PPHE Hotel Group Limited (PPH) Earnings Call Transcript & Summary

Good morning, and welcome to the PPHE Hotel Group Limited Interim Results Investor Presentation. [Operator Instructions] The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review your questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. And I'd now like to hand you over to Robert Henke, Executive Vice President of Commercial Affairs. Good morning to you, sir.

Thank you, Alexander. So welcome to the PPHE results presentation for the first half of 2023. My name is Robert Henke, and I'm joined here today by Greg Hegarty, Deputy CEO and COO; and Daniel Kos, CFO of PPHE Hotel Group. Before we update you on our half year performance as well as our future pipeline and have a Q&A session at the end, we would like to start by showing you a short video of some of the projects that we've recently completed as well as our future pipeline that's about to hit the market. So if you wanted to start the video now, let's do it. [Presentation]

What we thought would be useful for those investors and people in the audience watching us today, who are not familiar with the story, is to give a bit of background as to who we are as a group, as a business. Basically, PPHE is a real estate company focusing on hospitality properties. And what sets us apart from our peers and in the industry is that we own, develop and operate hospitality assets. Whereas traditionally, you see that some of these elements are managed or owned by different businesses. We have an integrated approach, and we have our own hospitality management platform that operates our assets as well as those owned by JV partners or third parties. So this is a scalable platform to manage the day-to-day business of our group. So to speak, we currently have 43 properties being hotels and resorts in operation as well as 8 camp sites and glamping products in Croatia, specifically. Our asset portfolio is valued externally once a year in December. And based on the last valuations, our group is valued property portfolio at GBP 2 billion with the vast majority concentrated in London -- Central London, Central Amsterdam, so both high barrier to enter markets as well as Croatia. Our current exposure is in 3 countries. So the U.K., Netherlands, Croatia and Germany are our key markets to date, and also our future growth is pretty much in those countries as well as in Italy, and we'll touch on that a little bit later when we get to the pipeline update. Our vision is to grow the group in terms of owning assets, but also in operating assets through a number of different sort of growth opportunities, and we'll touch on that as we go along. In terms of the differentiators, I've already said this, we have an integrated model. And what that gives investors? It gives investors access and earnings upside on the back of the value that is created by owning real estate in prime markets as well as value derived from just the earnings on property through the cash flow of the business. Our typical focus markets are city center locations in key capital cities in Europe that have a strong demand from different market segments, from leisure travel to corporate business travel as well as meeting and events and are not necessarily immune to a lot of sort of seasonality or one particular segment. So we like a balanced approach. The second differentiator is our focus on equity value, and this is where our development angle and investment track record comes into play. We have created, in our 30-year history, a lot of value for our shareholders by buying plots of land, buying tired assets, buying hotels with repositioning potential, investing through our own development capabilities and then obviously refinancing on the back of the improved property and then investing in the next growth opportunity. That's how we've grown the group, and we've done that without diluting shareholders. I've already alluded to the in-house hospitality management platform. We have a fully scalable management company that has a plug-and-play approach when it comes to adding in new hotels and opening new properties. So every discipline that is required to buy, develop finance and upgrade the hotel and market a hotel, we have in-house with an expert team based across a number of offices in London and Amsterdam and in Croatia. And that's how we manage the day-to-day assets and create value. We believe there's a lot of growth potential, and we are at art'otel Battersea today, which is a hotel that we manage on behalf of a third-party owner. So we have the track record to demonstrate that we can also manage other people's properties. We also have an exclusive partnership with the Radisson Hotel Group, which is one of the largest hotel companies in the world. And we can exclusively use their Park Plaza brand to Europe, Middle East and Africa, and we have favorable terms for all of their other brands. So we've recently started using some of their additional brands, and we'll go through that in the presentation. The third sort of differentiator -- sorry, fourth differentiator here is the Board and leadership. So 2 of our founding shareholders are actively involved in the business, acting as true custodians for the share capital. They have about 43% of the shares today. And also the leadership team, us included, have been with the group for an average of 10 years, if not longer. So that sort of sets out what we do. And this is a good summary belief of how we grow the group and how we operate. So we tend to buy plots of land, development sites for tired properties. We then build, construct, add value, create value in the process, often taking a 2- or 3-star hotel and relaunching as 4- or 5-star. So we're able to tap into a different demographic, different market segments. We then operate the hotel successfully for a number of years. And when the hotel has matured, we will refinance and take the surplus cash out and invest in the next growth opportunity. That sums up who we are in 2 minutes, 3 minutes. I'll now hand over to Greg Hegarty, who will take us through the half year performance of our business.

