Park Plaza Hotels. Outlook. Investment summary: Westminster chimes. Price 250.0p Market Cap 105m. Attractive business. Major uplift in profit

Transcription

1 Outlook 25 July 2011 Park Plaza Hotels Price 250.0p Market Cap 105m Year End Revenue ( m) EBITDA ( m) PBT* ( m) EPS* (c) DPS (c) P/E** (x) Share price graph 12/ (7.2) (17.8) 0.0 N/A 12/ /11e /12e Note: *PBT and EPS are normalised, excluding intangible amortisation and exceptional items. ** 0.88/ in all conversions in this report unless otherwise stated. Investment summary: Westminster chimes Park Plaza is striking the right note with the prospect of a major uplift in profit and a welcome focus on implementing its growth plans now that financial concerns have been resolved. Westminster Bridge is proving a spectacular success in its own right and as a reference for future high-profile projects. Recent independent market valuations of the estate suggest substantial hidden value. Attractive business Park Plaza has developed a collection of popular full-service quality hotels with a good geographic and guest mix, and its open-minded approach to ownership provides a welcome flexibility in terms of expansion. A long-term exclusive partnership with Carlson Hotels Worldwide for its Park Plaza brand in the EMEA region brings extremely valuable distribution, operational and cross-selling benefits. Major uplift in profit 2011 marks a further step-change for Park Plaza as substantially its largest asset, Westminster Bridge, is included for the whole period and its other London hotels are fully consolidated after the acquisition of outstanding interests at the end of last year. Other than this significant re-shaping, it is heartening that trading is reportedly strong across London, the company s dominant profit source. Continuing underlying growth and improved returns from investments over the past year should favour Valuation: Not expensive Park Plaza s prospective EV/EBITDA rating of 8x is inexpensive by international standards even if a preponderance of risk factors (see later) may count against a full re-rating. Admission to the Official List (see for Prospectus) promises increased recognition, not least of the striking discount of the share price to net assets, heightened by recent independent market value reports, which indicate substantial hidden value. Share details Code PPH Listing FULL Sector Travel & Leisure Shares in issue 41.8m Price 52 week High Low 294.5p 137.5p Balance Sheet as at December 2010 Debt/Equity (%) 182 NAV per share (c) 486 Net borrowings ( m) Business Park Plaza Hotels is an integrated owner and operator of four-star, deluxe and boutique hotels in gateway cities and regional centres predominantly in Europe. Valuation e 2012e P/E relative 155% 131% 86% P/CF EV/Sales ROE 3% 4% 7% Revenues by geography (2010) UK Europe c 62% c 38% Analysts Richard Finch +44 (0) Jane Anscombe +44 (0) consumer@edisoninvestmentresearch.co.uk Park Plaza Hotels is a research client of Edison Investment Research Limited

2 2 Edison Investment Research Outlook Park Plaza Hotels 25 July 2011 Investment summary: Westminster chimes Company description: Affordable luxury hotel operator Park Plaza Hotels is an owner and operator of full-service, four-star, deluxe and boutique hotels in gateway cities and regional centres, predominantly in Europe. Its portfolio comprises 25 hotels (c 5,400 rooms), marketed under the brands Park Plaza Hotels & Resorts (exclusive partnership with Carlson Hotels Worldwide in EMEA) and art'otel (owned). Current development projects are set to add c 700 rooms by the end of 2013 (a site for a new hotel in West London has also been acquired). There is a minority interest in Arenaturist, a leading Croatian hospitality business (c 2,800 rooms). The company was floated on AIM in 2007 upon its formation from a combination of the hotel assets of its two largest shareholders and has now moved to the Official List. Valuation: Not expensive Although Park Plaza s prospective EV/EBITDA rating of 8x is inexpensive compared with that of European majors (an average of about 9.5x for InterContinental, Millennium & Copthorne, Accor, Sol Meliá and NH Hotels), some discount may be justified by their record, the company s scale of net debt (albeit falling and well within facility) and the presence of effectively a majority shareholder with a tendency for related party transactions. Arguably more intriguing is the very marked discount of the share price to net assets, heightened by recent independent market value reports, which indicate substantial hidden value. Sensitivities The hotel industry is highly cyclical and dependent on the health of the global economy. Park Plaza is competing for a share of