2011 Preliminary Results Replacement

RNS Number : 0525G

Park Plaza Hotels Limited

05 May 2011

 



This announcement replaces Park Plaza Hotels Limited unaudited results for the year ended 31 December 2010 which was released at 7.00am on 21 April 2011 under RNS number 3171F

As a result of further work relating to the 2010 financial statistics previously disclosed, amendments have been made to the reported Group and Dutch hotels occupancy, average room rate and RevPAR statistics which are slightly higher than previously shown.  Further changes include an amendment to the number of unsold units at Park Plaza Westminster Bridge London and the number of units retained by the Group and a correction to an erroneous 2009 revenue comparison figure in the text within the Management and Holding Operations paragraph within the Review of Operations.

These amendments have no impact on the financial statements or the sentiment of the commentary within the results announcement.

21 April 2011

PARK PLAZA HOTELS LIMITED
("Park Plaza" or "the Company")

Unaudited Results for the year ended 31 December 2010

Park Plaza, owner, operator, developer and franchisor of hotels in Europe, the Middle East and Africa today reports unaudited results for the year ended 31 December 2010.

Summary

Financial Statistics
	Year ended 31 December 2010	Year ended 31 December 2009
Occupancy	77.4%	79.1%
Average Room Rate	€110.7	€97.8
RevPAR	€85.7	€77.4
Total Revenue	€139.8 million	€80.3 million
EBITDA	€37.6 million	€16.2 million*

The percentages referred to in this announcement are based on the unaudited numbers detailed in the summary consolidated financial information which forms part of this announcement.

Like for like Financial Statistics #
	Year ended 31 December 2010	Year ended 31 December 2009
Occupancy	80.1%	79.8%
Average Room Rate	€107.7	€99.5
RevPAR	€86.3	€79.4
Total Revenue	€81.2 million	€78.7 million
EBITDA	€19.7 million	€16.9 million*

# The 2010 like for like financial statistics exclude Park Plaza Westminster Bridge London (partial opening to paying guests in March 2010, followed by full opening in September 2010), art'otel cologne (opened in March 2010), Park Plaza Amsterdam Airport (acquired in April 2010) and Park Plaza Nottingham and Park Plaza Leeds (both acquired in August 2010 and continued to be managed by Park Plaza under a long term management agreement). The 2009 financial statistics exclude Park Plaza Dresden, as the contract for this hotel was terminated in September 2009.

2010 Highlights

·     Total Group revenue increased by 74.1% to €139.8 million (2009: €80.3 million)

·     EBITDA increased by 132.1% to €37.6 million (2009: €16.2 million)

·     1,579 rooms were added to the Group's hotel portfolio in 2010:

−         Group's prestigious flagship hotel, Park Plaza Westminster Bridge London, partially opened in March 2010, followed by full opening in September 2010

−         Newly built art'otel cologne, Germany opened in March 2010

−         Acquisition of large conference hotel near Amsterdam Schiphol Airport in the Netherlands in April 2010

·     Park Plaza Leeds and Park Plaza Nottingham now fully-owned and continue to be operated by the Group

·     Successful refinancing of Park Plaza Victoria London, Park Plaza Riverbank London (including  Plaza on the River) and Park Plaza Sherlock Holmes London in November 2010

·     Ownership interest in Park Plaza Victoria London, Park Plaza Riverbank London (including Plaza on the River) and Park Plaza Sherlock Holmes London increased to 100% in December 2010

·     Net debt reduced by €34.0 million to €369.9 million at 31 December 2010

2011 Highlights To Date:

·     Extensive renovations carried out in four hotels in the Netherlands, Germany and Budapest

·     Park Plaza awarded "Best Small or Independent Hotel Brand" by the UK Business Travel Awards

·     Launch of competitive new guest loyalty programme named Club Carlson (including introduction of new Mobile App)

·     Strong focus on growing the contribution of online channels including the introduction of three new languages on the parkplaza.com website and the planned launch of mobile websites and applications

Commenting on the results, Boris Ivesha, President & Chief Executive Officer of Park Plaza, said:

"I am pleased to report that 2010 was an active and exciting year for Park Plaza, with a number of projects in the form of acquisitions and property developments that the Group had planned over a number of years, coming to fruition.  This culminated with the opening of our new flagship hotel Park Plaza Westminster Bridge London.

Over the course of the year, trading conditions in all the markets in which the Group operates improved with the early signs of recovery seen in the first half gaining momentum in the second half of the year, as demand from both corporate and leisure travellers increased.

The improved trading environment has continued into 2011 and the Group has traded in line with the Board's expectations during the first three months of the year. Looking forward, we remain focussed on improving overall performance across our business, advancing confirmed development projects and actively exploring new opportunities."

Enquiries:

Park Plaza Hotels Limited
Boris Ivesha, President and Chief Executive Officer	Tel: [phone]
Chen Moravsky, Chief Financial Officer	Tel: [phone]
Hudson Sandler	Tel: [phone]
Wendy Baker / Kate Hough
Investec	Tel: [phone]
James Grace

Overview

2010 was an active and exciting year in Park Plaza's development.  Significant progress was made on a number of projects and the Park Plaza group of companies (the "Group") started to benefit from its development pipeline and hotel acquisitions.  The Group also successfully completed the refinancing of three of its hotels, Park Plaza Victoria London, Park Plaza Riverbank London (including Plaza on the River) and Park Plaza Sherlock Holmes London, and through a subsequent transaction now has full ownership of these hotels. A key highlight in the year was the partial opening of the Group's flagship hotel, Park Plaza Westminster Bridge London, in the first quarter followed by full opening in the third quarter of the year. 