Thank you, Robert. Well, I'm very pleased to say that we delivered a record performance reported in the first half, driven by leisure travel and a return of business travel and further by the meeting and events sector starting to recover. We delivered total revenue of GBP 180 million, strong growth of 59% year-on-year when comparing with half 1 in 2022. And it's also worth noting back in half 1 2022, the business was still impacted by the pandemic, predominantly in the Netherlands and German regions. However, we are reporting a 15.9% growth on pre-pandemic half 1 2019. Rate growth has been the main driver, supported by increased occupancy. The U.K. and Netherlands were our strongest performing regions, and we have seen an encouraging start to the Croatian side. On the investment side of the business, we have made excellent progress delivering a number of CapEx projects in Austria and in Croatia. We are also progressing our pipelines, which Robert will discuss to -- will discuss with you a little shortly. We are pleased to fully open our first art'otel in London, the art'otel London Battersea Power Station, which fully opened in April this year and is now fully open and available to the market. This property is part of our hospitality management platform, managed for the hotel owners. With our pipeline projects nearing completion, we'd like to remind everyone that 11% of our EPRA NRV is currently not yielding. Once these new hotels, which we expect to open soon, they will contribute to the EBITDA of the company significantly. Following the extended partnership with Radisson, we have announced in May 2022, we have progressed that relationship further. We opened our Radisson Collection Hotel in Brioni, Croatia, which is a luxury class hotel. And in May this year, we announced that Radisson and with their umbrella brands firmly placed the art'otel brand, which is owned by PPHE into the Radisson's logo lockup and their umbrella our brands. We positioned the art'otel brand as an upscale lifestyle hotel. And together with the Radisson Hotel Group, we will grow that brand in the future. And you will see the growth of that brand coming through in the rest of the presentation. We also announced our first Radisson RED Hotel in Belgrade, and we are looking at extending that agreement further with another announcement in due course. At our full year results in March, we also announced the European Hospitality Real Estate Fund. As a reminder, this fund serves as a vehicle to grow both the number of hotels as well as a hospitality management platform. The fund aims to target properties in key European markets. With full equity subscription and bank leverage, this will give PPHE and fund investment potential of up to EUR 500 million. PPHE will take a minority interest of 20% in the property acquired and would assume the management of the asset. Since announcing the fund in March, we have announced that Clal Insurance is a cornerstone investor, contributing up to GBP 75 million to the fund. We have also contributed art'otel Rome as our seed asset into this fund. We have also secured regulatory approval recently. Moving on to the progress on our pipeline. As I've already started previously by mentioning, we did complete a full leisure reposition of our property in Nassfeld by adding a new wellness facilities area, including an indoor and outdoor pool, which transforms that property significantly. We also upgraded our Arena Campsite in Stoja, Pula, to a reception, public area restaurant and bars and also further premium lodges with beach front pool locations. So that is obviously bearing fruit also. We are now entering into a very exciting time for the group as we prepare for full openings in the next 9 months, adding approximately 650 rooms to our portfolio, of which 347 of those rooms are in an iconic London location. We will open and reposition 2 hotels, which have been significantly upgraded which is Belgrade and Rome, and we will open 2 brand-new additions, the art'otel London Zagreb, which was formally an office building, into a hotel conversion, and an iconic 350-room new build art'otel London Hoxton Hotel. Belgrade, we closed the former 88 rooms in March 2023. And we are planning to reopen in Q4. Following an approximately GBP 3 million investment, this hotel will reopen as an upscale Radisson RED property, our first RED branded property under the new agreement with Radisson. Zagreb is our first opening into the Croatian capital. It's scheduled to open in October, led by the hotel's general manager. We are preparing for the opening of its 110 premium upscale lifestyle art'otel, and we will also be launching YEZI, our new restaurant and teahouse brand, as a restaurant cum bar concept. Hoxton, our largest project currently under construction, is expected to open in the first quarter of 2024. We have recently appointed the new hotel's general manager, who has now started to build the team. We have also announced and secured an iconic artist called D*Face, a known street artist as the signature artist of the property. In Rome, our property transformation project is well underway, and we expect to open the art'otel Rome in the first half of 2024. The 2 London land sites, which are still being progressed, especially 1 near our site at Park Plaza Waterloo, is currently under planning and our application is in process. There has been many transactions in our main markets, but as when -- as and when properties are coming into the market, there seems to be a strong interest from buyers, which we are focusing on. And with that in place, I'll pass on to the next slide.

