NH Hoteles impairs its balance sheet and announces two strategic transactions to foster frowth in the coming years

These agreements are part of a series of actions aimed to obtain financial resources to enable the Group to meet its commitments, reduce its leverage and continue investing in hotels to ensure its future growth – The Board of Directors has approved the subscription of a 20% share capital increase by HNA Group for a total amount of €234M. In addition, HNA and NH Hoteles have agreed to create a joint venture with the main purpose of developing the hotel business in China and a commercial partnership – NH Hoteles has also signed a Letter of Intent (LoI) by which it would sell five hotels in Latin America to Hospitality Properties Trust (HPT) for a consideration of approximately US$70M. NH Hoteles will manage these hotels under long-term contracts of 20 years plus renewable options thereafter. NH Hoteles and HPT would form a joint venture to acquire and manage the NH Jolly Madison Tower New York hotel. NH Hoteles would also receive a loan of €170M – In 2012, the Group’s bottom line reflects a considerable increase in impairment provisions in order to align asset values with the foreseeable market environment, in line with the economic conditions prevailing in Spain and Italy

(Madrid, 13 March 2013) NH Hoteles has announced two strategic transactions for the Company which are key to meet its obligations and to implement a strategic growth plan.


HNA Agreement
The Board of Directors of NH Hoteles has approved the entrance of HNA Group in the shareholding of the Company.

The global agreement, which represents an important strategic milestone for NH Hoteles, will result in a capital increase of 20% in NH Hoteles, the creation of a joint venture that will enable NH Hoteles’ entry into the Chinese market, one of the fastest growing markets worldwide, and the establishment of a commercial partnership that will enhance cross-selling opportunities, becoming NH Group the preferred hotel company for HNA’s travelers.

HNA will subscribe a share capital increase for a total consideration of €234M that will be structured excluding preferential subscription rights. HNA will become a new reference shareholder in the Spanish company.

The agreement has been approved by the Chinese Authorities and includes the appointment of two directors to the NH Hoteles’ Board in representation of HNA Group. In this sense, HNA Group has deposited $20M in an escrow account to guarantee its obligations pursuant to this agreement. In 2011 HNA Group paid US$15M to NH.

The agreement for the development of the hotel business in China between NH Hoteles and HNA contemplates the creation of a joint venture to which HNA would contribute the management of those of its hotels that best fit with the brand image and segment characteristic of NH Hoteles. The joint venture will then benefit from NH Hoteles’ management, loyalty programme and reserves system, will use its brand in China and, at the same time, will build on HNA Group’s knowledge and local capacity to identify best hotel locations, local management teams and general logistics of the group in the Chinese market. This transaction fits in NH Hoteles’ strategy of growing through asset-light formulas, such as the management of third-party owned hotels.

Furthermore, the commercial partnership agreed by both companies will aim to direct HNA’s travelers to NH’ hotels, foster greater client reception from Asia to NH Hoteles and, therefore, increase the diversification of the Company’s client base by country of origin.

Mr. Adam Tan, Vice Chairman & President of HNA, stated, “HNA is pleased to join the existing shareholders and directors in supporting NH management as they continue to build a strong, world-class, multinational and multicultural hotel company”.

Agreement HPT
NH Hoteles has approved to sign a Letter of Intent and to start an exclusive negotiating period with the North American REIT Trust HPT for a series of hotel investments in Latin America, the USA and Europe. The agreement is subject to due diligence and final documentation.

The non-binding terms which have been negotiated between HPT and NH Hoteles are as follows:
NH Hoteles would sell five hotels (804 rooms) in Latin America (Mexico, Colombia, Uruguay and Chile) to HPT for approximately US$70,000,000, while maintaining a long-term management contract for 20 years with renewal options.
HPT would create a joint venture with NH Hoteles to jointly acquire the entire ownership, manage and undertake a major renovation of the NH Jolly Madison hotel in New York City (USA).
Finally, NH Hoteles would also receive a €170,000,000 loan from HPT, which would be secured by 4 hotels from different locations in Europe.

Both parts expect that once the transaction -detailed in the LoI announced today- is closed a long-term relationship between both companies will be established, especially in North and South America, with the possibility to extend it to other countries.

John G. Murray, President of HPT, has declared: “HPT is pleased to be establishing this new relationship with NH Hoteles. We hope the transaction announced today represents the beginning of a long term strategic relationship between our companies that provides each with opportunities for continued growth in the Americas and elsewhere”.

Federico González Tejera, CEO of NH Hoteles said “these two strategic transactions are fundamental to meet our commitments, to finance our business plan and to enhance a growth strategy that will bring NH Hoteles to a leading position. Both agreements prove the strength and value of the NH brand in the worldwide hotel sector that has the capacity to attract global leading partners”.

NH Hoteles has been advised in these transactions by Nomura International plc and Banco Santander.

NH Hoteles: Results evolution 2012
Due to the sharp deterioration in the economic climate in southern Europe, NH Hoteles posted a recurring net loss of €66.9m in 2012, compared to a loss of €9.1m in 2011. As a result of adverse economic trends, particularly in Spain and Italy, the Group tested the recoverable value of its assets on the basis of its business plan, deciding to increase asset impairment provisions to €268m. As a result, the Group registered a consolidated net loss of €292m. Note that these impairment provisions do not imply any cash outlay whatsoever.

Turning to the Group’s hotel business performance, NH Hoteles managed to keep its occupancy rate steady at 2011 levels; however, revenue narrowed by 3.4% on the back of the slowdown in the meetings, conventions and events segment, a drop in restaurant takings and a decline in the average daily rate (ADR).

The business climate deteriorated in Spain and Italy in the last quarter of the year relative to the first nine months. The business travel segment was affected by the adverse economic climate engulfing these countries, prompting significant underperformance by secondary cities relative to the main urban destinations.

The Benelux business unit gained momentum in the last quarter of the year: despite downward pressure on prices, NH managed to increase its market share. The occupancy rate in this business segment in 2012 improved by 1.1% across comparable hotels, although the ADR narrowed by 3.4%.

The Central Europe and America business units were the Group’s top-performers in 2012. The occupancy rate in the Central Europe business unit rose sharply, as did pricing in all German cities, with Munich and Berlin standing out. Trends in Latin America were uneven. Whereas Argentina was affected by the decline in demand from two of its core issuer markets (Spain and Brazil), Mexico posted a stellar performance, registering growth in RevPar (revenue per available room) of over 10%.

The Company’s efforts to boost cost-efficiency translated into a reduction in operating expenses of 0.3% in absolute terms, implying the full absorption of inflation.

Note also that the Company managed to keep its lease expenditure steady in 2012, offsetting the impact of hotel openings, rent increases negotiated in prior years and inflation adjustments.
Revenue in the real estate business rose 30% to €22.1m, up from €16.9m in 2011. Deeds were exchanged on a total of 25 homes in the amount of €10.7m, compared to €1.5m in 2011.

Results – Key figures for the NH Hoteles Group at 31st December 2012:
New agreements and openings
In line with the Group’s asset-light growth strategy, 100% of the hotels opened and signed in 2012 are to be operated under the management regime.

Last year, NH Hoteles signed five hotel management agreements (covering 906 rooms in total) in the Dominican Republic, Spain, Czech Republic, Netherlands and Haiti. Meanwhile, it opened four new hotels with 673 rooms, as well as extending another two existing hotels (adding 180 and 139 rooms, respectively).

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