H119 has seen PPHE again deliver both operationally and from a property perspective. Like-for-like EBITDA increased by 6%, driven by London, its main profit source, clearly outperforming a buoyant market and benefiting from maturing room stock. Successful property development is reflected in a further rise in EPRA NAV per share, up 5% to £25.52 yoy (surplus of over £700m to book value) and confirmation that its extensive £300m investment programme is well in hand. Despite tougher H2 comparatives we are maintaining our 2019 EBITDA forecast but for a £5m IFRS 16 uplift. An enhanced contribution from London should make up for relative shortfalls in Croatia (competition) and Netherlands (delayed reopenings).
Adjusting for the £2.6m boost from IFRS 16 adoption (the standard is not being applied retrospectively), total like-for-like EBITDA rose 6% in H119 (see page 2 for details). This was achieved despite contrasting fortunes for PPHE’s two main firsthalf markets, London and Amsterdam. Although individual property performance is not disclosed, we assume core London RevPAR of c 8%, which is well ahead of the market (up 5% against a flat H118). Also, key 2017 openings, Waterloo and Park Royal, look to have contributed materially to 8% gain in underlying UK EBITDA. However, the Netherlands saw unchanged pre-IFRS 16 EBITDA owing to renovations and a quiet market that offset payoff from newly repositioned flagship Victoria Amsterdam.
On stated investment plans and a confident outlook, we are comfortable with our H219 forecasts, bar adjustment for IFRS 16 (+£2.6m EBITDA) and to mix. We expect London buoyancy to compensate for Croatia H219 EBITDA down 7% on competitive and cost pressures and Netherlands FY19 EBITDA up 5% against the original 17% forecast because of delays reopening Vondelpark and Utrecht.
Although EV/EBITDA is undemanding at 12x 2019e, we focus on PPHE’s substantial hidden reserves, as shown by the updated EPRA NAV per share of £25.52 at June 2019, which should be materially accentuated by planned investment. According to our estimates, the share price implies a capitalisation yield on PPHE properties of 6.6%, against c 5% weighted average prime yield in the company’s markets. Applying a 20% discount to NAV (as typically traded by US Hotel REITs) to our SOTP valuation gives £24.46 as PPHE’s value per share.