Thank you very much, Greg. So in terms of our financial results, total revenues were up to GBP 180 million, an absolute record, which was 59% up on last year and 16% up on '19. I think this is the last year we'll be comparing to '19. But as Greg already said, the first quarter of last year was still impacted by the pandemic. So that's why we think it's useful to still compare to '19. The U.K. market in the first half makes up about 60% of these results. Obviously, our Croatian region isn't fully contributing because the summer season only really kicks off in July. So the U.K. makes up about 60% in the first half, which showed a growth of 55% on last year and 15% on 2019. The Dutch region, predominantly Amsterdam as the second largest region, grew 16% on '19 and more than doubled compared to last year. Obviously, revenue growth primarily came from revenues, which makes up about 77% of our total revenues. Room revenue was up 61% to last year and 23% versus last year. And this increase was mainly driven by room rate growth. You can see our occupancy is still slightly behind the 2019 levels. Occupancy sat at 69% in these 6 months, whereas in '19, we were at 77%. If you break it down to the regions, it's predominantly the German market where the difference is largest. In the Dutch and the U.K. market, we already see that difference disappearing and also continue to disappear. Room rates were up 13% versus last year and 31% versus 2019. So the overall RevPAR result is 18% up pre-pandemic. We did need that room revenue growth. Our EBITDA is GBP 45 million, which is exactly the same or in line with 2019. So most of the revenue growth was needed for the inflationary pressures that we have. So EBITDA at GBP 45 million, up from GBP 17 million last year and then roughly in line with 2019. If you go to the EBITDA margin slide, Robert, you can see that our EBITDA margins reported in this period is 25.1%. There's two things currently negatively impacting that margin. One very obvious one is the utility expenses, which added about 2.5% on margin drop. I think a good thing with the utility expenses is that they were incredibly elevated in the last winter, and we can see utility prices coming down substantially this year, next year and the year following. We have hedges in place. So the decline will feel -- the decline to watch the market will feel less next year, but we will still have a decline in utility expenses. And from 2025 onwards, it will stabilize more and more. Obviously, also the payroll expenses impacted our margins. We see a strong inflationary pressures in payroll as well, which impacted our margin 1.9%. We are used of that, particularly in the U.K. region. So we do think that, that will stabilize in the years that we see coming. And we also have projects in place to further streamline those expenses. If we go to our normalized profit before tax, it's in positive territory again at GBP 3.6 million. But obviously, when looking at our group, we feel it's more relevant to look at our EPRA earnings. Our depreciation expenses are not reflective of the reinvestment we need on an annual basis. So our EPRA earnings add back depreciation and they deduct a normal level of investment, which in our industry is typically around 4% of total revenues. And if you look at our EPRA earnings, which is a 12-month rolling number, it sits at GBP 45 million, which is GBP 1.06 per share, and that's an important metric, again for the dividends that we will be distributing. In terms of cash flow, Robert, we reported a strong operational cash flow of GBP 47.5 million, but also a substantial outflow in terms of CapEx sitting at GBP 54.5 million in the period. Approximately GBP 8 million of that CapEx is reflecting on the maintenance CapEx that we did, and the remainder is the pipeline investments that we did in the period, of which in the coming 9 months, there's still substantial pipeline CapEx coming. We paid around GBP 35 million in debt service, of which GBP 10 million relates to regular loan amortization. We amortize all our loans over the maturity period, which kind of gives us a lower refinance nominal at the maturity of these loans, and about GBP 6 million related to the unitholders in Westminster Bridge, which is variable to the income that Westminster Bridge is making. Moving on to our capital stack, Robert. No significant moves in our capital stack. Net bank debt sits around GBP 700 million in the period, which is reflecting about 29% of gross assets. About GBP 135 million of this net bank debt are loans relating to the projects that we currently have in development. So they don't generate EBITDA yet. And just to reiterate, this debt is 97% fixed, and we fixed it at an average cost of debt of 3.7% with an average maturity of around 4 years, just over 4 years. But we also have forward hedges in place. So our largest refinance round in 2026 when we have to refinance around GBP 400 million of debt. We already pre-hedged GBP 200 million of that, and we did that early in 2022. So we still benefited from the low interest rate, and we've hedged until 2031. Robert, going to the next slide. The NRV reported sits at GBP 25.05. This has been externally valued in December '22, and we will get new valuations in the coming December. Having discussed with the valuers, there is an estimation that discount rates will increase. You will see a discount rate here of between 7.75% and 10.5% -- 11%, sorry, and the cap rates, which typically kick in for the cash flows after 10 years are typically 2.5% lower. So there is an expectation that those rates will increase, but also our results have increased, which gives an offset to that. So in December '23, we will have a new valuation done. And just to reiterate, as Greg also alluded to, GBP 2.79 of this NRV is not generating any income yet. So that will come up after the coming 9 months. We have been requested on the next slide to kind of give an overview of how these NRV reflects interim results of current market transactions. And I'm happy to say that although the market -- although the transaction volume is low as we speak, in the past 12 months, there have been transactions in the markets that we are present and they're also very relevant and comparable to our hotels. In our industry, in terms of comparing yourself with other transactions, we typically look at per key valuation, so per hotel valuation. So this slide will give investors a bit of insight in terms of the transactions that were there in the market and that are public. If you look at the lower outliers, one is, for instance, the Dilly, there is particular reasons with that. So the Dilly is a leasable property and it probably needs another GBP 300,000 per keying of CapEx. So if we capitalize the lease and you add the CapEx, you'll get to GBP 1 million per key approximately. And also the Hilton London Olympia is an outlier, which we understand is just paid for the land value as the property will most likely be demolished or significantly CapEx is needed. So these transactions have been in the past 12 months. And again, as I said, these are reflective of the valuations that we have in our books.