disposable consumer income in a very competitive market. Geo-political events and natural disasters can have a significant impact on profitability, so the company maintains a diverse guest nationality mix to minimise risk. A number of hotels are jointly owned and require agreement with the co-owner on strategic decisions. The interests of the chairman and chief executive have material control over the company; there is a history of related party transactions. Park Plaza is significantly reliant on its relationship with Carlson; termination of its territorial licence by Carlson is possible only in very limited circumstances and in any case the relationship is strong. There is considerable foreign exchange exposure as well as a debt financing and interest rate risk. A guaranteed yield to owners of units at Westminster Bridge for five years may not be covered by net income from those units. Financials The company seeks to reduce the seasonality of its business by optimising its guest mix (particularly business against leisure) and its impact on profit by securing as flexible a cost base as possible. It also enjoys substantial recurrent revenue (about a quarter of total 2010 sales) through agreements with business travel agencies and large corporates for discounted room rates. Park Plaza reports half-yearly, with the results for the six months to June due in late August.

3 3 Edison Investment Research Outlook Park Plaza Hotels 25 July 2011 Company description: Affordable luxury hotel operator Attractive portfolio Park Plaza has developed a collection of popular, full-service, four-star, deluxe and boutique hotels with a good geographic and guest mix (50% business customers). With a focus on European cities (gateway and regional), there is particular representation in the important lodging markets of London, Amsterdam and Berlin (76% of total EBITDA in 2010 and henceforth a likely much higher share owing to a change in estate mix). The advent of Park Plaza Westminster Bridge is bringing a step-change not only in the company s financials but in commercial and marketing opportunity as its flagship. In particular, as one of Europe s leading conference hotels, Westminster Bridge should boost the company s already significant food and beverage operations (26% of total revenue last year). The pipeline includes art otels in Amsterdam and London and a Park Plaza in Nuremberg. Exhibit 1: Portfolio (Park Plaza brand unless stated otherwise) Note: Fully owned since (previously 50-55%); Assuming continued control of sold rooms (until at least 2016); Fully open since 9.10; 50% owned; * Excluding minority interest in Arenaturist (2 868 rooms) in Croatia. Owned and leased Rooms UK (owned) London: Riverbank 394 Sherlock Holmes 119 Victoria 299 Plaza on the River 66 Westminster Bridge (since March 2010) 1,019 Leeds (managed only until August 2010) 185 Nottingham (managed only until August 2010) 178 Total 2,260 Netherlands (owned/co-owned) Amsterdam: Vondelpark 138 Victoria 306 Utrecht 120 Eindhoven 104 Amsterdam Airport (since April 2010) 342 Total 1,010 Germany and Hungary (leased) Berlin (5 hotels, of which 3 art otels) 655 Dresden (art otel) 174 Budapest (art otel) 165 Cologne (art otel) (since March 2010) 218 Total 1,212 Managed: UK (County Hall, London) 398 Franchised: UK (Belfast and Cardiff) 235 Germany (Trier) 150 Israel (Tel Aviv) 182 Total 5,447 * Source: Park Plaza Hotels

4 4 Edison Investment Research Outlook Park Plaza Hotels 25 July 2011 Flexible model Management prides itself on the breadth of interests and contractual arrangements in its hotels, which allow it to maximise opportunities from the varied markets in which it operates and may enter. As can be seen in the table above, ownership (wholly or jointly) accounts for 60% of overall room stock and the entirety of UK and Netherlands operations. It also applies to each of the company s current projects (c 700 rooms). Although it is capital intensive, ownership offers scope for asset appreciation. All but one of the company s hotels in Germany and Hungary are under long-term operating leases (typically, 15 to 25 years), while the sole management contract (Park Plaza County Hall London) runs until Franchise arrangements cover just 10% of room stock (four hotels). Revenue comes from brand royalty or licensing fees (typically 3.5% of hotel revenues), one-off fees on opening under the company s brands and ancillary services. Fully branded All of the company s hotels are branded either Park Plaza Hotels & Resorts (84% of rooms) or art otel. While distinct in terms of customer and size (the former targets the business as well as leisure market and favours larger properties, ie up to 300 rooms), both brands address