
CY13
CY14
17.8
32.5
19.6
16.9
1.2
1.2
1.2
1.2
8.4
8.4
6.9
6.3
2.4
2.8
3.7
4.3
0.3
0.5
0.3
0.2
Dec-11
Dec-12
Dec-13E
Dec-14E
3,698
3,949
4,166
4,482
458
512
601
661
96
89
178
238
0.42
0.39
0.77
1.03
(831)
(954)
(954)
(954)
CY11
CY12
CY13
CY14
100.1
108.0
54.1
40.4
2.0
1.9
1.8
1.7
16.5
15.0
12.8
11.6
Dec-11
Dec-12
Dec-13E
Dec-14E
1,768
1,835
1,901
1,976
658
708
789
851
497
560
624
673
127
139
155
167
55
64
71
77
(538)
(1,074)
(924)
(774)
CY11
CY12
CY13
CY14
22.9
21.0
18.9
17.5
7.2
7.3
6.9
6.6
19.4
18.8
16.7
15.3
1.9
2.2
2.4
2.6
0.8
1.5
1.2
0.9
Dec-11
Dec-12
Dec-13E
Dec-14E
12,317
11,814
12,730
13,628
992
1,146
1,304
1,477
356
849
1,007
1,180
55
172
204
239
39
49
58
68
(2,069)
(2,847)
(2,647)
(2,447)
CY10
CY11
CY12
CY13
36.0
79.3
25.4
21.4
1.3
1.4
1.3
1.2
15.6
14.2
12.3
10.7
0.9
1.1
1.3
1.6
2.1
2.5
2.0
1.7
Dec-11
Dec-12
Dec-13E
Dec-14E
821
768
800
859
235
198
164
178
182
158
124
137
51.0
42.0
33.0
36.6
13
14
14
15
(100)
52
75
100
CY11
CY12
CY13
CY14
11.0
13.3
17.0
15.3
2.3
2.3
2.2
2.0
8.2
9.0
10.7
9.7
2.2
2.4
2.5
2.6
0.4
nm
nm
nm
Ticker
MEL.MC Dec-11
Price (c)
5.67 Dec-12
Mkt cap (€m)
1,048 Dec-13E
EV (€m)
1,998 Dec-14E
1,335
1,362
1,371
1,449
246
250
241
276
51.1
59.0
50.2
85.6
0.23
0.20
0.17
0.29
(1,003)
(985)
(950)
(925)
CY11
CY12
CY13
CY14
24.7
28.4
33.4
19.6
1.5
1.5
1.5
1.4
8.3
8.1
8.3
7.1
PPHE
Ticker
PPHE.L
Price (p)
323.00
Mkt cap (£m)
136
EV (£m)
629
Accor
Hyatt
Ticker
Price ($)
Mkt cap ($m)
EV ($m)
H.N
42
6,726
7,680
1.8
1.9
1.6
1.4
Inter- continental
Ticker
Price (p)
Mkt cap (£m)
EV ($m)
IHG
1,945
8,150
13,171
Marriott
Ticker
MAR.N
Price ($)
43.62
Mkt cap ($m) 13,397
EV (4m)
16,044
M&C
Ticker
Price (p)
Mkt cap (£m)
EV (£m)
MLC.L
560
1,826
1,751
Sol Melia
4.1
3.9
3.9
3.4
Starwood
Ticker
Price ($)
Mkt cap ($m)
EV ($m)
HOT.N
69.22
13,467
14,556
Dec-11
Dec-12
Dec-13E
Dec-14E
5,624
6,321
6,135
6,258
895
1,163
1,274
1,308
425
618
729
763
257
239
282
295
50
125
147
154
(2,041)
(1,339)
(1,089)
(839)
CY11
CY12
CY13
CY14
26.9
29.0
24.5
23.5
2.8
2.3
2.4
2.3
17.3
12.7
11.4
10.9
0.7
1.8
2.1
2.2
WYN.N
63
8,594
12,861
Dec-11
Dec-12
Dec-13E
Dec-14E
4,254
4,534
4,956
5,253
945
1,037
1,256
1,364
650
628
847
955
251
275
371
418
60
92
124
140
(3,873)
(4,367)
(4,267)
(4,167)
CY10
CY11
CY12
CY13
25.2
23.0
17.0
15.1
2.9
2.9
2.6
2.4
13.2
12.5
10.2
9.4
0.9
1.5
2.0
2.2
Wyndham
Ticker
Price ($)
Mkt cap ($m)
EV ($m)
4.1
4.2
3.4
3.1
Source: Various sources, Hardman & Co
23
28th May 13
Quoted hotel valuations
PPHE is trading on a CY13 PER of 8.0x (falling to 7.3x CY14). This compares with
26.2x for CY13 and 21.2x for CY14 for its international peers (simple average).
Excluding Hyatt (which trading on 54.1x CY13 and 40.4x CY14), the peer group is
trading on 22.3x and 18.5x (again, simple average). Whichever way you look at
it, PPHE is trading on a material discount to the peer group. This partly reflects
scale and partly financial leverage. However, given the focused strategy of the
group and the positive news flow coming through there is scope for the
discount to narrow.

The two larger UK quoted hotel chains (InterContinental and Millennium &
Copthorne) are trading on prospective PERs of 18.9x (CY13) and 17.0x
(CY13) respectively. Simple average = 17.9x (CY13) and 16.4x (CY14). The
internationally quoted hotel chains (excluding Hyatt) are trading on
prospective PERs of 24.0x (CY13) and 19.3x (CY14), again simple average.
PER (prospective CY13)
35
30
25
20
15
10
5
Hyatt
Sol Melia
Marriott
Starwood
Accor
IHG
Wyndham
M&C
PPHE
0
Source: Various (based on consensus estimates), Hardman & Co

In terms of EV/EBITDA PPHE also appears good value. The peer group is
trading on 11.2x (CY13) and 10.1x (CY14). PPHE is trading on 8.0x (CY13) and
7.8x (CY14).
EV/EBITDA (prospective CY13)
20
15
10
5
IHG
Hyatt
M&C
Marriott
Starwood
Wyndham
Sol Melia
PPHE
Accor
0
Source: Various (based on consensus estimates), Hardman & Co
24
28th May 13
The Mint Hotels Comparison
In July 2011, Blackstone acquired Mint Hotels for £575m. The deal valued the
portfolio at £207,000 per room.

Mint Hotels is a chain of four star hotels (2,783 rooms), with a reasonable
comparison to Park Plaza Hotels. Mint hotels, which have now been rebranded DoubleTree, owns eight freehold hotels. Two of these (37% of
rooms) are located in London: one near the Tower of London and one in
Westminster. Most of the hotels in the portfolio are relatively new build.
One of the hotels is in Amsterdam and is located almost directly opposite
one the of the key Park Plaza properties. The remaining five hotels are in
British provincial City locations (including Leeds).
Mint Hotels had over-extended itself and its disposal by Lloyds Bank had
elements of a forced sale. Prior to this deal, there had been few transaction
in this segment of the marketplace. As a consequence the valuing agents
Colliers and Savills appeared to rely quite extensively on DCF methodology
in their valuations.

Of course this makes no allowance for the revenue flow from the investor
rooms at Westminster Bridge, the managed and franchised hotels (which
are valuable and very profitable).
InterContinental Park Lane
InterContinental has just sold (May-13) its flagship Park Lane hotel for £302m
(gross), £287m (net). The hotel was acquired by Constellation Hotel, a Middle
East private investment firm. IHG will continue to manage the hotel. Direct
comparisons with PPHE’s Central London hotels need to be made with caution,
especially since the average room rate for the Park Lane is considerably higher
than for the PPHE hotels. That said, the transaction highlights there is interest in
city centre hotels at full valuations.


Key metrics: 447 rooms, historic revenue £57m ($89m), EBITDA £25m
($39m), EBIT £21m ($33m).
Valuation metrics: EV per room £642k ($998k), EV/Sales 5.0x,
EV/EBITDA 11.4x.
25
28th May 13
Calculating the true NAV
Since PPHE does not regularly re-value the assets it owns, the carrying value
of the assets on the balance sheet fail to reflect their marketable value. The
FY12 balance sheet = NAV per share of 619p (731 cents). We estimate the true
NAV per share to be more like 751p (877 cents). In order to estimate the true
NAV per share we have undertaken a bottom up exercise looking at the assets
and cash liabilities of the business.
True Net Asset Value (€m)
Hotel valuations
870.1
Intangible assets
38.2
21.6
Working capital (broadly defined)
(17.9)
Net debt (FY12)
(505.1)
Restricted cash
6.6
(45.0)
True NAV
368.4
See table below
See table below
Including derivative instruments and
loans from third parties
Some relates to Aprt-Hotel deposits,
some cash put into escrow re banking
Hardman forecast

When the company moved from AIM to the Main List, the company
appointed Colliers and Savills to undertake an assessment of the hotel
portfolio. Colliers undertook the majority of the assessments, with Savills
being appointed to value Park Plaza Westminster Bridge.

