PPHE Hotel Group (LSE:PPH) — Interim Results for the six months ended 30 June 2026

0:01 Good morning, ladies and gentlemen, and welcome to the PPHE HOTEL GROUP LIMITED investor presentation. Questions are encouraged. They can be submitted at any time via the Q and A tab that's just situated on the right hand corner of your screen. Please just simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today and will publish those responses where it's appropriate to do so on the Investor Meet company platform. Before we begin, we would just like to And I would now like to hand you over to the team from PPHE HOTEL GROUP. Greg, good morning, sir. Hello. Good morning. Good morning, and welcome to our twenty twenty six half year results. My name is Greg Egity. I'm co CEO of the PPHE HOTEL GROUP. And to my left, I'm joined by Robert, our EVP of Commercial. And to my right, I have Daniel Kos, our Chief Financial Officer.

0:58 So we are really pleased to report good solid half first half year results, good strong operating performance. But before we get into the detail, I think it would be poignant to show a quick video. Thank you. Dave, thank you for that. Right. What we're gonna do, I'm gonna talk you through some of our strategic and operational updates. So we have had several strategic financing highlights during the period.

2:14 These include the acquisition of a freehold of Park Plaza London Waterloo for a 147,900,000, which was funded by a new five year facility at 136,500,000. This transaction has simplified and strengthened our balance sheet, and Daniel will take you through that a little bit more as we go through the presentation. We also refinanced our Ardutel in Rome for 27,600,000, which was also on a five year facility, that's in euros. And as a further highlight, most recently, we have disposed of our New York development site last Friday at 33,500,000 US.

3:02 The reason for that was really predominantly due to regulation changes and made the development really unviable in The US, so we optimized the site. We purchased some air rights on the site, so that means it was development ready, so it made sure we could optimize it for a sale, which obviously we did and that transacted last week. The proceeds of this will be used to repay the debt on the site, however, the additional proceeds will be used in our geographical regions. Along this, we also have numerous land pipeline within The UK. You can see we're aware we have Westminster Bridge Road, our development on the 840 and on Lehman Street as well as potential to develop our existing assets in our portfolio.

3:53 Our future focus in the near term is very much going to be launching our 5,000 square meters of office space at the Arts Hotel Hodgson. That will be 1 Rivington, our co working concept, that's due to open in mid November and is currently being marketed to prospective tenants. And as always, we will always continue to focus on cost efficiency, operational improvement, We are also doing a significant amount of technological transformation in our front of house operations, including the introduction of kiosks across our portfolio, and we will continue to focus on those efficiencies as we go forward. Moving on to the next slide, I think it was poignant just to touch on this following the completion of a strategic review period.

4:48 In November 2025, the board announced that it was undertaking a strategic review to consider a number of options to maximize value for all shareholders. Subsequently in May 2026 an indictive proposal regarding a possible cash offer was received from the Total Hotel Group at £22 per share. The board evaluated the proposal with its independent adviser and sought feedback through a consultation process from a significant proportion of our shareholder base. During this consultation, Europlaza Holdings, the company's largest shareholder, withdrew its support from the operator of Fetal. Consequently, Fetal determined it would not proceed with any context of the strategic review and it concluded in July 2026.

5:42 Despite this fact, the strategic review did not result in a firm offer for our shareholders. It did however facilitate significant deeper discussions around the future strategy of the group. This has resulted in the board concluding shareholder value, so this resulted in how the board could conclude and how it would deliver shareholder value for the future and how this can be maximized for clear operational delivery and balance sheet simplification going forward. So with that in mind, we are putting all of those findings into our proposal to see how we move forward as a company in due course. So moving on to that, I'll hand over with Daniel with the results of the first half. Daniel? Thank you, Greg.

6:31 So as Greg already said, we are quite pleased with the group's performance for the first six months of the year, which reported solid growth across all key metrics. The achievement is realized despite the geopolitical environment that the group currently trades in. So total revenue on a like for like basis was up 4.7% to EUR $2.00 8,000,000, which resulted in a like for like EBITDA growth of 8% to EUR 49,000,000. That represented a margin expansion of 50 basis points, reporting a 23.5 margin in the first six months. So as usual, our operations are quite seasonal, and the majority of the group's EBITDA and margin is realized in the second half.