In 2010, trading conditions in all the markets in which the Group operates improved.  There were early signs of recovery in the first half, despite the travel disruption in northern Europe as a result of heavy snow in January 2010 and the unprecedented closure of airspace in April 2010 as a result of the volcanic ash cloud from Iceland.  This recovery gained momentum in the second half of the year as demand from both corporate and leisure travellers increased. 

As a result, the Group is pleased to report a strong financial performance for the year to 31 December 2010, which exceeded the Board's expectations.  Total reported Group revenue increased by 74.1% to €139.8 million and EBITDA grew by 132.1% to €37.6 million as the Group started to benefit from its development pipeline.  A further 1,579 rooms were added to the Group's portfolio during the year through the addition of two new built hotels and one acquisition and 123 rooms were removed following the termination of a franchise agreement in Germany, bringing the total number of rooms operated by the Group at the year-end to approximately 8,400.  

In particular the Group's established London hotels - Park Plaza Victoria London, Park Plaza Riverbank London (including Plaza on the River) and Park Plaza Sherlock Holmes London - performed strongly in the year with RevPAR for each of these hotels outperforming the average RevPAR of its competitive set in 2010 (STR Global, December 2010).

The Group significantly extended its presence in the "affordable luxury" hotel market through the addition of three hotels to its portfolio.  In March 2010, Park Plaza Westminster Bridge London was partially opened to paying guests after ten years in the planning and two years of construction, followed by its full opening in September 2010.  This prestigious 1,019 room hotel is one of the largest hotels to open in the United Kingdom.  In the second quarter of 2010, completion commenced on the 865 units that had been contracted for sale, with 535 units having completed at 31 December 2010.  A total of £154.2 million (€179.0 million) was received from purchasers of the 535 units and a further £2.1 million was received by way of deposits from defaulting purchasers, reducing the Bank Hapoalim construction facility to £93.4 million at 31 December 2010. 

The Group's newly built art'otel cologne in Germany was opened in March 2010.  Located in a prime location on the bank of the River Rhine, this hotel offers 218 rooms, excellent meeting facilities and has received very encouraging customer feedback.  

In April 2010, the Group acquired via a joint venture a 342 room conference hotel near Amsterdam Schiphol Airport which, due to its location, is one of the largest conference hotels in the Amsterdam area.  The hotel was rebranded Park Plaza Amsterdam Airport immediately following the acquisition.  The acquisition of the hotel was partially financed via an increase to the existing facility with Aareal Bank AG.

In addition to the 1,579 new rooms added to the Group's portfolio in the year, in August 2010, the Group acquired the freehold and headlease interests of Park Plaza Leeds and Park Plaza Nottingham.  Prior to this acquisition both hotels were operated, and continue to be operated, by the Group under long term management agreements.   

In November 2010, the Group announced the refinancing of three of its London hotels, Park Plaza Victoria London, Park Plaza Riverbank London (including Plaza on the River) and Park Plaza Sherlock Holmes London with Aareal Bank AG.  The refinancing facilities total £165.0 million and have a five year term.

On 31 December 2010, the Group acquired the joint venture interests in, and shareholder loans related to, Park Plaza Victoria London, Park Plaza Riverbank London (including Plaza on the River) and Park Plaza Sherlock Holmes London, which the Group did not already own from Elbit Imaging Ltd ("Elbit").  As a result, the Group now fully owns these three well-established hotels. 

Park Plaza has continued to tightly manage costs whilst ensuring that its guests continue to enjoy the high quality of product and service they expect.  In line with the Board's expectations, costs in the first half of the year increased as a result of the one off pre-opening costs, including payroll and marketing costs, primarily relating to the opening of Park Plaza Westminster Bridge London and art'otel cologne, Germany. The Group will continue to monitor and manage costs closely.

The Group benefits from its strategic partnership with Carlson which provides it with a global distribution platform and participation in global sales and marketing programmes.  In particular, hotel room revenue generated via the Carlson's reservation system has continued to increase primarily driven by the Group's participation in the "Club Carlson" guest reward scheme (formerly known as "goldpoints plus") and aggressive online marketing initiatives. 

Operating Performance

Total Group revenue in 2010 increased by 74.1% to €139.8 million (2009: €80.3 million) as the Group benefited from first time contributions from Park Plaza Westminster Bridge London, Park Plaza Amsterdam Airport, art'otel cologne, Park Plaza Leeds and Park Plaza Nottingham which were added to the Group's portfolio during the year.  When contributions from these hotels and the effect of foreign currency movements are excluded, Group revenue increased by 3.1% reflecting an improvement in underlying performance as the early signs of a market recovery reported at the half year results, continued into the second half of the year.