Comparative valuations are fully supportive of a high valuation for the
central London hotels. Mid-market hotel per room valuations are falling
within the range £200,000 to £500,000 range. Though admittedly the
number of completed transactions is relatively low.
26
28th May 13
Hotel valuations (€m)
Hotel / property
Value
Comments
United Kingdom Properties
Sherlock Holmes Park Plaza
19.7
Victoria Park Plaza, London
121.0
Riverbank Park Plaza
170.4
art'otel Hoxton (50% owned)
17.5
Park Plaza Leeds
19.7
Park Plaza Nottingham
17.5
Park Plaza 1 Westminster Bridge
216.2
Excludes value of sold units
-
Property sold & leased back
Western Avenue
Hercules House
Includes small retail portfolio, value €2m
27.5
See note to the table
European Properties
Mandarin Park Plaza, Eindhoven
16.3
Utrecht Park Plaza
22.5
Vondel Park Plaza, Amsterdam
26.8
Victoria Park Plaza, Amsterdam
100.0
art'otel Amsterdam (vacant)
19.3
Park Plaza Amsterdam Airport
34.4
Park Plaza Nuremberg (site)
6.3
art'otel berlin mitte
17.5
art'otel berlin kudamm
FV adjustment to European hotels
17.6
Total
See Note 3 FY12 report and accounts
870.1
Note: Hercules House transaction expected to complete May/June 2013.
We have adjusted the net debt figure, so the net impact to NAV is zero.
Source: Colliers, Savills, Company data, Hardman & Co
Working capital items (broadly defined)
Inventories under construction
16.4
Other non-current financial assets
1.5
Inventories
1.3
Trade receivables
Other receivables and pre payments
Exludes loans from third parties
19.8
5.9
Trade payables
(10.9)
Other payables
(54.2)
Add back: Other loans from third parties
9.6
Add back: Derivative instruments
6.4
Deferred consideration
(3.8)
See note 19 FY12 accounts
Other
(9.7)
See note 19 FY12 accounts
Total
(17.9)
27
28th May 13
Valuation charts
EV/Sales (12 month prospective)
6.0
5.0
4.0
3.0
2.0
1.0
Apr-13
Dec-12
Apr-12
Aug-12
Dec-11
Apr-11
Aug-11
Dec-10
Apr-10
Aug-10
Dec-09
Apr-09
Aug-09
Dec-08
Apr-08
Aug-08
Dec-07
Aug-07
0.0
 Since coming to the market, the EV/Sales
multiples has been de-rated. This initially
reflected concerns how the recession would
impact earnings. Admittedly, EBIT margins did
contract (7.4% in FY09 vs 19.6% in FY07).
However, margins now exceed pre-recession
levels (26.4% in FY12) and we expect the
EV/Sales multiple has scope to move higher
once more.
EV/EBITDA (12 month prospective)
30.0
 Over the last 12 months the share price has
jumped >40%, reflecting positive news flow from
the London hotels, value enhancing deal flow and
earnings upgrades.
 That said, the EV/EBITDA multiple has remained
within a relatively tight trading range (7x-8x).
25.0
20.0
15.0
10.0
5.0
Apr-13
Dec-12
Aug-12
Apr-12
Dec-11
Aug-11
Apr-11
Dec-10
Aug-10
Apr-10
Dec-09
Apr-09
Aug-09
Dec-08
Aug-08
Apr-08
Dec-07
Aug-07
0.0
PER (12 month prospective)

12.0
10.0
8.0

6.0
4.0
Whilst the EV/EBITDA multiple has been range
bound, the 12 month perspective multiple has
begun to move higher.
However, the multiple has merely moved from
4.0x to 7.6x. This compares with 19x (FY13) for
InterContinental Hotels Group.
2.0
Apr-13
Dec-12
Aug-12
Apr-12
Dec-11
Apr-11
Aug-11
Dec-10
Aug-10
Apr-10
Dec-09
Apr-09
Aug-09
Dec-08
Aug-08
Apr-08
Dec-07
Aug-07
0.0
28
28th May 13
United Kingdom
London Calling
Six of the nine UK hotels are located in London, representing 73% of UK
rooms. The units performed well in FY12 benefiting from the Olympics and all
but one out-performed its direct competition during the period (source: STR
Global). Whilst the trading environment in 2013 is likely to be subdued and
reported revenues depressed by the falling value of sterling (relative to the
Euro), high levels of customer satisfaction is likely to help revPAR. Our analysis
shows that PPHE has the highest TripAdvisor scores in the London four-star
branded hotel market.
United Kingdom hotel portfolio
Number of rooms
Tripadvisor Score
Plaza on the River – London
part of Riverbank
4.69
Park Plaza Victoria London
299
4.19
Park Plaza Leeds
185
4.16
Park Plaza Riverbank London
460
4.09
Park Plaza Sherlock Holmes London
119
3.93
Park Plaza Nottingham
178
3.58
1,019
4.41
398
4.41
129
4.33
Total UK portfolio
2,789
4.28
London portfolio
2,295
4.32
Wholly owned hotels
Part owned hotel
Park Plaza Westminster Bridge London
(535 rooms sold to external investors)
Managed hotel
Park Plaza Country Hall London
Franchised hotel
Park Plaza Cardiff
Total number of rooms/average score
London centric portfolio of hotels
There are nine hotels in the UK portfolio (2,789 rooms), six trophy hotels in
London (2,295 rooms) and three provincial hotels in Cardiff, Nottingham and
Leeds (494 rooms). In terms of ownership PPHE wholly owns six of the hotels.
Westminster Bridge, the largest purpose built hotel in the UK with 1,019, is
partly owned. PPHE sold 535 rooms to external investors during the preconstruction and construction phase of the development. Following the
successful opening of Westminster Bridge, PPHE gained the management
contract of County Hall. Finally, PPHE has a single franchise hotel, which is
located in Cardiff.
29
28th May 13
TripAdvisor scores
The UK hotels in the portfolio have a TripAdvisor score of 4.32 (out of a possible
5.00). Within the estate of nine hotels, Plaza on the River had the highest score
registering 4.69. Park Plaza Westminster Bridge and Park Plaza both scored 4.41.
Only two hotels scored below 4.00 (Park Plaza Sherlock Holmes 3.93 and Park
Plaza Nottingham 3.58).

Across the portfolio of UK hotels 84% of votes were either very good or
excellent.
TripAdvisor scores: branded four star Central London hotels
4.4
4.2
4.0
3.8
3.6
3.4
3.2
PPHE (7)
Crowne (5)
Thistle (7)
Radisson (10)
Marriott (5)
Hilton (11)
Millennium (6)
Mercure (5)
Holiday Inn (7)
Best Western (7)
3.0

We created a universe of 69 four star hotels. Each of these trades under
well-known brands and form part of a wider portfolio of hotel assets. As at
the time of analysis (4th May) TripAdvisor had received 61,528 reviews on
the selected universe of stocks, with an even distribution of scores across all
of the hotels analysed. Therefore, we consider the analysis to be statistically
significant.

The analysis shows that PPHE is outperforming its peers in the four star
London hotel market. TripAdvisor shows the nearest two brands were
Crowne Plaza and Thistle, which have five and seven central London hotels
respectively.

