PPHE Hotels says it reacted quickly to combat Covid-clattered trade between March and June this year. “Swift action was taken to preserve cash and reduce costs and overheads,” it said in a 28 July trading statement.
Occupancy at the company’s hotels fell from 77% to 11% in the second quarter of 2020. Total room revenue in the period fell by an even-sharper 92% from £65.7 million to just £5.1 million. PPHE took advantage of government job retention schemes, reduced working hours and instituted voluntary salary reductions. It said it was helped by forgoing contract renewals and that the business rates holiday in the UK was supportive.
Boris Ivesha, PPHE’s President and CEO, said the group is currently operating around 80% of its portfolio albeit with limited services as required by social distancing precautions. "I am delighted to welcome guests again to our properties, the majority of which have now reopened, and I am encouraged by the strong leisure demand for weekend city breaks,” said Mr Ivesha.
Eight out of the group's ten hotels in the UK are open following relaxation of restrictions on 4 July. The company said that its Park Plaza Westminster Bridge, London, which traded during lockdown, has capitalised on the return of the short-term leisure demand. Five of the six hotels in the Netherlands, including the Park Plaza Victoria in Amsterdam are open. In Germany and Hungary, six out of eight hotels have resumed operations. In Croatia, four hotels and all campsites, including the Arena Grand Kazela Campsite, are trading again.
The company said: “As hotels have reopened, the strategy has been to rebuild momentum and optimise occupancy, offering guests attractive and fully flexible rates with a view to building the average room rate as guest confidence returns, travel restrictions ease and international travel resumes, resulting in the level of enquiries on long lead-time bookings increasing.”
PPHE said trading in January and February was in line with its expectations. Following the onset of the pandemic in the second quarter, however, revpar fell from £97 to £10. PPHE said it has “significant” financial reserves to cope with the current trading environment. As at 30 June 2020, the cash position of the group amounted to £137 million compared to £150 million as of 31 March 2020. The company also withdrew a proposed final dividend payment. It said it had secured £20 million of new funding against Park Plaza London Waterloo from Santander UK plc. It also said that financial covenant testing and amortisation of existing facilities have been postponed until summer 2021 and that a detailed overview of group cash flow will be included with full interim results due for publication on 3 September.
PPHE shares are listed on the London Stock Exchange. The price rose 1.3% as the trading statement was issued. They trade at half the value, however, seen in late February.
Insight: PPHE is – or at least was – keen to develop its portfolio. “We have a proven development strategy, targeting real estate in prime locations with upside potential,” it said in its 2019 annual report. If the Park Plaza hotelier can afford to stick to its guns – it is a big “if” - it might find opportunities amid the corporate coronavirus wreckage.
The 28 July trading update shows that Covid bashed PPHE as hard as the best of them. As with many peers, the lockdown lockouts put pressure on the balance sheet and ultimately PPHE ambitions will hinge on financial strength and the confidence it can instill among lenders and other providers of capital.
The owner-operator business model provides comfort. It is good news, of a sort, that the company has pushed financial covenant testing into 2021 - though it also raises questions about whether it is in breach of covenants and, if it is, by how much?
Meanwhile the mildly positive July 28 share price reaction suggests investors are at least sanguine, at least for the moment. That said, the shares have halved since February and equity investors are unlikely to relish the thought of adding risk.
PPHE is of such a size, however, that small-scale acquisitions could make a big difference. At the last count it had 45 properties under operation in five European countries. It may be that independent properties, or small portfolios suited to PPHE appetites, seek to recoup value by selling up.
“We are continuously seeking out and evaluating new opportunities as well as re-developing and repositioning our own assets to benefit all.” That was pre-Covid, of course. Might PPHE use distress across the industry to go hunting? Maybe.