NH Hotel Group posts EBITDA growth of 46% in its seasonally slowest quarter and accelerates debt reduction

- First quarter 2018 results -

• Last year’s favourable earnings momentum continues across all markets, particularly in Italy (+9.5%), Benelux (+8.1%) and Spain (+6.4%), driving Group revenue to €344.6 million, despite the fact that the first quarter is seasonally the slowest and this year the first quarter was affected by the timing of the Easter break
• Growth in both occupancy and the ADR fuelled growth in RevPAR of 3.3%
• Revenue growth, coupled with cost control, paved the way for recurring EBITDA(1) of €15.7 million, up €5 million year-on-year, implying an increase in margin of 1.3 percentage points to 4.6%
• Recurring net profit increased by €4.7 million in the slowest quarter of the year, while reported net profit totalled €21.7 million, up €46.5 million from 1Q17, driven by the sale & leaseback of a hotel in The Netherlands
• The Board of Directors has agreed to entitle the early conversion of the bonds initially scheduled for conversion in November 2018, thus culminating the debt reduction process initiated in 2015

- Upbeat guidance for 2018 -

• The good start to the year and positive outlook puts the Company in a position to reiterate its 2018 guidance for EBITDA(1) of €260 million, that together with the early conversion of the convertible bonds would bring about a significant reduction in its net debt leverage ratio to 1.2x (vs. 5.6x at the end of 2015)
• Fitch and Standard & Poor’s improved their issuer ratings in March of this year, highlighting the Group’s improved leverage metrics and solid operating and financial performance

Today, NH Hotel Group presented its first quarter 2018 earnings that follow the excellent performance observed last year, evidence an efficient operational management of the business and the results of the significant steps undertaken to boost the Group’s financial position.

According to the CEO of NH Hotel Group, Ramón Aragonés, “The Company continues to reap the rewards of the strategic decisions taken, which are leading to earnings growth year after year, in line with the ambitious targets set by the Group. In the current positive climate, NH Hotel Group continues to improve its product and service offering, boost its operating efficiency and reinforce its financial structure.”

- 1Q18 earnings performance -

Thanks to the positive momentum on display in the hotel business all of last year and so far this year, boosted by the excellent positioning of the Group’s brands, the efficient dynamic pricing strategy introduced and a favourable macroeconomic backdrop, NH Hotel Group reported revenue of €344.6 million, up 4.9% year-on-year. The Company thus delivered a year-on-year increase in revenue of €16 million in a quarter that is seasonally the slowest; moreover, the comp was affected by the timing of the Easter holidays, which fell in April in 2017 and in March in 2018.

Despite being the quarter that makes the smallest contribution to the full-year results, the Company continued to register solid growth in all markets, showing particularly strong performances in Italy, Benelux and Spain, where like-for-like revenue growth came in at 9.5%, 8.1% and 6.4%, respectively. Elsewhere, in Central Europe, like-for-like revenue growth was 4.6%, despite the timing of the Easter break, which meant a tougher comp in Germany than in other markets on account of the incidence of tourism. Lastly, Latin America was affected by exchange rate effects, albeit registering growth of 6.0% in constant currency terms.

The price management strategy in place and the ongoing improvement in the quality of the portfolio paved the way for growth in revenue per available room (RevPAR) of 3.3%. Note that the RevPAR growth reported in 1Q18 was driven by the balanced strategy of combining growth in the ADR (of 1.7% to €90) with growth in occupancy (of 1.6% to 65%) across the Company’s portfolio of hotels.

1Q18 earnings performance relative to competitors

This strategy once again enabled NH Hotel Group to outperform its direct competitors in its main destinations as a whole, specifically posting growth in its relative RevPAR 1.2 percentage points higher than that of its competitors.

During the first quarter of 2018, the Company continued to improve the quality of its asset portfolio by refurbishing 11 hotels located in Germany (2), Spain (4), the US (1), Netherlands (1) and Italy (3). The NH Collection brand, with its 75 hotels and 11,779 rooms (20% of the portfolio) continues to demonstrate its full potential in terms of guest satisfaction and premium pricing (34% higher than the ADR obtained by the NH Hotels brand). The Company continues to focus on quality, adding new sources of information for tracking guest feedback, thus increasing the number of reviews.

Trend in perceived quality

Thanks to the growth in revenue and efficient management of operating expenses, the Company delivered recurring EBITDA(1) of €15.7 million, growth of 45.9% year-on-year, marking margin expansion of 1.3 percentage points. As a result, the revenue-to-recurring EBITDA(1) conversion ratio stood at 31%, despite a higher occupancy rate, the impact of new openings and a sale & leaseback transaction in Amsterdam, framed by the Group’s asset turnover strategy. Not taking into account the impact of new openings and refurbishments, the conversion ratio rises to 40%.

Recurring net income improved by €4.7 million in the slowest quarter of the year, to -€22.9 million, while reported net profit amounted to €21.7 million, up €46.5 million from 1Q17, underpinned by the asset turnover strategy executed in The Netherlands.