Thanks, Daniel. Okay. The current trading and outlook. The second half is typically the strongest trading period for us and the strong momentum, which we have seen in the first half. I'm pleased to say it is continuing into the second half. Current trading is in line with the recently upgraded expectations with full year revenue expected to be at least GBP 400 million and an EBITDA of at least GBP 120 million. We continue to focus on maintaining and driving room rates to cover the inflationary pressures we are seeing, while continuing to build our occupancy base. We are preparing for the opening of our GBP 300 million plus pipeline in the coming 9 months, targeted to deliver at least an additional GBP 25 million once stabilized for EBITDA. We are returning to the previous capital returns policy, distributing approximately 30% of adjusted EPRA earnings in the coming future. Thank you for joining us, and we're happy to answer any questions you may have.

[Operator Instructions] But just while the company takes a few moments to view those questions which today, I'd like to remind you that a recording of this presentation, along with a copy of the slides and the Q&A, can be accessed via your investor dashboard. As you can see, we received a number of questions throughout today's presentation. And Robert, if I could just hand over to you just to chair the Q&A, I'll pick up at the end.

Sure. A question that has come in is, how have customers responded to general price increases across the portfolio? I'll take that, actually. We saw, obviously, what was called pent-up demand in 2022. But as we have entered 2023, we believe that is no longer necessarily pent-up demand, but also normal demand. So we really haven't seen any sort of negative impact or response from customers. I think if you look at our results, we, for the last time, compared our results to 2019 are pre-pandemic. We will stop doing that because we've also missed sort of 3 years of normal sort of inflation that would have happened. So the rates and the prices that we're seeing are in line with the market and are probably the new normal, and we see that customers are accepting this and are probably favoring experiences, so eating out, drinking out and staying at hotels and traveling over maybe products or goods. So we're not seeing any sort of pushback or resistance, which has basically enabled us to drive the rate. But also it helps us to cover the inflationary pressures. So it is really also needed to help, obviously, service our cost base. The next question, I will give to Daniel. Daniel, what investments has the company made in renewable energy sources of energy and in the properties, in the portfolio to further sort of improve your green credentials?

