Park Plaza, founded by Eli Papushado, has risen by 1,680% in a decade and was one of the three best shares of the FTSE 250 Index ■ The group owns 50 European hotels worth £ 1.7 Billion ■ Within a decade, the company’s annual revenue, which also Yakir Gabay invested in, increased, from £80m to £340m
In early January, the British newspaper The Guardian published a summary of the stock performance on the London Stock Exchange over the past decade. Among the list of exceptional shares was also an Israeli representative: Eli Papushado, the Park Plaza hotel chain, which was one of the three best shares in the FTSE 250 index (-0.26% 1560). The stock generated a remarkable return of 1,680% over a decade. That is, those who invested in its shares in 2010 posted almost 18 times profit on their investment.
The high yield reflects the gradual growth of Park Plaza – which holds Park Plaza, ArtHotel and Arena brands. The growth is due to an increase in portfolios in Europe and the improvement of existing assets. After the rise, Park Plaza’s value has crossed a threshold of £800 million. That is, the company is trading at more than $1 billion. Papushado’s shares (32%) are now worth £260 million (about 1.2 billion NIS), excluding Realizations he made along the way.
Plaza Park was founded by Papushado, who serves as chairman, and Boris Iwesha, who serves as CEO. In July 2007 Papushado issued the company in London. The IPO was carried out at a share price of £4.85 (adjusted for dividend distributions), which valued at £225m after cash, compared to a share price of £19.4 today. The value of the company increased over the years without raising additional capital besides the initial offering, and without diluting the holdings of the shareholders.
A walk in the park
Park Plaza shares since IPO in 2007, £:
Park Plaza has about 50 hotels, resorts and lodging worth £1.7bn. The main activity is in the UK, where the company owns £970m in hotels, mainly in the London area. In the Netherlands, the company owns hotels worth £310 million; in Croatia, it owns hotels worth £250 million. The company – which also operates the hotels – also has properties in Germany and Hungary and other countries. In total, the company has 8,800 rooms and 6,000 lodging units at campsites.
“Pashpudu’s gamble on London succeeded”
“Papushado gambled on London many years ago, and the gamble paid off,” said a leader in the hotel industry. “Papushado sat in the UK and managed to find good properties. He started with one hotel in London and went on to other countries. He knows how to build and understand hotels – which is what contributed to his success. At the same time, London has also grown very nicely in recent years – and has become a major tourist destination.”
Global tourism on the rise
The number of tourists, divided into regions from which they originate, in millions
Papushado (82) owns the Plaza Park through the Red Sea Group, which he founded in the 1970s. The group has previously established, among other things, the Red Rock Hotel in Eilat and Avia Sonesta Hotel in Taba. Towards the end of the 1980s upon leaving the hotel in Taba due to the peace agreement with Egypt, the group moved its hotel operations center abroad. Apart from the hotel sector, the Red Sea operates in residential and property development in Israel. The group is responsible, among other things, for the construction of the Neve Tzedek tower in Tel Aviv, the Moshava courtyard in Rehovot and the Loganu Yehud project.
One of the biggest shareholders in the Plaza Park is Israeli real estate man Yakir Gabay, who holds the German real estate empire Aroundtown SA (the group is soon to merge with German real estate company TLG). Gabay, through Aroundtown, acquired in 2009 – peak crisis days in markets – 11% of Park Plaza shares, at a company value of just £20m. According to Gabay, this is one of the most successful investments Aroundtown made.
“Money Machine That Produces Strong Flows”
Aroundtown has gradually exercised some of its holdings, leaving Gabay with 6% of the £50m Park Plaza shares. “Park Plaza is a company with amazing properties in terms of location and quality, compared to similar companies operating four-star hotels,” a source close to Gabay said.” It holds large and massive assets. These are money machines that produce strong flows. The company has tremendous power in London and is very strong in Amsterdam as well.
“Plaza Park and Papushado dominate the hotel and real estate but are less powerful in the capital market. The hotels are the life of Papushado, the money is his secondary”, an associate mentioned. Historically, Park Plaza has always traded deficiently, as this gap has widened over the years. The reason, apparently, is that there was always a lack of floating stock. That’s why last year the company decided to sell shares, which is still not enough in my opinion.”
In March 2019, Papushado made a significant financial move. He decided to sell a significant portion of his stake in Park Plaza at that time, 47%, to enter the FTSE 250 index, thereby increasing stock trades and market floats. The sellers in the same transaction also included other shareholders, including Gabay, who sold a total of 22% of the company’s shares, at a cost of £16 per share. The sale expressed a value of £675m to the company.