the growing affordable luxury segment (high quality at attractive rates). Outside Europe, the Middle East and Africa, where the company holds an exclusive right to use the brand in perpetuity under its agreement with Carlson, the Park Plaza brand is being used at some 20 hotels, with a similar number in development, mainly in China and India where it was recently voted Best Mid Range Hotel Brand at the Outlook Traveller Awards. The art otel brand self-evidently targets those with an interest in art and culture by aspiring to be represented at key cultural hot-spots throughout Europe ( and benefits from the increasing appeal of city breaks afforded by low-cost air travel and enhanced choice spawned by the internet. Last year s opening in Cologne, the first since acquisition of the brand in 2007, was expected to reinvigorate the brand (existing properties in Berlin, Dresden and Budapest) and spur development (Amsterdam and London Hoxton due to open over the next two years). While ownership of the brand is subject to a perpetual licence in favour of the brand founder elsewhere in Europe (France, Germany, Italy, Spain, Austria and Switzerland), there is reassurance that the founder must negotiate with the company in good faith about hotel management. Bumper distribution Inclusion in Carlson s central reservation and distribution systems should continue to be hugely positive for the company (already 40% of room revenue in 2010). In addition to reliance on a proven and much larger and more sophisticated system than potentially in-house, there is the signal benefit of access to Carlson s guest loyalty and travel reward programmes as well as to referral custom from other hotels on the reservation system. In particular, the recent launch of the Club Carlson guest loyalty programme (formerly goldpoints plus) with an array of new benefits is an important part of Carlson s strategic commitment ( Ambition 2015 ) to help hotels grow revenue. A rise of 24% in membership in 2010 shows that its goal of doubling loyalty membership by 2013 to 10m was well on track even before the re-launch last March. Carlson believes that the growth in programme members per room over the last three years was the highest in the industry, eg more

5 5 Edison Investment Research Outlook Park Plaza Hotels 25 July 2011 than twice that of InterContinental and Hyatt. Park Plaza contributed to this surge by signing up c 60% more members (total 47,500) last year than in Exposure to travel agents on Carlson s Look to Book market-leading agent reward scheme may be lucrative for the company not only for supplementary business but also as room rates from members are reportedly much higher than from non-members. Access to Carlson s systems covers art otel bookings as well as Park Plaza. Strategy In pursuit of its declared aim to become one of the leading hotel owner/operators in its existing markets Park Plaza has elicited the following strategy: Brand development: Participation in Carlson s guest and travel agent loyalty schemes and central reservation system will be used to raise brand awareness. New brands for existing or new hotels will be considered, as will new branding concepts. Focus on revenue growth: In addition to joining more affiliation programmes with airlines, car rental companies and others, the company aims to build its conference and banqueting income and ancillary activities such as food and beverage branded outlets. Sales and marketing resources will be enhanced. External growth: Further acquisitions, joint ventures and developments are planned. Management Park Plaza s senior management (see below), which is based at the company s head offices in London and Amsterdam, is backed by highly experienced local management. President and CEO Boris Ivesha has almost 50 years experience in the hotel industry including as general manager of the Royal Horseguards Hotel, London, and Managing Director of the Carlton Hotel, Tel Aviv. He established the Yamit Hotel, Tel Aviv, in 1984 (now the Park Plaza Orchid, franchised by the company). In 1994 he brought the Park Plaza Hotels & Resorts brand to the Red Sea Group and partners. CFO Chen Moravsky joined the company in 2005 from the Red Sea Group where he was financial director. He was previously an audit manager at Deloitte. Non-Executive Chairman Eli Papouchado is founder and former chairman of the Red Sea Group, the company s largest shareholder. He has been actively involved in the development, financing, acquisition and management of leading hotels in Israel and Europe and the development of shopping malls and large residential projects in the US, Eastern Europe and the Middle East. He is a former chairman of the Israel Hotel Association.