Yes. Obviously, that question is quite important from 2 angles. First, in terms of our ESG strategy, first and foremost, I would say, but also in terms of the highly elevated utility costs that we're seeing currently. So we did 2 things really and those projects, they started already last year. First of all, focusing on behavior and the software and second of all, focusing on CapEx. Just looking at behavior and software, we have done a very thorough and deep analysis in terms of behavior and in terms of our energy consumption by area. So looking at areas that are vacant, not heating or powering up areas that are vacant, having timers into rooms in terms of utility usage, having water savers, that's a few things that we could do quite easily by amending something in our building management software and just making our staff aware of our -- of what we want in terms of behavior. The second thing is CapEx. So in CapEx, I can split it in 2 things. One is into our new build or in our significant upgrades like, for instance, Rome and Zagreb. For a new build, we are targeting a green excellent certificate, which kind of means that we are not using any gas at the property, and it's most efficient from energy usage. If we are looking at Rome or Zagreb, which are buildings which are over 100 years old, green excellent is pretty much impossible. So we are focusing on green good standards. So still reducing gas consumption to the bare minimum and again, using the most efficient systems in terms of air conditioning for power. And then we have the regular CapEx projects in our projects. We are doing one hotel right now where we're completely changing the cooling and heating system. Hotels that have been built 20 years ago, if you look at how they are being cooled and heated, that's not up to today's standards. So we've invested GBP 3 million in that hotel in changing the whole cooling and heating system, and we intend to do that with all our other properties that are of that age.

Thank you. Hopefully, that answers the question. Greg, a slightly broader question for you. With the second half of the year typically our strongest trading period, how optimistic are you for the future? And what do you believe the key sort of drivers and key factors are that will help us deliver the growth strategy in the near to medium term?

Good question. Well, first of all, what gives us optimism is a couple of things. Well, some key things which we look at in the business. First is what we call room pace. And what we look at room pace is the attraction of bookings, which are made for a month, in the month and for the rest of the year. And what we can see is that level of pace of business is up and the pace is up on what we would have actually seen in 2019. So the business rhythm is elevated and that business rhythm is generating a higher ADR. So we can already see now 12 months ahead our booking rhythm is pacing ahead of where it was not only in 2022 but also in 2019 across all of our markets, which is very positive to see. Another indicator for us is meeting and events business. Quite a significant proportion of our business is M&D related, meeting and events. And we also look at meeting and events in the same way. However, what we have seen in Q2 -- or sorry, the second half of this year and what we're generating in Q2 was a return of the meeting and event trend. And the meeting and event trend what I mean is, that is usually typically some of the bigger events in our hotels. And in some of our hotels, we can have events of up to 1,100 delegates. These events were typically pre-COVID, booked 14 to 18 months out. And obviously, when COVID had impacted, these events didn't take place, and they certainly didn't happen within 1 or 2 months. And we can already see now in our booking window that these events are returning and our booking rhythm for the next 14 months within meeting and events is returning, which gives us more degree of optimism. Another indication is aircrew. And what we can see is aircrew requests coming from U.S. and Asia Pacific predominantly. One of the markets, which is yet to grow fully in the U.K. and the Eurozone is traveled from Asia Pacific, predominantly from Australia, New Zealand and soon to be China. These markets are now traveling a lot more than what they were before. And we can see these aircrew requests coming in because when you get aircrew requests, then it means extra flights are being laid on to our zones and our hotels, which obviously meant further to drive demand. And we can actually see that in London, for example, being the third largest market, Australian business, which wasn't there in '19. So it's good to see. And we've also benefited from exchange rates at the moment, and that continues at very, very positive. Now looking at in terms of the medium, we've got exceptional growth coming from our pipeline. And when we look at our pipeline business, we do take market parameters, and we look at how are these markets are actually generating for our competitors. What I can say is Hoxton and both Rome are exceeding our expectations in terms of our feasibility and our forecast for the next 9 months. So the market is continuing. We're not seeing, as what I've already alluded to, any slowing in consumer demand. In fact, we've actually had increased consumer demand in August. So yes, the indicators are looking positive. However, it doesn't go without saying we are fully aware of the macro environmental impacts, which are impacting the U.K. and Eurozone economies, which we're keeping an eye on. But at the moment, we're not seeing any levels of slowdown.

Great. Thank you, Greg. Daniel in the announcement, there was a comment about bringing back the shareholder returns, the capital returns of up to 30% of EPRA earnings in various forms. What is the shareholder -- the founding shareholders' views on, let's say, the share buyback that you did last year and what you're sort of considering now as a Board moving forward?