In terms of scoring PPHE’s London hotels have a score of 4.291, Crowne has
4.184 and Thistle 3.985. The average is 3.918. The lowest two scores were
by Best Western (3.473) and Holiday Inn (3.750). Clearly PPHE is doing
something right, which is being reflected in the operational performance of
the Group.
30
28th May 13
Recent/Current trading
United Kingdom: key metrics
Occupancy
Average Room Rate
RevPAR
Total Revenue
EBITDAR
EBITDA
FY09
81.8%
129.2
109.6
29.0
11.4
FY10
81.8%
137.9
112.8
81.6
25.6
24.5
FY11
82.1%
145.6
119.5
140.0
48.9
47.5
FY12
81.7%
169.2
138.2
161.1
60.7
59.5
FY13E
81.7%
159.0
129.9
151.4
57.0
55.8
FY14E
81.7%
159.0
129.9
151.4
57.1
55.9
FY12, a record year: Over the last few years, occupancy rates within the UK
portfolio have been relatively stable and have been out-performing the wider
marketplace. Between FY10 and FY13 occupancy rates have averaged 81.9%.
This compares with 72.5% for the wider UK hotel market. PPHE has driven
RevPAR higher, increasing the sterling value from £96.5 in FY10 to £112.0 in
FY12. Part of this increase will have been driven by opening by the opening of
the Westminster Bridge hotel. The average room rate has similarly increased
from £96.5 in FY10 to £137.1 in FY12. During FY12 Park Plaza increased
occupancy by 2.8%, average room rate by 25.0% and RevPAR by 28.5%.
With RevPAR increasing 7.7% (CFX) in FY12, total revenues increased 7.2% to
£130.5m. EBITDA margins increased from 33.9% (FY11) to 36.9% (FY12) and
EBITDA increased from €47.5m (£41.3m) to €59.5m (£48.2m).
Current trading: During 1Q13 total revenues increased 4.1% to €48.6m. The
increase was principally driven by the increased ownership in three Dutch hotels
(where PPHE bought out its 50% JV partner in March 2012). This represents a
8.3% uplift to room numbers. On a like for like basis, revenues decreased 2.9%,
reflecting “a soft trading environment” across a number of the regions, notably
in the Netherlands.
Given the current macro environment we are not surprised revenue trends are
weak and in the coming quarters we are looking for a flat performance (no
change from before). Crucially, the company is actively managing room yields.
Whilst competition is pushing average room rates lower (€114.1 during 1Q13 vs
€122.4 during 1Q12), occupancy rates have moved higher (70.5% vs 68.0%). The
net result has been a 3.2% contraction in RevPAR (€80.4 vs €83.2).
Renovation works and new projects
Leeds and Nottingham renovation: Over the last few years Park Plaza Leeds and
Park Plaza Nottingham have enjoyed extensive renovation work, with rooms
and public areas being improved. Whilst these investments are expected to
deliver improved financial performance, softness in the provincial hotel market
is holding back the growth.
art’otel hoxton: In February 2010 PPHE received planning permission to build
the UK first art’otel, to be located in Hoxton (Hackney London). The hotel will
have 352 state-of-the-art guest rooms. Public areas will include a top-floor
restaurant and bar, spa facilities, an arts centre and artist/photographic studios.
The hotel is scheduled to open during 2H14.
Western Avenue: On 18th June 2012 PPHE acquired and simultaneously
completed a sale-and-leaseback of a two acre development site in West London.
31
28th May 13
Planning permission for a 158 room hotel was granted in 2012. In addition,
there will be a lounge and bar, several meeting rooms and spa facilities. Again,
the hotel is scheduled to open during 2H14.
Hercules House: On 25th May 2013 PPHE announced it was acquiring Hercules
House, a prime site near Waterloo station in Central London (£23.5m cash). The
office building on the 1.09 acre site has nine floors plus a basement. It is
currently occupied by Department of Communities and Local Government but is
scheduled to vacate the property by the 28th September 2013. The company is
considering a number of possible uses for the property, including the possibility
of a new hotel being developed on all or part the site. This must be the
preferred option but it will take time. Completion is expected late May/early
June.
UK hotel market
In 2012 the wider UK hotel market delivered revPAR growth of 1.4% to £58.33.
This was driven by a 1.5% decrease in occupancy to 72.5% and a 2.9% increase
in average room rate (source: STR Global, Dec-12).
The London market was particularly strong, enjoying its third consecutive year
of growth. London RevPAR increased 3.4% to £112.39, driven by a 3.7% increase
in average room rates to £138.50. Occupancy was flat.
A dip in the summer of 2013 can be expected, because the London hotel market
will be without the Olympics or any comparable draw. That said, the Central
London hotel market has remained particularly since the Olympics and trading
could well surprise on the upside.
In terms of new build, the UK is currently fourth country in the European league
table. That said, the level of new build activity, relative to existing supply is small
and not much of this new capacity is being added in the Centre. Competing
Central London hotel projects, within the afford luxury segment of the market
include: the Westminster Intercontinental and the 202 room Shangri-La in
Shard. Much of the UK capacity expansion is coming at the no-service and
limited service end of the market (e.g. Premier Inns). That said, there a number
of projects on the London periphery (such as Docklands, which has 17 new hotel
projects notified to the planning authorities). There are approximately 1,000
hotels in London, so absorbing new capacity is not a major issue.
32
28th May 13
The Netherlands
Tulips from Amsterdam
PPHE wholly owns five Dutch hotels all trading under the Park Plaza brand. On
a like for like basis total revenues declined 1.3% in FY12. However, reported
revenues jumped 52.5%, driven by the increased ownership of three hotels.
Soft trading has continued into the current financial year, which negative
revenue like for likes.
The Dutch hotel portfolio
Number of rooms
Tripadvisor Score
Park Plaza Mandarin Eindhoven
102
4.09
Park Plaza Victoria Amsterdam
306
3.97
Park Plaza Utrecht
120
3.69
Park Plaza Amsterdam Airport
342
3.67
Park Plaza Vondelpark Amsterdam
138
3.65
1,010
3.82
All are wholly owned hotels
Five 4* hotels
There are five hotels in the Dutch portfolio; three are in Amsterdam, one in
Utrecht and one in Eindhoven. All five trade under the Park Plaza brand. As of
March 2012, PPHE wholly owns all of the hotels. Prior to then PPHE owned
three of the hotels jointly with Elbit Imaging Limited.
TripAdvisor scores
The five Park Plaza hotels have an average Tripadvisor score of 3.82. The highest
scoring hotel is the Park Plaza Mandarin Eindhoven scoring 4.09. The lowest
scoring hotel is Park Plaza Vondelpark Amsterdam scoring 3.65. These are
respectable scores but have scope to be moved higher.
Across the portfolio of German and Hungarian hotels 70% of votes were either
very good or excellent.
Current trading and prospects
The Netherlands: key financials
Occupancy
Average Room Rate
RevPAR
Total Revenue
EBITDAR
EBITDA
FY09
84.1%
108.7
91.4
19.8
6.5
FY10
77.9%
102.2
79.6
22.8
7.6
7.6
FY11
75.0%
109.4
82.0
24.8
7.8
7.8
FY12
72.6%
108.5
78.8
37.8
12.4
12.3
FY13E
72.6%
120.5
87.5
42.0
13.5
13.4
FY14E
72.6%
122.9
89.3
42.8
13.9
13.8
Over the last few years occupancy rates in the Netherlands have softened,
reflecting macro-economic conditions across most of Continental Europe.
33
28th May 13
Average room rates and RevPAR have similarly moved lower. That said, in FY12
average room rates stabilised (€108.5 vs €109.4). With occupancy 2.3% lower in
FY12, revPAR fell 3.9% to €78.8.
The outlook for the Amsterdam hotel market in 2013 is subdued and we expect
the uplift in revenues and earnings in FY13 is essentially driven by a full year
effect of the JV transaction and the opening of art’otel amsterdam late in 2013.
Renovation works and new projects