Reported Group RevPAR increased by 10.7% to €85.7 (2009: €77.4), primarily reflecting a 13.2% improvement in average room rates during the year, albeit on an anticipated decline in year on year occupancy due to the addition of five new hotels to the Group's portfolio.  This is in part due to Park Plaza Westminster Bridge London and art'otel cologne being in the early stages of their operational lifecycle as well as lower occupancy and average room rates at Park Plaza Leeds and Park Plaza Nottingham, with the UK provincial destinations slower to recover, and Park Plaza Amsterdam Airport which commands lower rates than the Group's other Dutch hotels located in city centres.   Like for like RevPAR improved by 8.6% to €86.3 (2009: €79.4).

In the United Kingdom, RevPAR was €112.8 (2009: €109.6), an increase of 3.0% year on year benefiting from foreign exchange translation.  However in local currency, RevPAR marginally declined as a result of the opening of Park Plaza Westminster Bridge London and the acquisition of Park Plaza Leeds and Park Plaza Nottingham in the year.  On a like for like basis and in local currency, RevPAR increased by 7.2% to £104.3 (2009: £97.3).

In the Netherlands, RevPAR was €79.6 (2009: €91.4) impacted by a decline in occupancy and average room rate as a result of the addition of Park Plaza Amsterdam Airport to the Group's Dutch hotel portfolio.  On a like for like basis RevPAR increased by 4.7% to €95.7 (2009: €91.4).

In Germany and Hungary, which have historically been the most challenging markets in which the Group operates, RevPAR increased by 12.7% to €48.4 (2009: €43.0), reflecting a 14.3% increase in average room rate year on year.  This improvement was in part helped by the German government reducing the value added tax rate from 19% to 7% on 1 January 2010.  Occupancy at the Group's hotels was adversely impacted by the newly opened art'otel cologne.  Like for like RevPAR increased by 7.9% to €48.3 (2009: €44.8).

Revenue from the Management and Holdings Operations reduced slightly to €7.7 million (2009: €8.1 million).  This is partially as a result of the elimination of revenue from Park Plaza Leeds and Park Plaza Nottingham following their acquisition by the Group and their consolidation into the Group's accounts.  EBITDA increased by 176.2% to €5.8 million (2009: €2.1 million), with the newly opened and acquired hotels in 2010 contributing €3.5 million to the EBITDA of the Management and Holdings Operations.  

Group EBITDA increased to €37.6 million (2009: €16.2 million), primarily due to the first time contribution from the addition of new hotels into the Group's portfolio, particularly Park Plaza Westminster Bridge London, a significant improvement in the German and Hungarian operations which resulted in a reduced EBITDA loss of €300,000 compared with a loss of €3.7 million in 2009 and an improvement in Management and Holdings EBITDA to €5.8 million (2009: €2.1 million).  On a like for like basis Group EBITDA increased by 16.6% to €19.7 million (2009: €16.9 million).

The reported profit before tax was €60.5 million (2009: loss of €7.2 million). The profit relates mainly to gains arising from the application of IFRS accounting following the Group obtaining 100 per cent. control of  previously jointly owned entities (see note 2c) amounting to €50.8 million and negative goodwill arising from the newly acquired interests in hotels amounting to €10.0 million (see note 2a, 2b and 2c). In addition the EBITDA contribution from the opening and acquisition of the new hotels increased by €17.9 million and the interest and income from forfeited deposits relating to the sale of units in Park Plaza Westminster Bridge London amounted to €5.7 million. The Group faced a one-off expense due to the refinancing of the Goldman Sachs International loan of €8.9 million, the breakage of the finance hedge and additional depreciation expenses due to the new hotels of €4.2 million. An additional €7.7 million of finance expenses and interest expenses guaranteed to unit holders of Park Plaza Westminster Bridge London was also incurred. As a result, basic and diluted earnings per share for the year was €1.5 (2009:  loss of €0.18).  Details on the calculation of earnings/loss per share are provided in note 3.

Financial Performance

Net debt at 31 December 2010 was €369.9 million, a net year on year reduction of €34.0 million (at 31 December 2009: €403.9 million). This includes €30.9 million of liquid assets (2009: €45.8 million), of which cash and cash equivalents were €25.6 million (2009: €34.4 million) and other liquid financial assets of €5.3 million (2009: €11.4 million). 

During the period, the movement in net debt included a €48.9 million year on year reduction in loans, which is mainly due to €169.0 million repayment by Marlbray following the sale of units at Park Plaza Westminster Bridge London and a €11.5 million reduction following the refinancing of the three London hotels.  There was also a €88.1 million increase as a result of the purchase of the remaining interest in, and shareholder loans related to, the three London hotels, a €21.9 million increase relating to the purchase of Park Plaza Leeds and Park Plaza Nottingham, a €13.8 increase relating to the purchase of Park Plaza Amsterdam Airport and a €10.3 million adverse foreign exchange translation movement.  During the period cash reduced by €14.9 million of which €6.0 million relates to the purchase of Park Plaza Leeds and Park Plaza Nottingham and €8.9 million relates to the refinancing of the three London hotels.  Further details are set out in note 2.