7:22 And that's mainly due to the seasonal effects of our Croatian leisure portfolio. That's really ramping up in the high season in July and in August. So total revenue increased really on the back of a solid meeting and events revenue growth in The UK, particularly in the first quarter, I would say, but also due to our like for like average RevPAR growth of 3.1%. And that RevPAR growth increased on the back of a like for like room rate increase of 3.2% and occupancy stable at 72.5%. Our increased EBITDA performance was offset by higher interest costs after the refinances that we've done in the last twelve months.

8:09 So therefore, our twelve months rolling EPRA earnings stayed flat at GBP 53,000,000 or GBP 1.25 per share. Based on these earnings, the group proposes to pay an interim dividend of $1.07 per share, which is in line with last year. In terms of total revenue, diving a bit deeper in the regions because it's quite different across the regions. So as you can see on this slide, The United Kingdom has clearly been the main driver behind our growth, with a total revenue growth of 6.8% and RevPAR growth of 5.2%. So while the ramp up of Hoxton is obviously supporting this growth, in general, we had quite a strong period in The UK.

9:00 Particularly, the first quarter was very strong with us, with some very large scale meeting and events taking place in the usual slower month of January. So total revenue growth in the first quarter in The UK was 8.8%, with the second quarter showing a solid growth of 5%. As you might all be aware, The Netherlands started the year with a substantial fiscal headwind as the government increased the VAT from 9% to 21% on hotel bedrooms. So as the majority of our pricing publicly is inclusive of VAT, this would have resulted in a 12% negative impact on room rates. I'm therefore quite pleased to say that we have managed to mitigate the total revenue decline in The Netherlands to 5.3% in local currency and 2.4% in sterling, instead of the 12% that was expected.

9:59 This drop came mainly on the back of occupancy at this point and only a drop of 3.4 in local currency in room rates. Croatia was shut for the majority of the part of the year, first six months, and the performance isn't really reflective of a normal trade in the six months. And Germany, on a like for like basis, reported a year on year flat revenue and 2.9% growth in sterling terms. With regards to the EBITDA growth of 8%, The UK was again the main driver with both EBITDA growth and margin expansion. This growth was achieved despite of the higher business rates that are taking effect from the second quarter onwards and will increase up to and including 2028.

10:52 In The Netherlands, the expected EBITDA drop amount to EUR 1,300,000, which in local currency is largely similar to the top line revenue loss we had on the back of the VAT changes we've just discussed. So anything lost in the top converts 100% to the bottom, unfortunately. However, we continue to ramp up our newly opened properties and further roll out automation and operational efficiency programs to mitigate the effect of these fiscal headwinds. So in terms of adjusted APRA earnings, the rolling twelve months stayed flat with December at GBP 53,000,000, which is GBP 1.25 per share.

11:39 As you can see, earnings were positively impacted by the increased EBITDA levels, but offset with higher interest rate expenses after the substantial refinance that we've done in the last twelve months. Free cash flow for the rolling twelve months amounted to EUR 76,000,000 and has been largely used to pay dividends of EUR 70,000,000, bank loan repayments of EUR 26,000,000 and ROI CapEx, which included, for instance, three freehold acquisitions. One was the LIMITED acquisition in the city, The other was the Freehold acquisition of the Park Plaza Park Royal. And the last one was the buyback of the Freehold in the Park Plaza Waterloo, which I will detail later on. Net debt increased from EUR $775,000,000 at year end to EUR $932,000,000 at the end of June thirty, which is an increase of EUR 157,000,000, largely caused by the buyback of the freehold in Park Plaza Waterloo.

12:41 The new bank loan that we took to fund this acquisition has been signed with Bank of Poland and has a five year maturity. The loan has a loan to value of 70% at acquisition date, which will be amortized further in the coming five years to a loan to value of 65%. 90% of this loan is fixed for two years at an all in interest rate of 5.9%. After this transaction, the average group loan to value increased to 39.5% from 35% before, which we feel is still acceptable levels. The majority of our loans have now been refinanced, and the average maturity have been extended to four point four years with an average cost of debt of 4.4%.