During 2012 an extensive renovation project was completed at the Park Plaza
Amsterdam Airport. The ground floor was remodelled and several new facilities
were introduced including: a new restaurant, bar, board room, executive lounge
and spa centre.
The company has been looking to re-model Park Plaza Vondelpark Amsterdam
which is spread across three modest sized buildings. The hotel is located in an
attractive part of Amsterdam and gaining planning permission is likely to be a
protracted exercise.
Construction of the 107 room art’otel amsterdam is progressing well and on
target to be completed late in 2013. The hotel will have lounge, restaurant and
entertainment facilities. It will also have a 10,000 sq foot art gallery.
The Amsterdam hotel market
Unstable macro-economic conditions across most of Europe are impacting on
the Amsterdam hotel market. During 2012 occupancy rates marginally moved
higher (78.9% vs 77.7%). However, this was at the expense of average room
rates which declined 0.8% (source: TRI Hospitality HotStats, Dec-12).
The recent IMS confirmed that whilst trading was in-line with market
expectations, the Dutch hotels had experienced a soft trading in the first
quarter. That said, this is the quietest period of trading in the year and we have
seen an uptick in trading in the broad hotel sector in recent weeks and we have
left our forecasts unchanged.
34
28th May 13
Germany and Hungary
Consistent delivery
The German and Hungarian hotel portfolio is dominated by leased hotels
(eight out of nine hotels). As a consequence, the EBITDA margins are lower
than with the UK and The Netherlands. Crucially TripAdviser scores highlight
consistent (and high) service levels, which bode well for future earnings.
The German/Hungarian portfolio
Number of rooms
Tripadvisor Score
165
4.31
art'otel berlin city west
91
3.92
art'otel berlin kudamm
174
3.83
art'otel berlin mitte
109
3.95
art'otel cologne
218
4.03
art’otel dresden
174
3.94
Park Plaza Prenzlauer Berg Berlin
155
3.83
Park Plaza Wallstreet Berlin
167
4.24
150
4.11
Leased hotels
art'otel budapest
Franchised hotel
Park Plaza Trier
1,423
4.09
A leased and franchised portfolio of hotels
There are nine hotels in the German and Hungarian portfolio. Six of the hotels
are art’otel branded venues; the other three are Park Plaza. In contrast to the
UK and the Netherlands, PPHE does not own any of the German/Hungarian
hotels. Eight are leased; the ninth is franchised. As a consequence, the EBITDA
margins being generated are lower than in the UK or the Netherlands. In FY12
German/Hungarian margins were -1.5%. This compares with 36.9% in the UK
and 32.5% in the Netherlands. The margin differential partly reflects a higher
level of rental expense in the division. In FY12 rental expense = €9.3m in
Germany/Hungary (28.5% of total revenues) vs €1.2m (0.7% of total revenues)
in the UK and €0.1m in the Netherlands (0.2% of total revenues).
Tripadviser ratings
Tripadviser ratings for the German and Hungarian hotels show incredible
consistency. The average scores for the nine hotels was 4.09 (out of a possible
5.00). There were no outlying scores (i.e. few low scores). art’otel budapest has
an impressive Tripadviser score of 4.3 out of 5.0.
Across the portfolio of German and Hungarian hotels 80% of votes were either
very good or excellent.
35
28th May 13
Current trading
Germany/Hungary: key financials
Occupancy
Average Room Rate
RevPAR
Total Revenue
EBITDAR
EBITDA
FY09
71.4%
60.2
43.0
23.5
(3.7)
FY10
70.3%
68.8
48.4
27.7
6.7
(0.3)
FY11
71.8%
70.9
50.9
30.2
7.5
(1.0)
FY12
73.5%
72.7
53.4
32.6
8.8
(0.5)
FY13E
73.5%
72.7
53.4
32.6
9.4
(0.6)
FY14E
73.5%
74.2
54.5
33.3
9.6
(0.4)
In terms of occupancy, average room rates and RevPAR the German and
Hungarian hotels traded broadly in-line with the wider hotel market. Occupancy
improved from 71.75 to 73.5; average room rates grew 2.5% to €72.7 and
RevPAR improved 5.1% to €53.4.
Total revenues increased 7.9% to €32.6m. EBITDAR margins improved from
24.8% to 27.0%. As a consequence, the EBITDA loss narrowed from €1.0m to
€0.5m.
The German economy is gradually improving, albeit at a painfully slow pace. The
German services PMI is fluctuating around the 50 level, indicating modest
growth. As a consequence, divisional revenues should be relatively stable. We
are forecasting revenues are broadly stable in FY13, moving to +2.0% growth in
FY14.
Pipeline
During FY12 PPHE completed the extension of art’otel berlin city centre west.
This hotel has Andy Warhol as its signature artist. The renovation/extension
work added 61 new rooms, two meeting rooms, new leisure facilities and a new
bar/lounge area. Also during the period, 75 rooms at the art’otel budapest were
renovated and a new restaurant created.
PPHE is currently constructing the fourth German Park Plaza. Located in
Nuremberg, it has 177 rooms and is on target to open in 2014.
Finally, PPHE is currently in the process of acquiring the freeholds to two of the
German hotels (cost €17.5m). These are currently are operating lease units.
Completion for these transactions is expected to be late May/early June 2013.
The German and Hungarian hotel markets
The German hotel market is on an improving trend. During 2012 occupancy
increased by 2.2% to 66.3% ad average room rates increased 3.4% to €94.0. As a
consequence, RevPAR increased €62.4 (source: STR Global, Dec-12).
In term of individual Cities, Berlin performed well. RevPAR increased by 8.5% to
€63.8, driven by 4.6% occupancy growth (to 72.5%) and by a 3.7% increase
average room rates (to €88.0). By contrast, Cologne experienced a “flat” 2012.
revPAR fell 0.2% to €67.6. Whist occupancy improved 1.2% to 67.7%, average
room rates fell 1.4% to €100.0 (source: STR Global, Dec-12).
36
28th May 13
Croatia
Extending the Park Plaza brand
PPHE has a (20%) minority interest in a portfolio of Croatian hotels, owned by
Arenaturist. Three of these hotels have been significantly renovated and
rebranded under the Park Plaza brand and are delivering best in breed
TripAdviser scores. In aggregate there are 2,830 rooms in the Croatian
portfolio, which are principally targeted at the tourist market.
Arenaturist: the Croatian hotel portfolio
Number of rooms
Tripadvisor Score
Associate investment
Park Plaza Histria Pula
4.28
Park Plaza Medulin
4.31
Park Plaza Verudela Pula
3.64
Guest House Riveria
2.29
Hotel Belvedere
2.16
Hotel Bironi
3.05
Hotel Holiday
3.36
2,830
4.09
Associate investment in Arenaturist
In 2008 PPHE acquired a 20% stake in WH/DMREF Bora BV, the holding
company of the Arenaturist Group. Arenaturist is listed on the Zagreb Stock
Exchange, with a current market cap of 322m HKR (€42.5m).
Arenaturist assets are principally located on the Istria Peninsula. These include:
eight hotels, six holiday apartment complexes, eight campsites and 52 food and
beverage outlets.
The book value of the Bora stake in the Park Plaza accounts is €21.6m. The
equity stake is included at a negative valuation, because Park Plaza has a loan of
€26m outstanding to Bora that bears an interest rate of 8.9% a year. This loan
yields €2.3m a year in interest income to Park Plaza, matures 2020. Park Plaza
also receives over €1.2m of management fee income from Arenaturist each
year.
Tripadviser ratings
Tripadviser ratings show how that consumers like the hotel assets which have
been redeveloped and rebranded by PPHE. For example, the Park Plaza Histria
Pula has a Tripadviser score of 4.5, receiving the same rating as Westminster
Bridge. However, a number of the other hotels have received scores within the
2.0-3.5 range. Many of the critical comments focus on service and food quality.
37
28th May 13
Developing the Arenaturst portfolio
During 2012 PPHE completed the renovation and rebranding of three of the
holiday resorts. The Hotel Histria was rebranded the Park Plaza Histria Pula,
which occupies a prime coastal location and offers upscale hotel facilities.