6 6 Edison Investment Research Outlook Park Plaza Hotels 25 July 2011 Market optimism The economy of London and strength of the hotel market appears undeterred by happenings not only in the rest of the UK but across Europe and the world. Jonathan Langston, managing director, TRI Hospitality Consulting, June 2011 TRI Hospitality Consulting has newly forecast current year revenue per available room (RevPAR) growth of more than 3% for the London hotel market, which is Park Plaza s principal source of profit (estimated 80% in 2011). While this marks a slowdown, it is creditable against an astonishing (TRI Hospitality) performance last year, which exceeded pre-recession levels (see table below). Moreover, 2011 will not benefit from Farnborough (biennial) nor from the timing of Ramadan, which appears unconducive to summer travel from the Middle East. Not only did the Royal Wedding not deliver the expected boost, but it was arguably a negative, with significant occupancy declines around the event. Encouragingly, the strong pickup in commercial demand in May, which drove a RevPAR gain of 14%, even if flattered by exceptionals such as the Champions League Final and the US president s visit, suggests that London s continuing capacity to surprise may prove industry forecasts cautious. Accor has newly reported brisk activity in London in H111, with like-for-like RevPAR up by 8% in its UK upscale and midscale properties, while Marriott saw Europe grow RevPAR by 8% in the five months to May. VisitBritain has raised its forecast increase in 2011 visitor numbers to 3% (+8% in the four months to April), and spend to 4%. While sterling weakness against the euro (9% year-on-year) should favour European inbound visits, similar softness in the dollar against sterling is still permitting solid growth in visits (+9% North America in the four months to April). Exhibit 2: Changes in RevPAR since 2006 for major Park Plaza markets 15 % growth, y-o-y YTD 2011 London Amsterdam UK Regional Source: TRI Hospitality Consulting However, optimism about demand needs to be tempered by caution about rising costs, eg energy, food and National Insurance, falling discretionary spend, eg food and beverage, and likely reduced scope for further efficiencies after the effective cost control measures during the downturn. TRI Hospitality is expecting gross operating profit per available room to rise by just 1% this year, compared with 14% in However, given near-capacity occupancy in the market, any supplementary rate-led RevPAR rise may prove lucrative. Performance in 2012 may reasonably be envisaged to gain from the Queen s Diamond Jubilee and the Olympic and Paralympic Games as well as the predicted improvement in the economy.

7 7 Edison Investment Research Outlook Park Plaza Hotels 25 July 2011 Although not material in overall EBITDA terms (estimated 2% this year), it is worth mentioning that the UK provincial market continues to find the going very tough owing to pressures on consumer and commercial spending and therefore RevPAR is likely to be little better than flat this year. Park Plaza is in any case focused on refurbishing its two regional properties (Leeds and Nottingham), acquired last summer. Amsterdam appears set fair with current and proposed expansion across the board unlikely to correct longstanding undercapacity in the face of sustained and burgeoning demand. May saw a stark acceleration in RevPAR gain (18%), even from a buoyant Q1 (11%). Apparent underperformance by Park Plaza in the year to date (Netherlands EBITDA fell slightly) is attributed directly to extensive renovation. Sensitivities The hotel industry is highly cyclical and dependent on the health of the global economy. Park Plaza is competing for a share of disposable consumer income, which may be eroded by economic downturn. Geo-political events and natural disasters can have a significant impact on profitability. The company maintains a diverse guest nationality mix to minimise this risk. A number of hotels are jointly owned with Elbit Imaging Ltd, one of Israel s leading holding companies with particular expertise in real estate development. Strategic decisions in relation to such hotels require Elbit s agreement. Interests of the chairman and chief executive have material control over the company. There is a propensity for related party transactions, which are subject to arm s-length terms of relationship agreements. Park Plaza is