Sale of units at Park Plaza Westminster Bridge London

As at 31 December 2010, 865 of the 1,019 units at Park Plaza Westminster Bridge London were sold or contracted to sell (2009:  854 units), of which the sales of 535 units have been completed. In part due to the adverse financial and economic environment, a number of purchasers failed to complete and Marlbray has rescinded all the sales contracts with such defaulting purchasers.  The Board has subsequently resolved to retain the 330 unsold units and add these to the 154 units already held by the Group. The £154.2 million (€179.0 million) net proceeds raised from the completed sales and a further £2.1 million (€2.4 million) from forfeited deposits have primarily been used to repay the Bank Hapoalim construction facility, of which £93.4 million (€108.4 million) was outstanding at 31 December 2010.  The original facility amounted to £248.0 million (€303.5 million).  The £15.6 million (€18.2 million) of deposits received in respect of uncompleted sales are held on the balance sheet as restricted deposits and are not included in the Group's €30.9 million liquid assets.  

On the completion of each sale, the purchaser was issued a "B" Ordinary Share in the management company of the hotel, 1 Westminster Bridge Plaza Management Company Limited ("1WB"). Marlbray Limited, a wholly-owned subsidiary of the Group and the owner of the freehold of the hotel, holds the sole voting share, being an "A" Ordinary Share. This results in Marlbray Limited having control in 1WB until the later of:

(i)         the completion date of the sale of the last of the units forming part of the Park Plaza Westminster Bridge hotel; and

(ii)        the expiry of the period of guaranteed returns to purchasers (i.e. 5 years from the last completion), 

provided that the relevant date shall not in any event be later than 31 December 2017.

As long as control over 1WB, and therefore indirect control over the units, is retained by the Group, all of the accounting conditions for revenue recognition of the sale of the 535 units are not met. Hence, in the preliminary results the units sold and the proceeds received from purchasers have been accounted for as an advance payment until such time as they can be recognised as revenue.

The original maturity date of the Bank Hapoalim facility of 31 August 2010 was extended to 31 October 2010, subsequently to 28 February 2011 and most recently to 31 May 2011.

The Board is now in advanced negotiations with Bank Hapoalim to restructure the existing facility, and is confident that an agreement for the restructuring of the existing short term facility into a long term facility will be reached by the maturity date of the facility.

Financing of Park Plaza Amsterdam Airport

The Group increased its existing facility with Aareal Bank AG in April 2010 in order to finance the acquisition of Park Plaza Amsterdam Airport.   The amended facility, the maturity of which was extended to April 2017, has a value of €111.0 million and includes €5.0 million for renovations and updates to Park Plaza Victoria Amsterdam and Park Plaza Amsterdam Airport in order to further strengthen their market position. The increased facility is secured on Park Plaza Victoria Amsterdam (owned through a joint venture with Elbit), Park Plaza Utrecht (owned through a joint venture with Elbit), Park Plaza Eindhoven (fully owned by the Group) and Park Plaza Amsterdam Airport (owned through a joint venture with Elbit).  There is no recourse to other parts of the Group.

Financing of Park Plaza Leeds and Park Plaza Nottingham

On 4 August 2010, the Group's wholly-owned subsidiary, Euro Sea Hotels N.V., acquired Hotel Leeds Holding B.V., Hotel Nottingham Holding B.V. and Nottingham Park Plaza Hotel Operator Limited from Leno Hotel Holding B.V. (NPPHOL), a wholly-owned member of the Red Sea group, for an aggregate cash consideration of £3.3 million.  In addition to the headlease interests the Group acquired the companies which owned the freehold and long leasehold interests in the two hotels. 

Further details of the financing of Park Plaza Leeds and Park Plaza Nottingham are set out in note 2(b).

Refinancing of three London hotels

On 26 November 2010 the Group announced the refinancing of three London hotels which it operated and part owned - Park Plaza Riverbank (including Plaza on the River), Park Plaza Victoria and Park Plaza Sherlock Holmes.  The refinancing involved five year term facilities totalling £165.0 million with Aareal Bank AG.  The three hotels had previously been financed by a £195.0 million facility, of which £181.9 million was outstanding, from Goldman Sachs International which was due to mature in March 2013.  The costs of terminating an existing interest rate swap with Goldman Sachs International, amounting to £14.4 million were settled by Aareal Bank AG as part of the overall refinancing arrangements. 

Acquisition of interests in three London hotels

On 31 December 2010, Park Plaza Hotels Europe Holdings B.V., a wholly-owned subsidiary of Park Plaza, acquired the joint venture interests in, and loans related to, Park Plaza Riverbank London (including Plaza on the River), Park Plaza Victoria London and Park Plaza Sherlock Holmes London, which the Group did not already own from Elbit for a consideration of £21.0 million, subject to adjustments.  Prior to the acquisition, Park Plaza indirectly owned 50% of Park Plaza Victoria London and 55% of each of Park Plaza Sherlock Holmes London and Park Plaza Riverbank London (including Plaza on the River).

The acquisition was conditional on, among others, the admission of 1,000,000 Park Plaza shares (which formed part of the consideration) to trading on AIM on 31 December 2010.  Further details are set out in note 2c.

Park Plaza has been granted the option to buyback all of the consideration shares which Elbit may own from time to time at a price of £5.00 per share. If this option is exercised, the balance of the £3.5 million of the consideration will be reduced by an amount equal to £3.5 multiplied by the number of shares actually purchased. Any such exercise would require shareholder approval under Guernsey law.