PPHE plan to continue to redevelop the Arenaturist portfolio, continue with
staff training and improve the service offering. Hotel Palma, which has 127
rooms and is located next to the Park Plaza Histria Pula, has been
temporarily closed for renovation. Upon completion (expected pre summer
2013) it will be integrated into the neighbouring closed Park Plaza Histria
Pula.

Further renovation and re-branding projects across the remaining Croation
portfolio are “being considered”.
Current trading and prospects
The Croatian tourist industry continued to grow in 2012, albeit at a slower pace
than in 2011. Given that almost one third of tourist to the region are from
Germany, we believe there prospects for the near terms trends are relatively
stable. Looking further ahead the prospects are quite exciting with scope for
tourist spend moving from other (more expensive) areas of Europe, such as
France, Italy and Spain.
Istria: Arrivals (m)
Istria tourists (by nationality)
3.2
Germany
3.0
Slovenia
2.8
Austria
2.6
Italy
Netherlands
2.4
2010
2011
2012
Other
Arrivals (m)
38
28th May 13
Management operations
Licensing expertise
As an owner/operator, a significant proportion of the portfolio is internally
managed. However, a proportion of the portfolio is owned by third parties and
PPHE receives income in return for managing the hotel.
Current trading
After consolidation and the elimination of intra-group revenue, reported
revenues increased 47.7% to €10.6m. A significant proportion of this increase
was driven by the recognition of an incentive fee which was based on a
cumulative three year performance plan. This has now has switched to an
annual incentive plan.
EBITDA increased from €10.8m (FY11) to €14.2m (FY12).
39
28th May 13
Project pipeline, asset acquisitions and
disposals
Building a world class portfolio
PPHE portfolio
9000
40
8000
35
7000
30
6000
25
5000
20
4000
15
3000
10
1000
5
0
0
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2000
Hotels
Rooms
Art’otel Hoxton.
In February 2010 PPHE received planning permission to build the UK first
art’otel, to be located in Hoxton (Hackney London). PPHE has been working on
this project since 2008. The hotel will have 352 state-of-the-art guest rooms.
Public areas will include a top-floor restaurant and bar, spa facilities, an arts
centre and artist/photographic studios. The hotel is scheduled to open during
2H14.
West London Hotel
On 18th June 2012 PPHE acquired and simultaneously completed a sale-andleaseback of a two acre development site in West London. Planning permission
for a 158 room hotel was granted in 2012. In addition, there will be a lounge and
bar, several meeting rooms and spa facilities. Again, the hotel is scheduled to
open during 2H14.
Hercules House
On 25th May 2013 PPHE announced it was acquiring Hercules House, a prime
site near Waterloo station in Central London (£23.5m cash). The office building
on the 1.09 acre site has nine floors plus a basement. It is currently occupied by
Department of Communities and Local Government but is scheduled to vacate
the property by the 28th September 2013. The company is considering a number
of possible uses for the property, including the possibility of a new hotel being
developed on all or part the site. This must be the preferred option but it will
take time. Completion is expected late May/early June.
40
28th May 13
Other projects
In addition to these committed projects, management has a further 10 unsigned
projects in its sights. In London and potentially Paris, the high cost of prime
hotel assets means management is keener on new build opportunities as
opposed to acquisitions. Elsewhere, in Europe acquisitions particularly
distressed sales are on option. Expansion of the portfolio via management
contracts and franchise agreements which soak up lower capital remain a
distinct possibility and are obviously lower risk.
41
28th May 13
Profit & Loss
Key operating and financial metrics
Occupancy: FY12 occupancy rates were broadly maintained at 77.4% (vs 77.4%
in FY10 and 7.77% in FY11). During the seasonally quiet first quarter PPHE
actively managed room yields, with management pushing occupancy up from
68.0% (1Q12) to 70.5% (1Q13).
Average room rate: After increasing 7.6% in FY11, room rates continued to
move high in FY12, jumping 9.8% to €130.9. During the first quarter of FY13
competition, especially in the tough Dutch market, resulted in average room
rates falling from €122.4m (1H12) to €114.1 (1Q13). This partly reflects the
active management of room yield and should not be taken as a significant
negative signal.
RevPAR: Stable room occupancy and higher average room rates, translated in
positive RevPAR trends in FY12. During the period, RevPAR increased 9.4% to
€101.3. During the first quarter of FY13 RevPAR fell 3.2%. On a like for like basis
they were down 2.9% (this excludes FX movements).
Room revenue: Reported room revenue jumped 17.6% to €166.2m in FY12. This
follows a 48.9% increase in FY11. These gains were driven by a significant
increase in room ownership (e.g. buying out the joint venture partner in the
Netherlands). That said, on a like for like basis room revenue still grew by 12.9%.
Total revenues: During FY12 total revenues increased 19.6% to €242.1m, mainly
due to the aforementioned increase in ownership of hotels in the Netherlands.
On a like for like basis total revenues increased 13.0%. During the first quarter of
FY13 total revenues increased 4.1% to €48.6m. On a like for like basis they fell
2.9%.
EBITDA margins: Hotel operators need to balance the conflicting demands of
service levels and profit margins. It is possible to run an incredibly successful
hotel, with very happy guests, but fail to look at the bottom-line. However, drive
margins too high and guest satisfaction flies out of the window. In addition,
being an owner/operator of hotel is a highly operationally geared business. As a
consequence, when the recession PPHE EBITDA margins fell from 29.2% (FY07)
to 20.2% (FY09). However, the company has successfully re-built margins and
they are now higher than pre-recession levels. In FY12 they nudged a little
higher, moving from 34.3% (FY11) to 34.5% (FY12). Note that due to the
seasonal nature of the hotels there is a 1H-2H differential in terms EBITDA
margins. For example, in 1H12 EBITDA margins were 32.9% and in 2H12 they
were 37.4%.
Profit before tax: The jump in EBITDA (€85.6m FY12 vs €65.1m FY11), resulted
in operating profits moving from €44.1m to €63.8m and pre-tax profits from
€13.6m to €26.6m.
Earnings per share: Driven by higher earnings, EPS trends have been very
strong. Indeed between FY10 and FY12 EPS jumped from 10.8c to 63.3c. The EPS
is helped in part by the absence of any material tax charge, which stems from
the historic losses (value >€100m). Given the company is some way off from
paying tax we believe a nil tax charge rate in calculating normalised EPS is
appropriate.
42
28th May 13
Balance Sheet
Property Valuations
Properties are the largest single item in the Park Plaza Hotels balance sheet, at
€762.9m. These are included at a mixture of cost (after depreciation) and DCF
valuation.
However, through a number of sources, it is possible to come to a more
accurate valuation of the portfolio. For example, when the company moved
from AIM to the Main List, the hotels were valued by Colliers and Savills. Certain
transactions have occurred since and it is necessary to adjust the NAV for these
transactions. We estimate the market value of the hotel estate to be €870.2m
(i.e. 14% higher than the balance sheet carrying value).
Market value of the hotel estate
London properties
Sherl ock Hol mes Pa rk Pl a za
Vi ctori a Pa rk Pl a za , London
Vi ctori a Retai l Uni t, London
Ri verba nk Pa rk Pl a za
a rt'otel Hoxton (50% owned)
Pa rk Pl a za Leeds
Pa rk Pl a za Notti ngha m
1 Wes tmi ns ter Bri dge (ex s ol d uni ts )
Wes tern Avenue
Hercul es Hous e
European properties
Ma nda ri n Pa rk Pl a za , Ei ndhoven
Utrecht Pa rk Pl a za
Vondel Pa rk Pl a za , Ams terda m
Vi ctori a Pa rk Pl a za , Ams terda m
a rt'otel Ams terda m (va ca nt)
Pa rk Pl a za Ams terda m Ai rport
Pa rk Pl a za Nuremberg (s i te)
a rt'otel berl i n mi tte
a rt'otel berl i n kuda mm
FV a djus tment to Europea n hotel s
Aggregate value
Value
(€m)
Value
(£m)
No. of
rooms
Value per
room
(€ '000)
19.7
118.8
2.2
170.4
17.5
19.7
17.5
216.2
16.9
101.7
1.9
145.8
15.0
16.9
15.0
185.0
119
299
166
397
460
352
185
178
484
370
50
107
98
447
104
120
138
306
105
342
175
157
188
194
327
183
100
-
-
27.5
23.5
16.3
22.5
26.8
100.0
19.3
34.4
6.3
17.5
17.6
870.2
43
28th May 13
Gearing has been a concern but is moving lower
Financial leverage has been a concern for equity investors. However, net debt to
EBITDA has fallen from 9.9x in FY10 to 5.4x in FY12. Given recent deal flow and
the pipeline of projects the ratio is likely to move above 6.0x in FY13 before
falling once more.
Debt maturity profile (€m)
Net debt
Net debt:EBITDA
250
200
150
100
50
>FY20
FY20
FY19
FY18
FY17
FY16
FY15
0
FY14
FY14
FY13
FY12
FY11
FY10
FY09
FY08
30
25
20
15
10
5
0
FY07
600
500
400
300
200
100
0
FY13
Net debt (€m), Net debt : EBITDA (x)
Debt: maturity profile

Only a small proportion of loan facilities (€50.7m, 8.7% of total) are
maturing by Dec-14. There are €215m (37%) worth of facilities maturing in
FY15. That said, given that there are €215m of facilities in FY15, we expect
management will be looking to re-finance approximately one-third of their
total facilities (by value) next year.

Based on the market values of the hotel portfolio (€878m) we estimate the
loan to value is 58% (gross debt basis), 53% (net debt). The 2015 maturing
facilities have loan to gross debt covenants of sub-68% (see note 17 in the
FY12 report and accounts) and the company is operating within these
facilities.

PPHE is in compliance with all of its banking facilities, other than the debt to
service ratio test for the €21.0m facility borrowed against the Parkvondel.
This loan, which represents only 3.6% of total facilities, was taken out in
2008 and is set to mature in September 2013 (see note 17 in the FY12
report and accounts). The lender has waived this test until maturity.