NH Hotel Group’s consolidated income statement:

Reduction in net debt

Strong operating cash flow generation and asset rotation during the first quarter enabled the Group to reduce net debt to €505 million at March 31st 2018, down €150 million from year-end 2017 (over €650 million).

As part of the NH Hotel Group’s asset rotation strategy, the Company closed an agreement in February 2018 for the sale and leaseback of the building that houses the NH Collection Barbizon Palace in Amsterdam. The transaction generated gross cash proceeds of €155.5 million (the related tax will be paid throughout the year).

Elsewhere, the Board of Directors of NH Hotel Group agreed today to entitle the early conversion of the bonds that were scheduled for conversion in November 2018. These securities correspond to the €250 million convertible bond issue of 2013. This milestone marks the culmination of the debt reduction process initiated in 2015.

- Upbeat guidance for 2018 -

The good start to the year, coupled with the current performance and positive outlook, puts the Company in a position to reiterate its guidance for recurring EBITDA(1) of €260 million. This favourable evolution with the early conversion of the convertible bonds, would bring about a significant reduction in its net debt leverage ratio to 1.2x (low-end range 2018 guidance).

The Group’s improved leverage metrics and solid operating and financial performance was reflected in the improvement in the ratings assigned by Fitch and Standard & Poor’s in March of this year. Fitch Ratings raised its issuer default rating for NH Hotel Group by one notch, from B to B+, affirming its positive outlook, and lifted its senior secured rating from BB- to BB. Elsewhere, Standard & Poor’s revised its outlook from stable to positive, affirming its issuer and issue-level ratings of B and BB-, respectively.

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(1) Recurring EBITDA before the reversal of provisions for onerous contracts and gains from asset sales

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APPENDIX: Hotel business performance in 1Q18 by market

RevPAR figures: like-for-like hotel data + hotels under refurbishment

EBITDA figures: recurring EBITDA before the reversal of provisions for onerous contracts and gains from asset sales

Spain performed well throughout the first quarter, reporting RevPAR growth of 7.3%, underpinned by ADR growth of 5.0% and growth in the occupancy rate of 2.2%. In like-for-like terms, revenue in Spain was 6.4% higher, driven by the cities of Madrid, where like-for-like revenue growth was 7.6%, and Barcelona, where this metric registered growth of 1.6%, having contracted (-8.6%) during the last quarter of 2017 on the back of political uncertainty in Catalonia. Layering in the impact of the hotels being refurbished, revenue in Spain increased by 4.7% to €88.6 million. EBITDA in this market was €2.8 million higher year-on-year at €3.8 million.

Benelux sustained excellent performances in Amsterdam and Brussels such that RevPAR in this region increased by 9.1% (ADR: +6.2%; occupancy: +2.8%). Like-for-like revenue, plus the revenue from the two properties under refurbishment, totalled €71.2 million, up €5.4 million year-on-year. EBITDA in the region was 37.3% higher at €5.6 million.

Italy was the best-performing region in the first quarter, reporting RevPAR growth of 9.9%, fuelled by price expansion of 6.5% and growth in the occupancy rate of 3.2%. The performances in Rome, Milan and the secondary cities stand out. Like-for-like revenue in this market, plus revenue at the hotels under refurbishment, totalled €58.7 million, up €4.6 million year-on-year. EBITDA in Italy was €2.7 million higher year-on-year at €4.7 million.

Central Europe reported a slight drop in RevPAR (-0.6%), due mainly to the impact of the timing of the Easter break and the hotels under refurbishment in 2017 and 2018. The contraction in ADR of 2.7% was partially offset by growth in the occupancy rate of 2.1%. Like-for-like revenue in this region increased by 4.6% in the first quarter; adding in the opportunity cost of the refurbishment of two hotels, this growth narrows to 3.1% reaching €86.4 million. The EBITDA comp in Central Europe was significantly impacted by hotel refurbishment activity and the seasonality effects mentioned, thus reporting a decrease of 1.4% in this indicator to -€2.3 million.

The trend in Latin America was positive in constant currency terms: like-for-like revenue growth of 6.0% and growth of 6.7% adding in hotels under refurbishment. The adverse impact of currency effects in Argentina, Colombia and Mexico are entirely responsible for the 13.3% contraction in RevPAR in this region. EBITDA in Latin America was €4.9 million, down €0.6 million from 1Q17.

About NH Hotel Group

NH Hotel Group is a world-leading urban hotel operator and a consolidated multinational player. It operates close to 400 hotels and almost 60,000 rooms in 30 markets across Europe, the Americas and Africa, including top city destinations such as Amsterdam, Barcelona, Berlin, Bogota, Brussels, Buenos Aires, Düsseldorf, Frankfurt, London, Madrid, Mexico City, Milan, Munich, New York, Rome and Vienna.