Current Trading and Outlook

Whilst the first quarter is historically the weakest of the year, the Group is pleased to report that it has continued to trade in line with the Board's expectations during the three months to 31 March 2011.

As anticipated, trading conditions have continued to improve across all markets in which the Group operates.

In the United Kingdom, RevPAR has grown significantly year on year. Notably, the Group's London hotels reported a strong increase in average room rate and the Group has started to benefit from the now fully operational Park Plaza Westminster Bridge London.

In the Netherlands, RevPAR has also increased compared with the first quarter of 2010, a result of improved average room rates at all of the Group's hotels in the Netherlands. EBITDA declined due to less rooms being available at Park Plaza Victoria Amsterdam and Park Plaza Eindhoven as a result of extensive renovations in the first quarter. The majority of rooms closed for renovations are now open and Management is confident that the Group will strongly benefit from these improved products.

In Germany and Hungary, RevPAR at the Group's hotels during the first quarter improved significantly year on year. This is a particularly good performance considering that last year's RevPAR performance in Germany was supported by the government's VAT reduction. The reported growth in RevPAR is a result of increased average room rates and has been further improved by the art'otel cologne which opened mid March 2010. The EBITDA loss was also reduced during the first quarter of 2011 as the Group started to benefit from renegotiated lease agreements and improved trading conditions.

The Group's Management and Holdings Operation has performed in line with the Board's expectations.

Looking forward, the Group remains focused on continuing to improve overall performance, fundamentally by growing average room rates and maintaining careful cost control. The Group will continue to progress its confirmed development projects and is actively exploring new growth opportunities.

The Board continues to believe that the Group's long term growth prospects remain attractive.

Park Plaza is considering a migration of the company's shares from AIM to listing on the Official List.

Review of Operations

United Kingdom

Hotel Operations:  Key Operating Statistics

	Euro (€)		GBP (£)
	Year ended 31 December 2010	Year ended 31 December 2009	Year ended 31 December 2010	Year ended 31 December 2009
Occupancy	81.8%	84.8%	81.8%	84.8%
Average Room Rate	€137.9	€129.2	£118.0	£114.7
RevPAR	€112.8	€109.6	£96.5	£97.3
Total Revenue	€81.6 million	€29.0 million	£69.9 million	£25.8 million
EBITDA	€24.5 million	€11.4 million	£21.0 million	£10.0 million

	Euro (€)  Like for like+		GBP (£) Like for like+
	Year ended 31 December 2010	Year ended 31 December 2009	Year ended 31 December 2010	Year ended 31 December 2009
Occupancy	85.5%	84.8%	85.8%	84.8%
Average Room Rate	€142.0	€129.2	£121.6	£114.7
RevPAR	€121.8	€109.6	£104.3	£97.3
Total Revenue	€30.1 million	€29.0 million	£25.8 million	£25.8 million
EBITDA	€10.2 million	€11.4 million	£8.7 million	£10.1 million

+ excludes Park Plaza Westminster Bridge London (partial opening to paying guests in March 2010, followed by full opening in September 2010) and Park Plaza Nottingham and Park Plaza Leeds (acquired in August 2010)

RevPAR in the London hotel market improved in the year, particularly in the second half, as demand from both corporate and leisure guests increased reflecting occupancy and year on year average room rate (TRI Hospitality, December 2010).

The Group's three established owned London hotels - Park Plaza Victoria London, Park Plaza Riverbank London (including Plaza on the River) and Park Plaza Sherlock Holmes London - all delivered strong performances for the year and outperformed their competitive set in terms of RevPAR (on the back of occupancy ahead of their competitive sets (STR Global, December 2010)).  In particular, Park Plaza Victoria London performed strongly in the year, outperforming in terms of occupancy and average room rate and delivered RevPAR 19.4% higher than the average for its competitive set in 2010 (STR Global, December 2010).

Park Plaza Westminster Bridge London, the Group's prestigious flagship hotel, partially opened to paying guests in March 2010 and fully opened in September 2010.  The hotel, which has magnificent views of Big Ben and the Houses of Parliament, offers 1,019 rooms (including penthouse suites), Mandara spa, state of the art meeting and conference facilities, including a 1,200 square metre pillar free ballroom and 31 meeting rooms, making it one of the most versatile hotels in central London.   The hotel features a 200-seat signature restaurant, Brasserie Joël, headed by acclaimed chef Joël Antunes, as well as a 30-seat Japanese restaurant.  The hotel's performance has been very encouraging since opening and customer satisfaction has been consistently high. 

As at 31 December 2010, 865 of the 1,019 units at Park Plaza Westminster Bridge London were sold or contracted to be sold and the sale of 535 units had been completed, raising net cash proceeds for the Group of £154.2 million (€179.0 million). 

In August 2010, the Group acquired Park Plaza Leeds and Park Plaza Nottingham which the Group had previously operated under long term management agreements.  Park Plaza Leeds is located in the centre of Leeds, opposite Leeds Railway Station and the main City square, and is within walking distance of local businesses, shopping centres and tourist attraction and offers 185 rooms and suites, flexible meeting space for up to 140 delegates, a business centre and fully-equipped gym. Park Plaza Nottingham, located in the city centre, offer 178 spacious rooms and suites and 12 flexible meeting rooms, with space for 220 delegates, a business centre and fitness suite.  Both hotels offer Park Plaza's award winning Chino Latino Restaurant and Bar.  As provincial hotels, these hotels change the hotel mix as they attract lower average room rates than the Group's London hotels.  Nonetheless in 2010, both hotels outperformed their competitive sets in terms of RevPAR (STR Global, December 2010).