Management have entered into a string of interest rate swaps. The majority
of these mature over the next few years and PPHE may well see its effective
interest rate charge move higher.
44
28th May 13
Swaps: maturity profile (€m)
8.0
4.0
>FY20
FY20
FY19
FY18
FY17
FY16
FY15
FY14
FY13
-
Swaps: maturity profile
Apart-hotel Units
Apart-hotel units under management at Westminster Bridge are the second
largest item in the balance sheet, at €175m. The payments received for these
are held as a balancing item on the Liabilities side of the balance sheet. The
reason these units are still in the accounts, despite being sold, is that
Westminster Bridge is owned by a subsidiary company in which the unit
purchasers each hold one non-voting share. This share expires once the 5-year,
6% p.a. rent guarantee has expired, which will probably be early 2016. At this
stage it is unclear how these units (assets + liabilities) will be treated once the
guarantee period runs out.
Hardman view: it would be more sensible to exclude these units from the
balance sheet, especially since these units are legally owned by outside
investors.
Intangible Assets
The Intangible Assets represent the acquisition cost of the management and
franchise rights of the Park Plaza hotels and resorts, and to much a lesser
extent, the art’otel rights. The Park Plaza rights are included on the balance
sheet at €35.1m (FY12) and the art’otel rights at €2.1m. Both are being
amortised over 20 years from their fair value at date of acquisition. The
outstanding amortisation period is 14.5 years.
Whilst the terms of certain Park Plaza management contracts are limited, the
rights to the use of the Park Plaza brand in the Europe, the Middle East and
Africa, are in perpetuity. More importantly, the strength of the Park Plaza brand
is growing. Therefore, we believe the value of the intangible fixed assets on the
balance sheet under values the cash flows being driven by the brand.
Restricted Deposits and Cash
There is €16m in the balance sheet under this heading. Approximately 60% is
related to the sale of rooms at the Westminster Bridge Park Plaza to outside
buy-to-let investors. Some of these investors defaulted on the purchase, and
forfeited their deposits. These deposits are held in a separate category because
some investors have threatened legal action.
45
28th May 13
Profit & Loss
FY09
FY10
FY11
FY12
FY13E
FY14E
Revenue
80.3
139.8
202.4
242.1
236.6
238.1
EBITDAR
EBITDA
EBITA
EBIT
26.1
16.2
7.2
7.2
46.4
37.6
25.2
25.2
75.0
65.1
46.6
46.6
96.8
85.6
66.3
66.3
92.4
81.1
59.1
59.1
93.5
82.2
59.7
59.7
As s oci a tes + JV
Other i tems
(1.2)
-
(2.4)
60.4
(2.5)
1.7
(2.4)
43.0
(2.0)
-
(2.0)
-
Operating profit
Normalised
Reported
6.0
6.0
22.9
83.2
44.1
45.8
63.8
106.8
57.1
57.1
57.7
57.7
Financing items
Norma l i s ed
Reported
(13.1)
(13.1)
(18.5)
(22.7)
(30.4)
(35.1)
(37.3)
(36.7)
(37.2)
(37.2)
(36.0)
(36.0)
Pre tax profit
Normalised
Reported
(7.2)
(7.2)
4.4
60.5
13.6
10.6
26.6
70.1
19.9
19.9
21.7
21.7
Ta xa ti on
(0.3)
1.4
4.6
0.4
Pre tax profit
Norma l i s ed
Reported
(7.2)
(7.4)
4.4
61.9
13.6
15.3
26.6
70.5
19.9
19.9
21.7
21.7
(17.3)
10.8
32.7
63.3
47.4
51.7
-14.0%
-27.1%
-34.1%
-58.9%
74.1%
77.7%
131.7%
282.1%
44.7%
61.5%
72.9%
92.7%
>100%
>100%
19.6%
29.0%
31.5%
44.9%
95.2%
93.7%
-2.3%
-4.6%
-5.2%
-10.5%
-25.1%
-25.1%
0.6%
1.3%
1.4%
1.1%
9.2%
9.2%
32.5%
20.2%
7.4%
33.2%
26.9%
16.4%
37.1%
32.1%
21.8%
40.0%
35.3%
26.4%
39.0%
34.3%
24.1%
39.3%
34.5%
24.3%
Ea rni ngs per s ha re
Norma l i s ed
Reported
Growth analysis
Revenue
EBITDAR
EBITDA
Opera ti ng profi t
PBT
EPS
Margin analysis
EBITDAR
EBITDA
Opera ti ng ma rgi n
-
-
46
28th May 13
Cash Flow
Operational cash flow
Opera ting pft
Depn + a mort
Cha nge i n i nves tment
(undercons truction)
Cha nge s tocks
Cha nge debtors
Cha nge credi tors
Cha nge provi s i ons
Other
Strong operational
cash flow
FY09
FY10
FY11
FY12
FY13E
FY14E
6.0
9.1
22.9
12.4
44.1
18.5
63.8
19.3
57.1
22.0
57.7
22.5
(81.0)
(0.0)
(2.4)
5.7
-
(5.0)
0.0
(2.4)
(5.7)
-
(6.5)
0.1
0.1
(12.4)
-
(8.5)
0.1
1.6
4.0
-
0.1
0.1
(0.3)
-
(0.0)
(0.2)
0.1
-
-
-
-
-
-
-
Interes t
Ta xa tion
(11.9)
(0.1)
(21.9)
0.1
(30.4)
(0.1)
(38.0)
(0.1)
(37.2)
-
(36.0)
-
Operational cash flow
(74.6)
0.3
13.4
42.3
41.8
44.1
Ca pi tal expendi ture
Adv pa yments etc
Acqui s i tions /Di s pos a l s
Di vi dends
Equi ty
Other
(3.3)
(8.0)
(0.7)
(31.8)
(23.1)
36.7
(10.5)
23.6
(12.0)
6.3
0.5
(21.7)
(23.4)
(1.6)
(21.4)
(6.1)
(62.7)
(24.0)
(45.0)
(5.5)
-
(24.0)
(6.3)
-
(118.5)
(282.3)
(400.8)
27.0
(400.8)
(373.7)
(13.5)
(373.7)
(387.3)
(72.9)
(387.3)
(460.2)
(32.7)
(460.2)
(492.9)
13.8
(492.9)
(479.0)
Movement in cash
Open net cash
Close net cash
Note: Cash movements within “Other” mainly relate to project finance and related items
and so are classified below the “Operational cash flow” line
47
28th May 13
Balance sheet
Fixed assets
IFA (other)
TFA
TFA (under mgt)
Tra de recei va bl es
Ta x a s s et
Fi na nci a l a s s ets
Fi n'l a s s ets (other)
Retirement benefi t a s s et
Other
NAV building, but
fails to reflect true
value of the estate
Current assets
Inventori es
Tra de a nd other rec'a bl es
Ta x a s s et
Fi na nci a l a s s ets
Fi n'l a s s ets (other)
Other
Current liabilities
Non-fi na nci a l
Fi na nci a l
Fi na nci a l (other)
Deferred cons i dera tion
Ta x pa ya bl e
Other
Current net assets
TALCL
Non current liabilities
Fi na nci a l
Fi na nci a l (other)
Retirement
Deferred cons i dera tion
Ta x pa ya bl e
Other
Net assets
FY09
FY10
FY11
FY12
FY13E
FY14E
44.9
188.6
0.3
35.3
22.5
291.5
42.3
605.2
160.6
0.2
27.4
22.1
857.9
40.7
610.9
168.6
0.2
42.9
21.5
884.9
38.2
762.9
172.8
0.5
18.1
21.6
1,014.1
38.2
809.9
172.8
0.5
18.1
21.6
1,061.1
38.2
811.4
172.8
0.5
18.1
21.6
1,062.6
0.5
19.5
49.0
66.5
304.8
440.3
1.4
26.7
27.3
22.0
77.4
1.3
26.0
31.0
3.6
7.9
69.7
1.3
25.6
46.2
6.0
16.4
95.5
1.2
25.6
50.0
6.0
16.4
99.1
1.2
25.7
50.0
6.0
16.4
99.3
(18.0)
(277.9)
(63.8)
(359.6)
(25.0)
(139.3)
(18.2)
(37.4)
(219.9)
(14.2)
(6.9)
(36.0)
(57.2)
(10.9)
(32.4)
(54.2)
(97.6)
(10.6)
(54.2)
(64.9)
(10.7)
(215.0)
(54.2)
(279.9)
731.9
372.3
935.3
715.4
954.6
897.4
1,109.6
1,012.0
1,160.2
1,095.3
1,161.8
881.9
(171.9)
(51.0)
(9.7)
(232.5)
(261.6)
(241.8)
(8.8)
(512.1)
(411.2)
(280.8)
(4.1)
(696.2)
(474.4)
(264.8)
(12.9)
(752.1)
(542.9)
(264.8)
(12.9)
(820.5)
(314.0)
(264.8)
(12.9)
(591.7)
139.7
203.2
201.2
259.9
274.8
290.2
48
28th May 13
Key financials
December Year End
FY10
FY11
FY12
FY13E
FY14E
P&L (€m)
139.8
202.4
242.1
236.6
238.1
EBITDAR
46.4
75.0
96.8
92.4
93.5
EBITDA
37.6
65.1
85.6
81.1
82.2
Operating profit
22.9
44.1
63.8
57.1
57.7
PBT
4.4
13.6
26.6
19.9
21.7
EPS
10.8
32.7
63.3
47.4
51.7
DPS
-
6.0
12.0
12.0
12.0
Operating cash flow
22.1
43.8
80.4
79.0
80.1
Interest & tax
Sales
Cashflow (£m)
(21.8)
(30.5)
(38.1)
(37.2)
(36.0)
Capex / Acquisitions
3.1
(5.2)
(46.4)
(69.0)
(24.0)
Dividends
-
-
(6.1)
(5.5)
(6.3)
Equity
-
-
-
-
-
Other items
23.6
(21.7)
(62.7)
-
-
Change in net debt
27.0
(13.5)
(72.9)
(32.7)
13.8
(373.7)
(387.3)
(460.2)
(492.9)
(479.0)
Closing net debt
Balance sheet (£m)
203.2
201.2
259.9
274.3
289.8
NAV per share (€c)
498
483
619
654
691
Key metrics
FY10
FY11
FY12
FY13E
FY14E
Sales
nm
44.7
19.6
(2.3)
0.6
EBITDAR
nm
61.5
29.0
(4.6)
1.3
EBITDA
nm
72.9
31.5
(5.2)
1.4
Operating profit
nm
nm
44.9
(10.5)
1.1
EPS
nm
nm
93.7
(25.1)
9.2
DPS
-
-
nm
16.7
14.3
EBITDAR margins
33.2
37.1
40.0
39.0
39.3
EBITDA margins
26.9
32.1
35.3
34.3
34.5
Operating margins
16.4
21.8
26.4
24.1
24.3
-
1.0
2.0
3.0
4.0
183.9
192.5
177.1
179.7
165.3
Net debt/EBITDA (x)
9.9
6.0
5.4
6.1
5.8
Interest cover (x)
1.2
1.5
1.7
1.6
1.7
5.4
5.3
3.4
3.2
Net assets
Growth (%)
Operating ratios (%)
Effective tax rate
Leverage + Returns
RoIC (%)
Gearing (%)
EPS/DPS (x)
49
28th May 13
Management team
Board of directors
Eli Papouchado
(Non-exec
Chairman, 75)
Boris Ivesha
(President and CEO,
67)
Chen Moravsky
(Chief Financial
Officier, 42)
Kevin McAuliffe
(Senior Non Exec
Director, 55)
Elisha Flax (Non
Exec Director, 51)
Nigel Jones (Non
Exec Director, 51)
Eli is the founder of the Red Sea Group and has previously acted as the
Chairman of the board for ten years. He has been involved in the design,
construction and management of hotels, including Park Plaza Westminster
Bridge, Park Plaza Riverbank and Park Plaza Victoria. He has also been involved
in the development of hundreds of thousands of square metres of retail space
across North America, Europe and the Middle East. Previously he was the
Chairman of the Israel Hotel Association.
Boris has been the President of PPHE since 1991. In 1972 he was appointed
General Manager of the Royal Horseguards Hotel in London. In 1979 he became
an MD for the Carlton Hotel in Israel. Then in 1984 he established the Yamit
Hotel in 1984 and subsequently buying the Park Plaza brand to the group in
1994 (in collaboration with the Red Sea Group). Boris has been one of the major
drivers behind the expansion of the Group’s portfolio of hotels.
Chen joined PPHE in 2005. Previously he was the Finance Director of the Red
Sea Group, which he joined in 2001. It was at the Red Sea Group where he
gained his expertise in the hotel/leisure business. Chen was previously an audit
manager at Deloitte. He is a Certified Public Accountant and holds an MBA from
the University of Manchester and a Business degree from the Tel Aviv College of
Management.