At the same distribution of shares, Papushado sold 465 million NIS worth of stock, and Gabay sold 90 million NIS. Most of the purchasers were Israeli institutional entities, including Menorah, Harel and Clal Insurance, and the investment houses Mitav, Psagot and Mor. Even before distributing the shares, Park Plaza considered double listing its shares in Tel Aviv (in addition to London), but in the end it was decided to settle in London, presumably given the stock exchange’s tightening conditions for inclusion in the indices.
The global tourism boom
In the last 50 years, international tourism has expanded from 25 million tourists a year to over a billion. The International Tourism Association (UNWTO) estimates that the number of tourists in the world is expected to reach 1.4 billion by 2020 and 1.8 billion tourists a year by 2030. This is partly due to the continuing reduction in airfares, in addition to the accelerated development of the middle class in developing countries, mainly In China. In the UK tourism has received a significant boost after the sharp devaluation of the pound.
Victoria Hotel Park Plaza
Global tourism growth in the UK in particular has been very good for Park Plaza. From 2009 to 2018, the company’s annual revenue – which has a net equity of £370m – rose from £80m to £340m. Accordingly, operating cash flow (EBITDA) also increased from £16m In 2009, the company’s activities generated a strong flow of £70-75 million a year.
In the first nine months of 2019, Park Plaza revenue grew by 5% to £276.3 million compared to the same period in 2018. Its occupancy rate was 80.6%, with an average daily revenue per room of £126.8 (ADR) and profit of £102.1 per room (RevPar); this compares with a 79.3% occupancy rate, an average daily revenue of £120.2 and a profit of £95.3 in the same period in 2018; and a 77.3% occupancy rate, an average daily revenue per room of £120 and profit per room of £93 in the whole of 2017.
Park Plaza is trading at an EV/EBITDA multiplier of 12.3 – value of operations (including debt) versus operating cash flow. By comparison, the Hilton hotel chain trades at a multiplier of 20.8, Marriott trades at a multiplier of 22.5, and the Hayat trades at a multiplier of 16.5. The Plaza Park leverage rate is relatively low and steadily declining and is now 40% (net debt versus asset value – LTV).
Analysts emphasize that one of Park Plaza’s key advantages is the fact that the company does not value its assets, but records them in the library at historical cost, plus investments made over the years. For this reason, entities surveying Park Plaza continue to recommend the stock, which is priced below EPRA NAV (the company’s net asset value, according to the rules of the European Real Estate Agency, EPRA).
Westminster Park Plaza Hotel in London
According to an analysis by the investment bank finnCap, one of the companies surveying the company, the EPRA NAV cut the Park Plaza share price to £25, compared to the current price of £19.4. finnCap gave the company’s stock a target price of £22.4, representing a positive gap of 13%. The Kepler analysis company in September 2019 added a £21.5 target price to the Park Plaza stock, similar to what the berenberg analysis company gave it.
And what’s next?
The Riverbank Park Plaza Hotel in London
Park Plaza ended 2018 with a net profit of £38 million, compared to a net profit of £24 million in 2017. These days, the development momentum of the company continues. It recently announced it would invest £300m in developing hotels under construction, led by Art’otel, London Hoxton and Art’otel Hudson Yards in New York. In addition, in December 2019, the company acquired additional land in London, which it plans to build – which is expected to deepen its hold on its main market.
So far, analysts have seen Brexit (the UK’s departure from the European Union) as the main risk to Park Plaza’s operations. The fear was that uncontrolled UK departure from the EU would hurt tourism in the country, lead to the escape of major companies from the British capital, and at the same time could also cause a slowdown or economic recession. However, recently the UK Parliament approved the new Brexit agreement, so the uncertainty has dissipated a bit, but has not disappeared yet.
Another potential threat to Plaza Park is an economic crisis or a global recession. The tourism sector is one of the first to decrease it in times of hardship, so a significant slowdown in the global economy could affect the Plaza Park.
Papushado’s age, 82, may also make it more difficult for him to become involved in the company’s activities in the years to come. Despite the threats, the extreme devaluation suffered by the pound against the backdrop of Brexit events may continue to support Park Plaza’s activities in the years to come.
Contact Person: Yakir Gabay
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Country: United Kingdom