In the United Kingdom, reported total revenue increased to €81.6 million (2009: €29.0 million) and EBITDA increased to €24.5 million (2009: €11.4 million), mainly due to the opening of Park Plaza Westminster Bridge London and the acquisitions of Park Plaza Leeds and Park Plaza Nottingham.

On a local currency and like for like basis, total revenue increased by 3.8% to £30.1 million (2009: £29.0 million).  EBITDA reduced to £10.2 million (2009: £11.4 million).

The Netherlands

Hotel Operations: Key Operating Statistics

	Year ended 31 December 2010	Year ended 31 December 2010	Year ended 31 December 2009
		Like for like^
Occupancy	77.9%	83.3%	84.1%
Average Room Rate	€102.2	€114.9	€108.7
RevPAR	€79.6	€95.7	€91.4
Total Revenue	€22.8 million	€20.4 million	€19.8 million
EBITDA	€7.6 million	€7.3 million	€6.5 million

^{^} excludes Park Plaza Amsterdam Airport acquired in April 2010.

Having been adversely affected by the recent downturn, particularly in Amsterdam, the Dutch hotel market saw a gradual recovery in demand from corporate and leisure guests in the first half of the year which gained momentum in the second half. 

Against this backdrop, the Group's Dutch hotels delivered a good performance with like for like RevPAR increasing by 4.7% driven by 5.7% improvement in average room rate.   

In April 2010, the Group acquired with a joint venture partner a large conference hotel located near Amsterdam Schiphol Airport.  This 342 room hotel, which has over 1,800 square metres of flexible meeting space, was rebranded Park Plaza Amsterdam Airport.  The hotel's location outside of Amsterdam city centre means that it achieves a lower average room rate than the Group's other Dutch hotels.  As a result, the Group's future RevPAR for the Dutch market will reflect this change to the hotel mix. In order to strengthen the hotel's market position, particularly in the corporate market, renovations and updates commenced in the first quarter of 2011. 

On a like for like basis, RevPAR in The Netherlands grew by 4.7% year on year to €95.7 (2009: €91.4).

In Amsterdam, Park Plaza Victoria Amsterdam and Park Plaza Vondelpark, Amsterdam both outperformed their competitive set in terms of RevPAR achieved through high occupancy at these hotels of 91.0% and 77.0% respectively compared with occupancy of 79.5% and 69.5% respectively for the competitive set (STR Global, December 2010).  Renovations of the public areas, meeting areas and the creation of a wine bar, called V-Bar, at Park Plaza Vondelpark were completed in April 2010.

Park Plaza Utrecht and Park Plaza Eindhoven both delivered a strong performance during the year, outperforming their competitive sets in terms of occupancy and RevPAR with Park Plaza Utrecht reporting RevPAR 31% ahead of its competitive set (STR Global, December 2010).

Reported total revenue increased by 15.5% to €22.8 million (2009: €19.8 million) and EBITDA grew by 17.9 % to €7.6 million (2009: €6.5 million). On a like for like basis, EBITDA increased by 12.9% to €7.3 million (2009: €6.5 million).

Germany and Hungary

Hotel Operations: Key Operating Statistics

	Year ended 31 December 2010	Year ended 31 December 2009
Occupancy	70.4%	71.4%
Average Room Rate	€68.8	€60.2
RevPAR	€48.4	€43.0
Total Revenue	€27.7 million	€23.5 million
EBITDA	€(0.3) million	€(3.7) million

	Year ended 31 December 2010	Year ended 31 December 2009
	Like for like>	Like for like>>
Occupancy	72.9%	72.6%
Average Room Rate	€66.3	€61.7
RevPAR	€48.3	€44.8
Total Revenue	€23.2 million	€21.8 million
EBITDA	€(0.3) million	€(3.0) million

^> excludes art'otel cologne (opened in March 2010) and Park Plaza Dresden (contract terminated in September 2009).

^>>excludes Park Plaza Dresden (contract terminated in September 2009).

The German and Hungarian hotel markets have continued to be characterised by an oversupply of hotel rooms, particularly in major cities such as Berlin, Dresden and Budapest. Although the German hotel market has seen an 8% improvement in RevPAR during the year (MKG Hospitality January 2011), this was primarily driven by increased average room rates following the government reduction in value added tax from 19% to 7% on 1 January 2010.   

Despite the challenges in the German market, the Group's hotels have performed in line with the market in Germany and the Group has benefited from this improvement in average room rate which resulted in a year on year increase in RevPAR.   art'otel berlin city centre west, art'otel berlin kudamm, art'otel dresden and Park Plaza Prenzlauer Berg Berlin all outperformed their competitive sets in terms of average occupancy in the year (Fairmas, December 2010). 