13:33 So in terms of the Waterloo transaction, we had quite a substantial transaction here, whereby we bought back the freehold interest of the Park Plaza Waterloo for 148,000,000 and inclusive of purchase expense of 156,000,000. To explain the rationale behind this transaction, it's probably best if we go back to 2017 when we initially sold the land and leased it back for two hundred years. This transaction was shortly done after we had built and opened the hotel in the summer of twenty seventeen. We had an all in cost of construction of 125,000,000 and were able to sell the assets for 161,000,000 under a 200 lease back at 3.2 cap rate.

14:23 So the sale and leaseback, the 3.2 cap amounted to a rent of 5,600,000 back in the day when we did this. And this is inflation adjusted going forward. And it left the hotel with the remaining EBITDA post rent of 5,000,000. So this remaining EBITDA post rent is valued as a leasehold value at 80,000,000 back in the day. So this transaction, it really made sense for us back in the day. It enabled us to get more cash out than we had spent on building the hotel, and it remained us with an asset valued at £80,000,000. And the 161,000,000 of cash, it was used to pay a special dividend back in the day, and the rest was recycled back in the group to fund growth.

15:12 So our underwriting back then expected that EBITDA would grow at a similar pace as the inflationary adjustments on the rent. This was based on experiences we had in the ten years preceding to this deal. However, COVID, labor shortages due to the Brexit, energy cost increases, national insurance increases and business rate increases made that our EBITDA did not grow at a similar pace as the rent adjustment. So really, the rent was eroding the EBITDA over time. So with this acquisition, we stopped the EBITDA erosion. The freehold was bought back at £13,000,000 lower than we did the initial deal in 2017 at a cap rate of 4.9%.

16:03 So when we bought back this lease, the rent increased from the 5,600,000 back in the day to 7,300,000 at acquisition date. So after this transaction, the free cash flow of the group will remain at similar levels, slightly lower at the start due to the high base interest rates. However, on the long run, these will improve with annual interest expenses expected to decline. Expected to decline because we are amortizing the loan, and if the interest rates in the future go down further, we will benefit from that. And that's opposed to a rent that was going to increase 4% on an annual basis. So this transaction led to a large simplification of our balance sheet, derisking the impact it had on EBITDA erosion and holding the freehold will create more optionality with the future with this asset.

17:02 Handing back to you for current trading outlook, Greg. Thank you, Daniel. So I'm pleased to report summer trading in the city locations is comparable to the similar trends we've observed in half one and we actually see these mostly improving as half two continues. UK properties also continue to perform strongly with a gradual improvement in momentum seen in the Croatian region through the summer season. As we've already alluded to, we have a clear focus on operational delivery alongside future balance sheet simplification as we go forward into the second half. And most of all, trading is in line with the consensus of the expectations for full year '26 despite the headwinds which we are seeing in the regions.

17:58 So I think with that in mind, let's go to some Q and A, Robert. Thank you. Probably one for you, Daniel. We received a number of questions around the largest shareholder, Europlaza, rejecting the offer that was proposed. Can you give some more context perhaps as to the rationale or reason for Obviously, I see that the two questions raised here are around the decision of our largest shareholder to oppose this transaction. So as Greg already alluded to, we had a £22 offer from Fatal, which the majority of the substantial amount of shareholders we consulted supported.

18:47 Also, board supported it as being fair value. However, Europlaza has decided to not support this. And with the acceptance conditions that Fatal had later placed in their offer, the offer was not deliverable. We can, unfortunately, not detail the reasoning or go into details of the reasons why the objection was. We cannot comment on somebody on the share on the sort of the larger shareholder basis of the event. Thank you. Greg, one for you. There's a there's a question around the development sites. You've you've obviously touched on these slightly. What do you see as sort of the the next stage in in all of these projects?