Yes. So just to reiterate, pre-pandemic, our company was distributing around 30% of EPRA earnings. So if you look at dividend over '19, which I appreciate, obviously, the final was postponed because of COVID. We plan to distribute 37p per share, which is a reflection of about 30% of the GBP 1.28 EPRA earnings we were doing at that stage. Given our performance and given that we're back to those levels, we intend to also take that policy forward and pay 30% of EPRA earnings in terms of capital distribution. We've had some feedback from shareholders over the past, which we are listening to. Feedback around share buybacks, feedback around the liquidity of the company, and that made us basically put the statement out that we are going to pay shareholders back capital, which is going to be around 30% of EPRA earnings. But the way we're going to do it, we are going to discuss that with shareholders in the coming road show what is the preference. And there's 3 options that we see on the table. One is a regular dividend, which would then take form of an interim dividend and a final dividend. And the other two are bulk buybacks. One is just a regular share buyback, which we've already done last year. I have to say it was not very successful, in my view, because it took us about half a year to spend GBP 2 million because of the liquidity of the company. And I think also with that, at these levels, the larger shareholders or the institutions are not joining that share buyback. It is only the smaller investor that actually provides liquidity that we're buying back. So we're making the problem worse. There's another way of doing a buyback, which is a tender offer, which is typically done -- well, first of all, it's offered to all shareholders at the same time. And it's typically done at elevated levels to the share price. I just want to reiterate, our share price is currently trading 60% below NRV, which is very substantial also if you compare that to our peers. So anything in terms of a tender offer would obviously look at that. What the views of our founder shareholders are? I think that's not relevant at this stage. We are going to gauge every shareholders' view in the coming periods, and then we will update the market as soon as we've made a decision. But left or right, we are intending to pay capital back in terms of 30% of EPRA earnings.

Great. Thank you, Daniel. The next question is on Airbnb, whether we see Airbnb as a competitor in the markets we operate in? I think our answer is, no. We believe it's a great platform, but it serves a different purpose. And I think our customers are choosing a hotel for different reasons than when you're staying at an Airbnb, first of all. So it's definitely another sort of accommodation provider. But we offer obviously a full-service product and solution with security, safety, cleanliness standards, which were very important in the last few years and all the facilities and services available at our properties from restaurants, bars and swimming pools. And secondly, we have seen that cities are starting to restrict Airbnb quite significantly. So a few years back, it was very much an open market for Airbnb, where they weren't following or weren't required to follow all the local rules and regulations that apply to hotels. Now it's more of a level playing field. And I'll take Amsterdam as an example. In Amsterdam, before COVID, there were 13,000 units on Airbnb, 13,000 hotel rooms. The 13,000 Airbnb rooms only appeared on the market in 2 or 3 years. That was a very rapid growth. Now it is near to impossible to basically rent out your appointment on Airbnb because of the number of hoops and permits you have to go through as a landlord. So tourism is growing. We are in buying market, and we don't see any material impact at all. The next question, Greg, is one for you. Is the opening of this hotel, art'otel Battersea, is a management agreement for us? It's not our property. We manage it on behalf of third-party owner. Do you believe we will be seeing sort of more interest in art'otel and maybe in management as we move forward? And where do you see that sort of go and maybe with the fund as well, how does that connect?

The answer is yes to all of those. It is part of our future strategy. We very much want to grow the hospitality management platform. We -- as part of our 2024 strategy as we go into that, one, it's about getting the portfolio open in the next 9 months and in growing the fund with management agreements as we go forward. Hospitality management platform is being delivered with a development team, who would go and find the assets and locate the assets and then those assets will then be even merged within the region or the regions will be -- or the regional management let be expanded to incorporate those hotels into our current operating platform.

Thank You. Next question, Daniel. I'm going to go back to you on sort of energy cost, particularly with H2 being the busiest and strongest trading period. Are the results going to be affected more with especially the Croatian season, build into H2 or they would be energy...

Yes. I mean you would typically expect that. However, the energy, the utility costs, particularly in the first quarter of this year, the hedges we had in place were significantly higher than the ones we have in place in Q4. So it's indeed right because of the volume of Croatia in the third quarter, the energy costs will be elevated again, but it's offset against the fact that we have lower hedges in place for Q4. So all in all, the higher utility costs are evenly spread over both periods. So I think we will end up at an average of GBP 14 million extra utility cost on '19, which is probably divided quite evenly over the 2 periods, roughly speaking.