significantly reliant on its relationship with Carlson. However, termination of its territorial licence by Carlson is possible only in very limited circumstances and in any case the relationship remains strong. Much of the company s cost base is fixed. This risk can be mitigated by effective yield management and the development of as flexible a business model as possible. An active development programme may tie up balance sheet capacity and lead to asset write-downs. Growth depends on the availability of suitable sites and access to funding. There is considerable foreign exchange exposure. There is also a debt financing and interest rate risk. A guaranteed yield to owners of units at Westminster Bridge for five years may not be covered by net income from those units. Valuation Although Park Plaza s prospective EV/EBITDA rating is inexpensive compared with that of European majors (an average of about 9.5x for InterContinental, Millennium & Copthorne, Accor, Sol Meliá and NH Hoteles), some discount may be justified by their record, the company s scale of net debt (albeit falling and well within facility) and the presence of effectively a majority shareholder with a history of related party transactions. Arguably more intriguing is the very marked discount of the share price to net assets in the company s accounts and even more so in recent independent market value reports by Savills and

8 8 Edison Investment Research Outlook Park Plaza Hotels 25 July 2011 Colliers. At December 2010 reported NAV per share ( 203.2m net assets/41.8m shares excluding treasury) was 4.86, ie a discount of c 40% to the current share price (242p or 2.76). The aforementioned recent market valuations of 185m for Westminster Bridge (assuming stabilised trading) against 160.5m in the 2010 accounts and 433m for the rest of the estate against 445m in the 2010 accounts suggest considerably greater hidden value. By comparison, real estateoriented Millennium & Copthorne, which shuns the asset-lite approach of InterContinental and Accor, stands at a discount of c 25% to net assets at end 2010 with NAV per share c 670p (net assets 2.1bn/313m shares). Scope exists therefore for the discount to be closed even if the extent, to which it should, is a quite inexact science. Exhibit 3: Peer comparison of prospective EV/EBITDA rating Note: Prices as at 20 July EV/EBITDA Market cap Net debt EV Park Plaza Hotels m 349m 464m Millennium & Copthorne bn 0.2bn 1.8bn InterContinental 10.2 $5.7bn $0.7bn $6.4bn Accor bn 0.3bn 7.1bn Sol Meliá bn 0.9bn 2.3bn NH Hoteles bn 0.6bn 1.9bn Marriott 13.9 $12.7bn $3.4bn $16.1bn Starwood 13.4 $11.1bn $2.1bn $13.2bn Hyatt 14.0 $6.6bn $0.9bn $7.5bn Source: Thomson Datastream Finances represents a further step-change for Park Plaza as substantially its largest asset, Westminster Bridge, is included for the whole period and its other London hotels are fully consolidated after the acquisition of outstanding interests at the close of last year. Furthermore, other than this significant re-shaping of the company, it is heartening that underlying trading is confirmed by management to be strong across London, the main profit centre. Our assumption of RevPAR growth of c 8-10% in the capital appears reasonable, given the scope to drive room rate on already very high occupancy (c 90% at Westminster Bridge in H210) and to exploit the new Westminster Bridge at full speed. We expect little EBITDA margin advance on H210 in view of rising cost pressures. Elsewhere the picture is mixed. EBITDA is likely to be down slightly in the Netherlands owing to renovations at two properties in Q1, but RevPAR (estimated +10% for the year) is robust in line with a dynamic market. There will also be increasing return from improvements to the important Amsterdam Airport hotel, which was generating meagre RevPAR on acquisition a year ago. In Germany and Hungary the prospect may be for no more than further progress towards break-even at the EBITDA level despite renegotiation of certain leases at better rates and a pickup in trading. 11% like-for-like RevPAR gain in the period to date suggests that our projection (flat), reflecting concern at acknowledged oversupply of rooms, may be cautious. A lower contribution is due from Management & Holdings owing partly to fewer rooms under managed and franchised contract and losses, if smaller, will persist at the Croatian associate as wholesale renovations are still far from complete.

