The proposed sale and leaseback of Park Plaza Waterloo, the largest London hotel opening in 2017, is impressive testimony to the success of the PPHE Hotel Group Ltd (LON:PPH) business model. Its endorsement as developer and asset owner is evident not only in an effective c 100% return in just four years but in its reinforcement of 2016 market valuations of other key assets. Moreover, a long-term lease on attractive terms (low yield of 3.5%) retains interest in this positive complement to its unmatched South Bank presence (c 2,500 rooms). While our forecasts are unchanged, we highlight the release of c £80m for reinvestment and an additional c 300p/share (£126m), of which c 85p realised, to the company’s latest ‘fair value’ adjustment of c 1,000p/share to the end December 2016 NAV of 782p/share.
Following last year’s special dividend of 100p/share, the Waterloo transaction further underlines PPHE’s substantial hidden reserves. An independent valuation of £250m reveals a doubling of book value and while this is only 65% released owing to provision of a leaseback, the sales price of £161.5m still yields a premium of c 85p/share. Stated rent of £5.6m pa reflects a yield of just 3.5% and is comfortably absorbed in a business generating in excess of £10m EBITDA pa, when stabilised. While this may not be met by the interest saving on expected £80m net cash proceeds, the P&L impact is not material and, most important, PPHE retains its trading position in a successful property. There is no change to net debt as the existing £80m construction debt is replaced by a £160m finance lease less the aforementioned proceeds.
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