Kevin joined PPHE as a non-executive director in 2007. He is currently the
Executive Chairman of Carey Group (having joined as CEO in 1999). Previously
has was Head of Advisory Services for Paribas Private Banking; the MD for
Paribas Suisse in Guernsey and the FD of the Ansbacher offshore banking group.
He is a Member of the Society of Trust and Estate Practitioners and director of
various regulated investment companies.
Elisha joined PPHE as a non-executive director in 2007. He is a real estate
entrepreneur, engaged in a various territories in Eastern Europe. He has served
as a non-executive director of Delek Global Estate plc, an AiM-listed real estate
company until 2010. Previously he was a solicitor at the London offices of
Chadbourne & Parke and Akin, Gump, Strauss, Hauer & Feld. He was also
general counsel at PlaneStation. He holds an LLB degree from Keo University
(Tokyo) and is qualified solicitor in England and Wales.
Nigel joined PPHE as a non-executive director in 2007. Between 2001 and 2007
he was CEO of aim-list property company ComProp. During that he period he
was responsible for major office developments including: Fortis, Kleinwort
Benson and Generali. Previously he was at Humberts (Southampton), where he
was responsible the management of certain coastal land belonging to the Crown
estate. He has been a member of the Royal Institution of Chartered Surveyors
since 1989.
50
28th May 13
Shareholder analysis
Disclosable interests
As at 19th February 2013
Red Sea Group
18,522,714
44.7%
Molteno Limited
7,990,027
19.3%
Aroundtown Property Holdings
3,762,000
9.1%
Elbit Medical Imaging
1,707,640
4.1%
Habrok Capital Management
1,589,047
3.8%
Shares held in Treasury
1,862,000
Number of issued shares
43,377,292
51
28th May 13
Recent history of the Group
The current PPHE group was created in 2007 by the combination of the hotel
management and operating interests of PPHE and certain hotel assets of the
Red Sea Group. Collaboration between these two business dates back to 1989,
with the Mandarin Park Plaza in Eindhoven (The Netherlands), which was
acquired by Red sea Group and managed by PPHE.
1994: Obtaining rights to the Park Plaza brand
In 1994, the PPHE Group obtained the rights to use the Park Plaza brand in the
Benelux countries, the UK and Israel from its creator and then owner. In 2000 it
entered into a territorial licence agreement to operate the brand in a further 51
countries and took over the management of a number of hotel in Germany and
Hungary. These were then run (and still are) under an operating lease
arrangement.
1994: Strategic alliance with Carlson
Later that year the territorial licence agreement was renegotiated and the PPHE
Group entered into a strategic alliance with Carlson.
PPHE portfolio
9000
40
8000
35
7000
30
6000
25
5000
20
4000
15
3000
10
1000
5
0
0
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2000
Hotels
Rooms
Feb-08: Central London Expansion
The 398 room Park Plaza Hall London was opened on London’s South Bank. The
group operates this hotel under a management agreement with no ownership
interest.
The Group acquired the 66.7 per cent of Marlbray which it did not already own.
As a result, the Group attained control of the prestigious Park Plaza
Westminster Bridge London, which opened in 2010. The hotel has a total of
1.019 rooms (of which 535 have been sold to third party investors), making it
52
28th May 13
one of the largest hotels in London, and also has state-of the-art conferencing
facilities.
Mar-08: art’otel hoxton joint venture
The Group entered into a joint venture with Aldersgate Investments Limited to
develop a new (352 room) hotel under to art’otel brand. The hotel will be
located in Hoxton, a fashionable area on the edge of the City of London, and will
offer guests several hundred rooms and suites, as well as a choice of restaurants
and bars. Planning permission was granted in February 2010. The hotel is
scheduled to open during 2H14.
Apr-08: Arenaturist stake
The Group acquired a 20 per cent interest in Bora, which owns 74 per cent of
Arenaturist, a Croatian public company, and 100 per cent of three Croatian
private companies. These companies together own eight hotels and five
apartment complexes and have ownership interests in eight campsites in Istria,
Croatia.
May-08: Park Plaza Eindhoven re-launched
Park Plaza Eindhoven was re-launched, following extensive refurbishment and
modernisation.
Jul-09: art’otel amsterdam
The Group engaged in a project to build art’otel amsterdam, situated opposite
Amsterdam’s central train station. The hotel will have lounge, restaurant and
entertainment facilities. It will also have a 10,000 sq foot art gallery.
Construction of the 107 room art’otel amsterdam is progressing well and on
target to be completed late in 2013.
Mar-10: Soft-opening of Park Plaza Westminster Bridge
Park Plaza Westminster Bridge London, the Group’s flagship hotel located on
London’s South Bank had its soft-opening, followed by a full opening in
September 2010.
Apr-10: Park Plaza Vondelpark re-launched, Amsterdam hotel
acquired
Park Plaza Vondelpark (Amsterdam) was re-launched following three months of
renovation and styling.
The Group entered into a joint venture with Elbit to acquire a large conference
hotel in the Netherlands, located near Amsterdam Schiphol Airport. The hotel,
re-branded as Park Plaza Amsterdam Airport, offers 342 contemporary rooms
and over 1,800 square metres of flexible meeting space.
Aug-10: Acquires UK regional hotel assets
The Group acquired the companies which own the freehold and long leaseholds
of Park Plaza Leeds and Park Plaza Nottingham. Previously these were owned by
the Red Sea Group and had been operated by PPHE since 2003.
53
28th May 13
Dec-10: Acquires remaining stake in three UK hotels
The Group acquired from Elbit the remaining interests in Park Plaza Sherlock
Holmes London,(45 per cent) Park Plaza Victoria London (50 per cent) and Park
Plaza Riverbank London (including Plaza on the River) (45 per cent) giving the
Group complete ownership of these hotels.
Apr-11: Park Plaza Victoria Amsterdam renovation
The renovation of 164 rooms in Park Plaza Victoria Amsterdam was completed.
Jun-11: Move from AiM to Main List
The Group announced in May 2011 its intension to move from AiM to the
Official List as an attempt to improve liquidity in the shares.
Jul-11: Acquires 628 Western Avenue site
The Group acquired and simultaneously completed a sale-and-leaseback of a
two acre development site in West London. Planning permission for a 158 room
hotel was granted in 2012. In addition, there will be a lounge and bar, meeting
rooms and spa facilities. Again, the hotel is scheduled to open during 2H14.
Jul-11: Thai Joint Venture
The Group entered into a joint-venture with Kitaria Holdings, to acquire and
develop a site located in Pattaya Bay, Thailand. The aim was to develop a
40,000m sq complex, including a 100 room upscale hotel. The project has
progressed well, however, PPHE has recently (Jan-13) sold its interest in the
project. That said, it still retains the right to manage the resort when it opens.
Mar-12: Acquires remaining stake in four Dutch hotels
The Group acquired the remaining 50% interests in Park Plaza Amsterdam
Airport, Park Plaza Victoria Amsterdam, Park Plaza Utrecht and art'otel
amsterdam project from a subsidiary of Elbit Imaging Limited ("Elbit"), for a
consideration of €26.5m. As part of the deal PPHE assumes related debt.
Mar-12: Acquires prime site near London Waterloo Station
The Group acquires Hercules House, a prime site near Waterloo station in
Central London (£23.5m cash). The office building on the 1.09 acre site has nine
floors plus a basement. It is currently occupied by Department of Communities
and Local Government but is scheduled to vacate the property by the 28 th
September 2013. The company is considering a number of possible uses for the
property, including the possibility of a new hotel being developed on all or part
the site. This must be the preferred option but it will take time.
Apr-13: Acquires remaining stake in two Berlin hotels
The Group entered into an agreement to acquire the freehold interests in two
hotels in Berlin which it currently leases and manages, namely art'otel berlin
mitte and art'otel berlin kudamm respectively for a consideration of €17.5m net
of any applicable VAT. Completion of the Acquisition will be subject to receiving
local authority consent and cannot occur prior to 31 May 2013.
54
28th May 13
Park Plaza Westminster Bridge
A case study in project management and operational
excellence
The new Park Plaza Westminster Bridge Hotel was opened to paying
customers in 2010. This flagship hotel accounts for approximately >20% of
consolidated hotel rooms, one-third of revenues and EBITDA. The project
clearly demonstrates the capabilities of management to deliver large scale
hotel projects. Moreover, the level of customer satisfaction is high and key
operational metrics (such as occupancy) are trending higher.
Contemporary design
The hotel is owned freehold. It contains 1,019 rooms, has 68,500 m2 of floor
space and cost €162m in terms of land purchase and build-out cost. The
construction, undertaken by Gear Construction was described by the industry
journal New Civil Engineer at the time as “a modern contemporary
masterpiece”.