19:34 So the pipeline. The pipeline. So currently at the moment, I mean, is no getting around the economic headwinds and the government support we are actually seeing in the hospitality sector, specifically in The UK, is a difficult one. I think ultimately, we obviously wanna make sure we deliver the best value we can for our shareholders. With that in mind, and I think it's no secret, you know, we will make sure that we look at all of our land bank considerably before implementation in any development at The UK. I think as what you can see at the moment, we have paused it slightly whilst we are, one, got through the strategic review process and two, then assessing what the future economical rhythm looks like in The UK before we continue.

20:24 So I think with that in mind, we are still ongoing reviewing this pipeline and at the moment we are not pushing forward all the button on the development at its current point. So we will make sure, as I've already said previously, we will make sure we make the right decision going forward for the shareholder. So watch this space on that one. Alright. Thank you. That covers a lot of different angles, including the the pressure you're seeing in The UK marketplace specifically for probably new builds and operations. It doesn't matter if it's government business rate pressure, national insurance rate pressure, employee law pressure. Just operating the business in general is becoming more and more complex in The UK, not to mention all of the supply chain issues we currently see, especially also development challenges would bring in land sites to a optimum return on investment post opening. So, yeah, I think I don't think I can get any clearer than that as a business.

21:30 And I've said it quite formally on record and publicly, you know, The UK is a challenging market to deliver future value for shareholders. Very clear. There's a question around occupancy and rate with occupancies of holding, almost holding, you know, various types of opportunity and strategy. I'll I'll answer this, to be honest. We are in a beautiful business that allows us to alternate between driving occupancy and rate. So it depends on on the market conditions and the performance of the the hotel. And where we are currently is, obviously, we've been we've been driving both occupancy and rates as much as we could. Despite the macroeconomic and geopolitical headwinds, we've been able to maintain largely occupancies.

22:19 We we assess each hotel individually and see where the opportunity is. So so in Rome, for example, we have an opportunity to improve our occupancy and continue to drive the rate strategy that we set out. This is obviously a flagship in the in the new market for us. In the more established hotels, we will really try and focus on driving the rate as much as we can as the market allows us, dependent on our local competitive set and the dynamics into each of our areas. We are running very busy hotels, so it's always in our benefit and interest to drive more rate where we possibly can. In Holland, as Daniel said, we've had significant impact of the the VAT, and not just we, but that's the industry as a whole.

23:05 So there's only so much you can drive the rate, but it's always our intention where we can to drive rate because that's more profitable for us. At the same time, if that opportunity isn't there, we'll we'll go off off the occupancy. I think we've also, in terms of the opportunities in occupancy, have been further benefited with actually the movement of Dubai isn't as strong as it is year on year. Certain parts of Turkey and Greece is actually pushing European travel trends more to Central Europe, which then is actually moving European travel into our markets. So I think it doesn't matter if it's Croatia, Amsterdam, or Germany.

23:51 The slightly stronger occupancy or the opportunities to yield on occupancy are beneficial currently from that factor. That sort of concludes the questions. So Jake, I think it's over to you for the poll. Perfect, guys. Yeah. If I may just jump back in there. And thank you very much indeed for your presentation and for addressing those questions that came in from investors. And of course, if there are any further questions that do come through, we'll make these available to you immediately after the presentation has ended. But Greg, perhaps before really now, just looking to redirect those on the call to provide you with their feedback, which I know is particularly important to yourself and the company. If I could please just ask you for a few closing comments just to wrap up with, that'd be great. Yeah. Absolutely. Thanks very much. Listen. I think from from our our aspect and where we're going, you know, the group is in a solid performance. It does have very good solid opportunities to grow the business. We have got maturing assets still coming through our current portfolio, especially coming from Hoxton, especially as we now start launching our co working, and actually our markets in The UK are very strong. But notwithstanding, this process which we have just completed gave us some valuable insights.

25:05 Those insights have informed the business of where we can create future value for all shareholders, and we look forward to reviewing that and potentially implementing it in the future. But with that in mind, thank you for support, and I look forward to seeing you next year. Thank you. Perfect, Greg. That's great. And thank you all once again for updating investors this morning. Could I please ask investors not to close this session as you will now be automatically redirected for the opportunity to provide your feedback? On behalf of the management team, we would like to thank you for attending today's presentation. That now concludes today's session. So good afternoon to you all.