Budapest continues to be one of the most difficult markets in Europe with continued downward pressure on average room rates. During the year the lease for art'otel budapest was renegotiated which will benefit the future financial performance of this hotel. 

art'otel cologne, the Group's newly-built 218 room hotel located in the newly developed prestigious Rheinauhafen area of Cologne, was opened in March 2010.  The hotel features artwork by the Korean-born SEO and has the first Park Plaza award winning Chino Latino restaurant and bar outside the United Kingdom.  Customer feedback on the facilities and customer service since opening has been positive.  In its first year it was already recognised as one of the '100 best hotels in the world' by The Sunday Times Travel Magazine and its Chino Latino bar and restaurant has received various accreditations.

On a like for like basis, total revenue increased by 6.4% year on year and the EBITDA loss was reduced by 90.0% to €0.3 loss (2009: loss of €3.0 million).

Given the oversupply of hotel rooms in these markets, the Group continues to review its operations and strategies in Germany in order to improve its performance.  A number of hotels remain under review and the Group will continue to take action where appropriate. 

Management and Holdings Operation

	Year ended 31 December 2010	Year ended 31 December 2009
Total Revenue	€7.7	€8.1
EBITDA	€5.8	€2.1

The Group's reported management and holdings operation revenue reduced slightly to €7.7 million (2009: €8.1 million).  The opening of Park Plaza Westminster Bridge London and art'otel cologne and the acquisition of Park Plaza Amsterdam Airport and (post August 2010) Park Plaza Leeds and Park Plaza Nottingham in the year had no impact on the management revenue as this revenue is eliminated upon consolidation.

EBITDA increased by €3.7 million to €5.8 million.  The increase is primarily as a result of a €3.3 million contribution to the management operations from the newly opened and acquired hotels. The further increase can be attributed to non-recurring restructuring costs included in 2009.

Development Pipeline

A number of development projects will be progressed in 2011 as the Group continues to further enhance its hotel portfolio.

United Kingdom

In February 2010, the Group has been granted planning consent for London's first art'otel located in Hoxton following two years of design work and consultation with the local authorities and local community in Shoreditch. Construction work for the 352 room art'otel london hoxton is due to commence in the second quarter of 2011.  The hotel is scheduled to open in 2013.

The Group is investing in the complete refurbishment of the rooms and public areas at Park Plaza Leeds and Park Plaza Nottingham.  Works commenced in the first quarter of 2011 and are scheduled to be completed in the fourth quarter of 2011. 

The Netherlands

In October 2010, construction commenced on art'otel amsterdam, the city's first art'otel to be located in the iconic former "Kadaster" office in a prime location near Central Station.  In line with the art'otel brand this 105 room hotel will include dedicated public spaces on the ground and basement floors to showcase social and cultural activities as well as an art café.  The hotel is expected to open in 2012.

Major renovations are underway across the Group's Dutch hotel portfolio.  This includes the refurbishment of 164 rooms in the Garden Wing and meeting rooms at Park Plaza Victoria Amsterdam, renovation of 47 rooms at Park Plaza Eindhoven (which both commenced in the first quarter of 2011) and the refurbishment of 40 rooms at Park Plaza Utrecht.  Renovations of public areas and leisure facilities at Park Plaza Amsterdam Airport will also be undertaken.

Germany and Hungary

In the second quarter of 2010 work commenced to extend the art'otel berlin city centre west.  This 60 room extension will include refurbishment of the ground floor, the addition of two new meeting rooms and a new wellness centre.   The project is scheduled to finish in the fourth quarter of 2011.

A renovation programme to refurbish all rooms and public areas at art'otel budapest will commence in 2011.  The project is due to be completed in 2012.

Progress at Park Plaza Nuremberg continues and the hotel is expected to open in 2012.

Croatia

The Group continued with several refurbishment projects across its Arenaturist portfolio during the year. In particular, extensive room renovations commenced at Hotel Histria and are due to be completed by the end of 2011. At several hotels, the restaurants, bars and pool areas were also renovated. The Group further developed the renovation plans which are to be implemented following the 2011 season. The Arenaturist portfolio will upgrade its back office property management IT system in the first half of 2011, for which most preparations were done in 2010.

(UNAUDITED) CONSOLIDATED BALANCE SHEET

		As at 31 December
		2010 €'000	2009 €'000
ASSETS
NON-CURRENT ASSETS:
Intangible assets		42,313	44,882
Property, plant and equipment		605,242	188,625
Apart-hotel units sold to unit holders		160,586	-
Prepaid leasehold payments		244	254
Investment in associate		22,140	22,468
Other non-current financial assets		27,389	35,306
		857,914	291,535
CURRENT ASSETS:
Inventories under construction		-	304,817
Restricted deposits and cash		21,999	66,516
Inventories		1,351	527
Other current financial assets		1,671	14,536
Trade receivables		17,176	14,385
Other receivables and prepayments		9,557	5,137
Cash and cash equivalents		25,637	34,418
		77,391	440,336
Total assets		935,305	731,871