9 9 Edison Investment Research Outlook Park Plaza Hotels 25 July 2011 Exhibit 4: Analysis of owned and leased hotels revenue Note: UK: 55% of Sherlock Holmes & Riverbank/Plaza on River + 50% of Victoria until 12.10, then 100% Netherlands: 50% of Victoria, Utrecht & Amsterdam Airport. *WB 3.10, Leeds + Nottingham 8.10, Amsterdam Airport 4.10, art otel Cologne 3.10, art otel Amsterdam + art otel Berlin extension H112. Year End Dec ( m) 2009 H110 H210 FY e 2012e UK London (excl West Bridge) Occupancy 84.8% 85.3% 85.7% 85.8% 86.8% 87.7% Change Flat +3% -1% +1% +1% +1% Ave room rate Change -5% +1% +11% +6% +7% +5% RevPAR Change -4% +4% +10% +7% +8% +6% Rooms Room F&B etc m Revenue Westminster Bridge Occupancy % 90.0% 82.0% 82.0% 83.0% Change - N/A N/A N/A Flat +1% Ave room rate Change - N/A N/A N/A +10% +5% RevPAR Change - N/A N/A N/A +10% +6% Rooms (average) * ,019 1,019 Room F&B etc m Revenue Leeds + Nottingham (363 rooms) * Total m Revenue Exchange rate Total m Revenue Netherlands Occupancy 84.1% 82.1% 84.5% 83.3% 85.0% 86.0% Ave room rate RevPAR Change -19% -1% +11% +5% +10% +7% Rooms Room F&B etc Revenue Amsterdam Airport (171 rooms ) * art otel Amsterdam (105 rooms) * Total Revenue Germany and Hungary Occupancy 72.6% 69.3% 76.5% 72.9% 73.0% 73.0% Ave room rate RevPAR Change +8% +7% +8% Flat +4% Rooms Room F&B etc Revenue art otel Cologne (218 rooms) * art otel Berlin ext n (60 rooms) * PP Dresden (discontinued) Total Revenue Total Source: Edison Investment Research

10 10 Edison Investment Research Outlook Park Plaza Hotels 25 July 2011 Exhibit 5: Analysis of profit Note: * Westminster Bridge 3.10, Leeds + Nottingham 8.10 (previously managed only), Amsterdam Airport 4.10, art otel Cologne 3.10, art otel Amsterdam + art otel Berlin extension H112. Year End Dec ( m) 2009 H110 H210 FY e 2012e EBITDA UK London (excl West Bridge) Margin 39% 38% 30% 34% 34% 34% Westminster Bridge * Margin - 14% * 35% 29% 35% 35% Leeds + Nottingham Margin % 15% 15% 20% m Total Exchange rate m Total Netherlands Existing Margin 33% 32% 39% 36% 32% 36% Amsterdam Airport - neg. * Margin % 12% 15% 20% Art otel Amsterdam (0.3) * Total Germany and Hungary Existing (3.0) (1.3) 1.0 (0.3) neg. 1.2 Margin - - 8% - - 5% Art otel Cologne - (0.6) * 0.6 neg. neg. 0.3 Margin % - - 5% Art otel Berlin extension neg. * PP Dresden (discontinued) (0.7) Total (3.7) (1.9) 1.6 (0.3) neg. 1.5 Owned & Leased Hotels Management & Holdings Total EBITDA Depreciation (9.0) (4.2) (8.2) (12.4) (18.0) (19.0) Trading Profit Associate (Croatia) (1.2) (1.1) (1.3) (2.4) (2.0) (1.0) Financial expenses (18.9) (11.0) (8.9) (19.9) (22.0) (20.0) Financial income Interest expenses guaranteed to unit holders - - (4.3) (4.3) (10.0) (10.0) Pre-Tax Profit/(Loss) Adj. (7.2) (3.1) Source: Edison Investment Research Cash flow Successful negotiation of long-term bank facilities (c 430m, substantially until ) and projected cuts in net debt (we estimate 326m at end 2012) from improving trading cash flow mark a welcome improvement in the company s financial structure. In particular, disappointment at not funding the development of Westminster Bridge by the sale of individual rooms to investors (barely half of the 1,019 units were sold) was eased recently by the refinancing of existing facilities for the property with Bank Hapoalim. Proceeds from the sale of these units ( 176m) appears as an advance payment on the balance sheet as the company still controls the sold rooms, if temporarily, under the terms of the sale process. Interest payable should be broadly unchanged in 2011 after adjusting for last year s 9m breakage of a financial swap, which we show as exceptional. There will be a full year of payment of interest to purchasers of rooms at Westminster Bridge. We have assumed no tax payable in either year owing to large tax losses which can be carried forward.