Thank You. Greg, the next question I'll ask you is the new ULEZ scheme. How is that going to be impacting occupancies you think, if at all?

Yes. I don't see an impact in occupancy. Actually, the biggest impact ULEZ had to the business is our ESG strategy in terms of how do we get our goods to the hotel in terms of food supply, linen, et cetera, in the vehicles which we are using it. But predominantly U.K. business we get is provincially driven. So where we do benefit from London is obviously the transport for London. People who come into London use train a lot. So even if you're from this -- the home counties, et cetera, coming into London predominantly via a train now. So we don't see ULEZ impacting us in terms of occupancy at all.

Thank you. The next one is -- I have to say the next and the last question that we're able to take this morning is on Hoxton. We brought forward the opening target date to Q1 from H1, which we communicated last year. Will that allow you to capture the full summer season? Again, Greg, let me go back to you.

Well, what we are doing when we -- how we actually brought that forward is we're going to phase the opening of the property. So we will open it January with a 25% of the volume of the inventory. However, by April, we will be fully open. So by then that will give us a good 6 months booking window to get to where we anticipate for the summer. So with that, we actually are hoping to have our distribution system up in the next 6 weeks, to be honest, before even January. So we see that we are going to try and capture as much business as we can for the summer.

Great. Using this opening also as a sort of learning?

Yes, absolutely. I mean we opened the art'otel Battersea like you've already said where we are now. One, it's a beautiful hotel. It's positioned the art'otel around in London across and Europe perfectly. However, what we are seeing at art'otel Battersea as it's positioned as an upscale lifestyle hotel, it's attracting that premium business, which is really good to see. So we are seeing and have seen in the summer here high occupancies and very, very well delivered ADR growth. So yes, very pleased with actually how the art'otel brand has been perceived and very much exceeding expectations.

But I think also in terms of opening hotels, it's important to understand that we just -- you're not opening a hotel the next day you're full, right? So when we open a brand-new property and in some cases like Hoxton and like Battersea in a brand-new location, you kind of do what we call a soft opening, which is not opening up the hotel fully to the public. It's not already big market. It's just to test product, does everything work, is the staff able to cope with all the new systems they're working with? That period typically takes about 3 months already. So typically, when you open a hotel from really like first store opening to like a full opening, that's already 3 months. And then typically, if you fully open, you will have all the marketing, you typically ramp up staff because you don't want any customer being unhappy about something. And you obviously need to get use of hotel. So we -- the first year of opening typically is all around getting it right, staffing it right. The second year, that's the year that we will start looking at how does it compare to other properties and gearing up the operational efficiencies. And then typically from 3 year onwards, that's where we call that -- then the property will be stabilizing. So that's -- I think it's an important act to state here as well.

You remind me in our statement, we talk about stabilized target sort of return?

Yes.

If you want to summarize where we see the 4 new openings going and what they'll add to the bottom line?

Well, we feel that they should add at a minimum of GBP 25 million EBITDA upon stabilized trading. So in my view, stabilized trading is from year 3 onwards.

Yes. Good. That concludes the Q&A for today.

Daniel, Greg, Rob, thanks very much to address these questions from investors. And of course, the company will review the questions submitted today, and will publish those responses on the Investor Meet Company platform. But just before redirecting, investors to provide you with their feedback, which I know is particularly important to yourselves and the company, Greg, could I just ask you for a few closing comments?

Yes. Thank you very much. First of all, I want to say thank you for dialing in and listening to us this morning. I want to say we are very pleased with the recovery, and we're proud of the teams, which helped deliver it. We are super excited about the pipeline. The pipeline is significant like we've already discussed about today. In the next 9 months, we're adding 652 rooms to our inventory at a very, very premium level. We haven't seen this level of growth since 2010 within our company. So this is really the next phase of super growth for PPHE as we go into the end of this year and into the early stages of 2024, and that's really about it. So with that in mind, I'd like to thank you again, and we appreciate any feedback.

Perfect. Daniel, Greg, Robert, thank you once again for updating investors today. Could I please ask investors not to close this session as you now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations. So it takes a few moments to complete, but I'm sure it'd be greatly valued by the company. On behalf of the management team of PPHE Hotel Group Limited, I'd like to thank you for attending today's presentation, and good morning to you all.