Construction began in September 2007 and was completed in time for a
‘soft opening’ in March 2010. It involved an extensive use of off-site ‘pod’
construction of individual room units, reducing both man-hours on site by a
third.

Its 1,200 m2 ballroom can accommodate 1,500 people at a formal event;
making it we believe, the fourth largest in London (the larges is Grosvenor
House Hotel in Park Lane, which can accommodate 2000).
Project finance
The construction was partially financed by the sale of “off plan” rooms and
apartments to private investors with a guaranteed yield of 6% p.a. (for the first
five years).

Initially 860 apartments offered for sale were purchased. Unit holders put
down a 25% deposit.

The remainder of the cost was financed by loan finance, since replaced in a
favourable refinancing deal in June 2010 by a seven year facility from Bank
Haopolim. As a consequence of the banking crisis a number of unit holders
withdrew and only 536 of the investor rooms and apartments were taken
up.

A number of would be purchasers who were unable to complete the
purchase are currently taking legal action against PPHE for the return of
their deposits, an action which the company is contesting. There is currently
£7.9m of forfeited deposits on the balance sheet, held as restricted cash,
pending the legal proceedings.

Since PPHE controls the “sold” units and is currently obliged to pay a fixed
income to the unit holders, IFRS has required the assets under management
to be held on balance sheet. These are recorded as “Apart-hotel units under
management” and had a carrying value of €172.8m (Dec-12). There is an
almost equal liability on the balance sheet recorded as “Advance payments
from apart-hotel unit holders” equalling €186.6m (Dec-12).
55
28th May 13

After 2015 the unit holders will continue to own the rooms and will receive
a variable income from the rooms based on occupancy and room rates.
PPHE (via a special managing company) will receive a management fee
based on this variable income. This equates to 2%-3% of revenue and a fixed
percentage of gross operating profit. At that stage it is unclear what
accounting treatment IFRS will require. It is possible the units will be taken
off balance sheet. Though given the asset and liability is similar the impact
on reported NAV is likely to be single digit € millions.
Operational performance
The launch was more successful than even management had expected. After a
six month soft-opening period, the hotel was fully opened in September 2010.
Helped both ay a buoyant London hotel market and the Carlson International
reservation system, it quickly reached 80% occupancy by the end of the year, on
an average achieved room rate approximately £10 higher than the original
budget.

Positive trading continued into FY12, with occupancy increasing 2.8%,
average room rate by 25.0% and RevPAR by 28.5%.
56
28th May 13
Risks
Renewing operating leases
If the Group was unable to extend or renew any or all of its operating leases
after the relevant expiry date, this could have an adverse effect on the Group’s
business, financial condition and results of operation.
Renewing franchise agreements
Four of the Group’s hotels are operated pursuant to franchise agreements
which typically run for periods of five to ten years (subject in one case to
automatic renewal provisions). Two of these agreements include early
termination provisions allowing the franchisee to renegotiate or terminate the
agreement prior to the end of the term. The terms of these agreements are
influenced by terms offered by the Group’s competitors at the time such
agreements are entered into. Accordingly, the Group may not be able to renew
hotel contracts on acceptable terms when they expire or fall to be renegotiated
or on terms that are as favourable to the Group as those under the existing
agreements. IF the Group were to lose any or all the franchised hotels, it could
have an adverse effect on the Group’s business, financial condition and results
of operations.
Minority stake in Arenaturist
The Group only has a 20 per cent stake in Bora, the holding company of the
Arenaturist Group and has no ownership interest in Park Plaza County Hall
London. The Group has operational control over the properties owned by the
Arenaturist Group and Park Plaza county Hall London by virtue of the
management agreements it has entered into with the relevant owners.
However, the degree of influence it has over key decisions in relation to such
properties (such as whether or not to carry out renovations and/or make other
investments) is much lower than were it to own or jointly control such
properties. As a result, there can be no assurance the properties owned by the
Arenaturist Group or Park Plaza County Hall London will meet the same
standards as the hotels in which the Group has a greater ownership interest.
These factors could have a material adverse effect on the Group’s plans for
future growth and, as a result, its business condition and results of operation.
That said, the recent redevelopment of three Arenaturist hotels demonstrates
positive collaboration.
Carlson relationship
The Group relies to a significant extent on its relationship with Carlson. The
Group’s rights to the Park Plaza Hotels and Resorts brand stems from a
Territorial Licence Agreement with Carlsdon pursuant to which the Group has
the exclusive right to use (and to sub-licence others to use) the Park Plaza Hotels
and Resorts trademark in 56 Countries in Europe and the MENA region. This
agreement also allows the Group’s to use Carlson’s Central Reservation System
which, during 2010 accounted for approximately 40 per cent of the Group’s
room revenues. However, if in the unlikely event that the relationship with
Carlson was to end or be damaged, it would have a highly material adverse
effect on the Group’s business, financial condition and results of operations.
57
28th May 13
Reputational risks
The Groups’ operating results depend on the reputation and awareness of the
brands it operates under. The Group believes that brand awareness, image and
loyalty are critical to its ability to achieve and maintain high average occupancy
and room rates and also for its growth/expansion plans. The reputation and
awareness of the Group’s brands are affected by a number of factors, including
factors outside the Group’s control such as changes in customer preferences
and customer perception. An event that materially damages the reputation or
awareness of either of the Group’s brands and/or a material failure to sustain
the appeal of either brand to the Group’s customers would have a material
adverse effect on the value of those brands and subsequent revenues
therefrom.
The Group does not own any of the trademarks relating to the Park Plaza Hotels
and Resorts brand. The Group relies on Carlson to maintain and protect such
trademarks against infringement or misappropriation and any failure by Carlson
to do so as a result of which the reputation of the brands suffered, could have a
material adverse effect on the Group’s business, financial condition and results
of operations. In addition, although the Park Plaza and Resorts brand does have
trademark protection in each country in with the Group currently uses that
brand, not every country covered by the Territorial Licence Agreement has such
protection. Accordingly, were the Group to seek to open hotels in certain of the
markets covered by the Territorial Licence Agreement, the Group cannot control
the standard of the hotels operating under its name.
art’otel brand driven by design and displaying art work
The Group does not own the original artwork displayed in its art’otel branded
hotels
A key marketing tool of the Groups art’otel branded properties is the fact that
each such property displays original works of art by a famous often local artist.
None of this artwork is owned by the Group. Some of it is owned by the relevant
artist or other third parties. In the case of certain of the Group’s art’otel brand
or his family or related trusts and the rest is owned by the relevant artist or
other third parties. In the case of certain of the Group’s art-otel branded hotels,
formal arrangements have been entered into with the owners of the artwork
pursuant to which the artwork is loaned to the Group for the duration of the
operating lease. However, in a number of cases, no such formal arrangements
have been entered into and the Group does not therefore have any legally
enforceable right to display such art.
Operationally geared business
A significant portion of the Group’s operating expenses are fixed, which may
impede the Group from reacting quickly to changes in its revenue.
A significant portion of the Group’s personnel costs are fixed, and not linked to
the performance of its hotels, and certain of the Group’s other operating
expenses, including heating, information technology, telecommunications and
similar expenses, are also to a large extent fixed. As such, the Group’s operating
results are vulnerable to short-term changes in its revenues.
The Group has guaranteed owners of units in Park Plaza Westminster Bridge
London a 5 or 6 per cent annual return (with the exception of two units in
58
28th May 13
respect of which the guaranteed annual return is less than 5 per cent) on their
investment for five years.
Information technology
The Group is reliant on certain technologies and systems for the operations of
its business. Any system failures, data viruses, computer ‘hackers’ or other
causes may result in operational problems with the Group’s information
systems. For the year ended 31 December 2010, approximately 40 per cent of
the Groups room revenues were generated from bookings through the Carlson
Central Reservation System, including the website of the Park Plaza hotels which
is operated through Carlson’s online platform.
59
28th May 13
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Luxury throughout

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