11 11 Edison Investment Research Outlook Park Plaza Hotels 25 July 2011 Exhibit 6: Financial summary '000s e 2012e Year end 31 December IFRS IFRS IFRS IFRS PROFIT & LOSS Revenue 8 0, , , ,000 EBITDA 16,200 37,600 56,000 62,000 Operating Profit (before amort. and except.) 7,200 25,200 38,000 43,000 Intangible Amortisation Exceptionals Operating Profit 7,200 25,200 38,000 43,000 Net Interest (13,200) (17,300) (27,000) (27,000) Associates (1,200) (2,400) (2,000) (1,000) Exceptionals 0 55, Profit Before Tax (norm) (7,200) 5,500 9,000 15,000 Profit Before Tax (FRS 3) (7,200) 60,500 9,000 15,000 Tax (200) 1, Profit After Tax (norm) (7,400) 6,900 9,000 15,000 Profit After Tax (FRS 3) (7,400) 61,900 9,000 15,000 Average Number of Shares Outstanding (m) EPS - normalised (c) (17.8 ) EPS - normalised and fully diluted (c) (17.8 ) EPS - (IFRS) (c) (17.8 ) Dividend per share (c) Gross Margin (%) EBITDA Margin (%) Operating Margin (before GW and except.) (%) BALANCE SHEET Fixed Assets 291, , , ,000 Intangible Assets 44,900 42,300 42,000 42,000 Tangible Assets 18 8, , , ,000 Apart-hotel units sold to unit holders 0 160, , ,000 Investments 58,000 49, ,000 50,000 Current Assets 440,300 77, , ,000 Construction in progress 304, Restricted deposits 66,500 22,000 22,000 22,000 Stocks 500 1,400 2,000 2,000 Debtors 14,400 17,200 18,000 19,000 Cash 45, ,000 33,000 35,000 Other 8,300 5,8 00 5,000 5,000 Current Liabilities (359,600) (220,000) (217,600) (216,200) Creditors (17,900) (62,500) (65,000) (68,000) Deposits from unit holders (63,8 00) (18,200) (18,200) (18,200) Short term borrowings (277,900) (139,300) (134,400) (130,000) Long Term Liabilities (232,500) (512,100) (499,100) (476,500) Long term borrowings (171,8 00) (261,600) (247,600) (225,000) Advance payments from unit holders 0 (176,500) (176,500) (176,500) Other long term liabilities (60,700) (74,000) (75,000) (75,000) Net Assets 139, , , ,300 CASH FLOW Operating Cash Flow (72,600) 37,000 54,000 61,000 Net Interest (11,900) (21,900) (22,500) (22,100) Tax (100) Capex (3,300) (23,100) (10,000) (10,000) Acquisitions/disposals 0 51,600 (600) (5,400) Financing Dividends (500) Other (33,700) (9,600) 0 0 Net Cash Flow (121,600) 43,600 20,900 23,000 Opening net debt/(cash) 28 2, , , ,000 HP finance leases initiated Other Closing net debt/(cash) 403, , , ,000 Source: Company accounts/edison Investment Research

12 12 Edison Investment Research Outlook Park Plaza Hotels 25 July 2011 Growth Profitability Balance sheet strength Sensitivities evaluation 40 Litigation/regulatory Pensions Currency Stock overhang Interest rates Oil/commodity prices EPS normalised (c) e 2012e ROCE 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% e 2012e Interest cover e 2012e Growth metrics % Profitability metrics % Balance sheet metrics Company details EPS CAGR 08-12e N/A ROCE 11e 6.7 Gearing 11e 165% Address: EPS CAGR 10-12e 47 Avg ROCE 08-12e N/A Interest cover 11e 1.4 Vinoly Tower, 5th floor Claude Debussylaan 14 EBITDA CAGR 08-12e N/A ROE 11e 4.3 CA/CL 11e MD Amsterdam The Netherlands EBITDA CAGR 10-12e 28 Gross margin 11e N/A Stock turn 11e 3.7 Phone Sales CAGR 08-12e N/A Operating margin 11e 19.5 Debtor days 11e 34 Fax Sales CAGR 10-12e 23 Gr mgn/op mgn 11e 5.1 Creditor days 11e Principal shareholders % Management team Red Sea Group 44.7 President and CEO: Boris Ivesha Molteno Limited 19.8 Almost 50 years in the hotel industry including general Aroundtown Property