Action Hotels plc (LON:AHCG), the leading owner, developer and asset manager of branded three and four-star hotels in the Middle East and Australia, announced today its unaudited results for the six months ended 30 June 2017.
Key Highlights and Financial Overview
Year-on-year growth in key financial performance indicators – Revenue (up 10%) and Gross profit (up 6%)
Total reported revenue increased to $28.1m (30 June 2016: $25.6m), driven by new hotel rooms
Gross profit increased to $19.5m (30 June 2016: $18.4m)
Adjusted EBITDA1 decreased by 6.3% to $6.8m (30 June 2016: $7.2m), mainly due to the full year effect of non-operating expenses in the newly opened hotels as they grow through the maturity stage
Net loss before tax of $5.3m (30 June 2016: Net loss of $3.9m), as expected and primarily driven by the impact of increased financing costs to develop the pipeline and the impact of depreciation newly opened hotels
LTV of 55% (2016: 51%)
Property asset values have increased by $35m to $493m since 31 Dec 2016, resulting in a net asset value (NAV) of $192m at 30 June 2017 (31 December 2016: $195 m)
Adjusted NAV (adding back deferred tax liability and assets) is $201m compared to $206m as at year end.
Adjusted NAV per share was USD 1.36/GBP 1.06 (2016: USD 1.40/GBP 1.09)
Interim dividend of GBP 0.77p, a 1.3% increase on the same period last year
Operational Highlights
2,181 operating rooms at the end of June, a 13% increase from H1 2016 (30 June 2016: 1,928) with the openings of Tulip Inn, Ras Al Khaimah (September 2016) and Mercure Sohar (December 2016)
Strong occupancy levels from our mature hotels2, being maintained on a like-for-like basis at 72.7% (30 June 2016: 74.7%)
Average EBITDA breakeven occupancy levels across the portfolio remain low at c. 37% (30 June 2016: 35%)
Continued strong operational and financial performances from the two hotels in Kuwait, ibis Salmiya and ibis Sharq, with both hotels operating over 80% occupancy
Ibis Budget Melbourne Airport also continues to perform strongly with at 90% occupancy (30 June 2016: 91%)
On 2 August 2017 Action’s thirteenth hotel, ibis Styles Diplomatic Area, Manama Bahrain with 95 rooms opened, taking the total of operational rooms to 2,276.
Current Trading and Portfolio update
The Board confirms that, current trading remains on track with market expectations, despite certain markets in the Middle East facing headwinds impacting the performance of businesses throughout the region. Growth comes from the newly opened rooms and the occupancy of the Groups seven mature hotels2 at 72.7% underpins Action’s resilient business model in the economy and midmarket hotel sector, with low break-even levels and the recently opened hotels delivering growth.
After a thorough review of the pipeline, and to efficiently manage the Company’s cash and debt position, the board have decided to slightly delay the openings of two of its leasehold hotels in Saudi Arabia, Tulip Inn Modon Jeddah and Mercure Riyadh Olaya. These hotels, which are currently under development, were due to be substantially completed by the end of 2017 but will now be opened towards the end of H1 2018. This minimally impacts the 2017 forecast which is expected to improve the net loss position slightly with the concurrent delay of two hotel pre-opening costs in the region of $0.5-1.0m.
The Board has also taken the decision to remove the 112-key leasehold hotel, Staybridge Suites Abu Dhabi from the pipeline, choosing instead to focus Management’s resources on projects offering a better return on capital employed, such as Novotel Melbourne South Wharf, due to open in H1 2018.
Alain Debare, Action Hotels Group CEO said: “We are pleased to update the market on a solid first half, with a good performance across the Action Hotels portfolio. We are seeing good growth from the new rooms, with trading impacted by some headwinds in the Middle East whilst Australia continues to perform strongly. We remain focused on delivering the pipeline and working with our Hotel partners to drive performance at our operating hotels with a special focus on ensuring the early success of our recently opened hotels as they grow within their markets and consolidating the solid performance from our mature hotel portfolio. ”
Commenting on the results, Sheikh Mubarak A.M. Al Sabah, Founder and Chairman of Action Hotels said: “It is my pleasure to announce another six months of growth for Action Hotels on the back of a very positive performance in 2016. We continue to meet the increasing demand for quality, internationally branded economy and mid-market hotels and have outperformed expectations set out at IPO with regards to the number of rooms operating and in pipeline with rooms totaling 3,090.
We remain committed to growing our portfolio and are continuously exploring new hotel opportunities on both a freehold and leasehold basis. In May, we announced our partnership with AccorHotels on our second Novotel branded hotel in Melbourne South Wharf, Action’s fourth hotel in Australia and being developed on the largest convention center in the Southern hemisphere. We look forward to updating the market on other further developments to our pipeline in due course.”
Zeus Capital Notes:
Action Hotels has announced H1 results this morning, in line with our expectations. Adjusted EBITDA is down 6.3% YOY driven by the full year impact of non-operating expenses from newly opened hotels. Significant investment continues to be made driving a 13% YOY increase in rooms (bringing the total room count to 2,181 rooms). LTV remains around target levels at 55% (2016: 51%) with an adj. NAV per share of 101p. Management have confirmed an interim dividend of 0.77p per share, in line with our expectations.
H1 results: Total revenue was up 10% to $28.1m (2016: $25.6m), with adj. EBITDA declining 6.3% to $6.8m (2016: $7.2m). Significant financing costs ($6.8m) and depreciation & amortisation charges ($5.2m) have impacted net profitability and resulted in a net loss before tax for the interim period of $5.3m. Property asset values have increased by $35m to $493m. Adjusted NAV, which adds back deferred tax liabilities and assets, was down 2.4% at $201m (101p per share at 1.35 USD/GBP) as LTV increased from 51% to 55%. Occupancy levels across the mature portfolio were broadly in line with last year, averaging 72.7%. The current pipeline has a total of four hotels with 347 rooms to be substantially completed by the end of 2017. The company remains committed to its intention to pay a progressive dividend and has confirmed an interim dividend of 0.77p, which is +1.3% YOY.
Operational progress: The company successfully opened its 13th hotel in August, adding 95 rooms to the portfolio bringing the total operating portfolio to 2,276, representing an 4% increase vs the end of 2016. They have also announced that, following a review of the current pipeline the board have elected to delay the opening of two hotels (Tulip Inn, Jeddah and Mercure Riyadh Olaya), and to remove the Staybridge Suites Abu Dhabi from the longer-term pipeline to focus on projects with more attractive returns.
Forecasts: We note the outlook statement confirming the company continues to trade in line with expectations and leave our underlying trading assumptions unchanged. While there has been some changes to the timing of projects we had taken a conservative view on this in forecasts and therefore do not expect this to impact our expectations. Given the rapid expansion to date and the near-term uncertainty we expect losses in FY17E and FY18E. We expect net debt in FY17E and FY18E of $337.5m and $372m respectively with LTV of 61% and 60% respectively.
Valuation: We continue to believe the shares look undervalued with an adjusted NAV of 101p. Our trough NAV of c.45p per share assumes current asset values with peak 2018 net debt and does not include any benefit of future growth. Even on this conservative measure, the shares are trading at a discount. We believe this provides support and see long term value at current levels backed with a robust mature business and a sound long term strategy.