Holdings 9.0 manager of the Royal Horseguards Hotel, London and Managing Director of the Carlton Hotel, Tel Aviv. Established the Yamit Hotel, Tel Aviv in 1984 (now the Park Plaza Orchid, franchised by the company). In 1994 he brought the Park Plaza Hotels & Resorts brand to the Red Sea Group and partners Excluding treasury shares CFO: Chen Moravsky Forthcoming announcements/catalysts Date * Joined the company in 2005 from the Red Sea Group where he was financial director. He was previously an audit manager Interim results Late August 2011 * at Deloitte. Note: * = estimated Non-Executive Chairman: Eli Papouchado Founder and former chairman of the Red Sea Group, the company s largest shareholder. Active involvement in development, financing, acquisition and management of leading hotels in Israel and Europe and development of shopping malls and large residential projects in the US, Eastern Europe and the Middle East. Former chairman of the Israel Hotel Association. Companies named in this report InterContinental Hotels, Whitbread, Millennium & Copthorne, Accor, NH Hoteles, Sol Meliá, Marriott, Starwood, Hyatt EDISON INVESTMENT RESEARCH LIMITED Edison Investment Research is Europe s leading investment research company. It has won industry recognition, with awards in both the UK and internationally. The team of more than 70 includes over 40 analysts supported by a department of supervisory analysts, editors and assistants. Edison writes on more than 350 companies across every sector and works directly with corporates, fund managers, investment banks, brokers and other advisers. Edison s research is read by institutional investors, alternative funds and wealth managers in more than 100 countries. Edison, founded in 2003, has offices in London and Sydney and is authorised and regulated by the Financial Services Authority ( DISCLAIMER Copyright 2011 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Park Plaza Hotels and prepared and issued by Edison Investment Research Limited for publication in the United Kingdom. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison Investment Research Limited at the time of publication. The research in this document is intended for professional advisers in the United Kingdom for use in their roles as advisers. It is not intended for retail investors. This is not a solicitation or inducement to buy, sell, subscribe, or underwrite securities or units. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment. A marketing communication under FSA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison Investment Research Limited has a restrictive policy relating to personal dealing. Edison Investment Research Limited is authorised and regulated by the Financial Services Authority for the conduct of investment business. The company does not hold any positions in the securities mentioned in this report. However, its directors, officers, employees and contractors may have a position in any or related securities mentioned in this report. Edison Investment Research Limited or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. This communication is intended for professional clients as defined in the FSA s Conduct of Business rules (COBs 3.5). Edison Investment Research Lincoln House, High Holborn, London, WC1V 7JH tel: +44 (0) fax: +44 (0) Registered in England, number Edison Investment Research is authorised and regulated by the Financial Services Authority.