 (UNAUDITED) CONSOLIDATED BALANCE SHEET

		As at 31 December
		2010 €'000	2009 €'000
EQUITY AND LIABILITIES
EQUITY:
Issued capital		-	-
Share premium		237,729	236,000
Other reserves		(36,445)	(36,418)
Treasury shares		(1,083)	(1,083)
Foreign currency translation reserve		(36,507)	(28,376)
Hedging reserve		(1,087)	(9,096)
Accumulated earnings (deficit)		40,611	(21,292)
Total equity		203,218	139,735
NON-CURRENT LIABILITIES:
Bank borrowings		261,570	171,865
Advance payments from unit holders		176,503	-
Other liabilities		65,299	51,011
Deferred income taxes		8,770	9,655
		512,142	232,531
CURRENT LIABILITIES:
Trade payables		24,998	4,853
Deposits received from unit holders		18,234	63,757
Other payables and accruals		37,419	13,128
Bank borrowings		139,294	277,867
		219,945	359,605
Total liabilities		732,087	592,136
Total equity and liabilities		935,305	731,871

(UNAUDITED) CONSOLIDATED INCOME STATEMENTS

		Year ended 31 December
		2010	2009
		€'0001	€'0001
Revenues		139,829	80,326
Operating cost		(93,382)	(54,182)
EBITDAR		46,447	26,144
Rental expenses		(8,814)	(9,900)
EBITDA		37,633	16,244
Depreciation and amortisation		(12,409)	(9,066)
EBIT		25,224	7,178
Financial expenses		(28,873)	(18,940)
Financial income		10,421	5,797
Other Income, net		60,351	-
Interest expenses on advance payments from unit holders		(4,279)	-
Share in loss of associate		(2,362)	(1,195)
Profit (loss) before tax		60,482	(7,160)
Income tax benefit (expense)		1,421	(289)
Profit (loss) for the year		61,903	(7,449)
Basic and diluted earnings (loss) per share (in Euro)		1.5	(0.2)

¹     Except earnings per share.

 (UNAUDITED) CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

		Year ended 31 December
		2010	2009
		€'000	€'000
Profit (loss) for the year		61,903	(7,449)
OTHER COMPREHENSIVE INCOME (LOSS):
Profit (loss) from available-for-sale financial assets		289	348
Reclassification adjustment for loss from available-for-sale financial assets recorded in income statement		(346)	246
Loss from cash flow hedges		(911)	(2,715)
Breakage of hedge financial instruments		8,920	-
Reclassification adjustment in respect of foreign currency translation reserve		(9,390)	-
Foreign currency translation adjustments of foreign operations		1,205	3,762
Foreign currency translation adjustment of associate		54	26
Other comprehensive  income (loss)		(179)	1,667
Total comprehensive income (loss) attributable to owners of the parent		61,724	(5,782)

 (UNAUDITED) CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

	Issued capital*	Share premium	Other reserves	Treasury shares	Foreign currency translation      reserve	Hedging reserve	Retained earnings (accumulative      deficit)	Total
Balance as at 1 January 2009	-	236,000	(37,189)	-	(32,164)	(6,381)	(13,843)	146,423
Loss for the year	-	-	-	-	-	-	(7,449)	(7,449)
Other comprehensive income for the year	-	-	594	-	3,788	(2,715)	-	1,667
Total comprehensive loss	-	-	594	-	3,788	(2,715)	(7,449)	(5,782)
Purchase of treasury shares	-	-	-	(1,083)	-	-	-	(1,083)
Share-based payments	-		177	-	-	-		177
Balance as at 31 December 2009	-	236,000	(36,418)	(1,083)	(28,376)	(9,096)	(21,292)	139,735
Profit for the year	-	-	-	-	-	-	61,903	61,903
Other comprehensive loss for the year	-	-	(57)	-	(8,131)	8,009	-	(179)
Total comprehensive income	-	-	(57)	-	(8,131)	8,009	61,903	61,724
Issue of  shares	-	1,729	-	-	-	-	-	1,729
Share-based payments	-	-	30	-	-	-	-	30
Balance as at 31 December 2010	-	237,729	(36,445)	(1,083)	(36,507)	(1,087)	40,611	203,218

*     No par value.

 (UNAUDITED) CONSOLIDATED STATEMENTS OF CASHFLOWS

	Year ended 31 December
	2010 €'000	2009 €'000
Cash flows from operating activities:
Profit (loss) for the year	61,903	(7,449)
Adjustment to reconcile profit (loss) to cash used in operating activities:
Financial expenses	33,151	18,940
Financial income	(10,421)	(5,797)
Income tax (income) expense	(1,421)	289
Negative goodwill on acquisition of Schiphol Victoria Hotel C.V.	(308)	-
Negative goodwill on acquisition of Park Plaza Leeds and Park Plaza Nottingham	(1,756)	-
Negative goodwill on acquisition of Park Plaza Victoria, Park Plaza Riverbank  and Park Plaza Sherlock Holmes	(7,933)	-
Capital gain from obtaining control in a former jointly controlled entity	(50,825)	-
Share in loss of associates	2,362	1,195
Depreciation and amortisation	12,409	9,075
Share-based payments	30	177
	(24,712)	23,879
Changes in operating assets and liabilities:
Increase in inventories under construction	(5,013)	(80,951)
(Increase) decrease in inventories	(663)	3
Increase in trade and other receivables	(5,658)	(2,424)
(Increase) decrease in trade and other payables	11,112	(5,708)
	(222)	(89,080)
Cash paid and received during the period for:
Interest paid	(22,880)	(12,549)
Interest received	1,011	609
Taxes paid	170	-
Taxes received	(119)	(63)
	(21,818)	(12,003)
Net cash from ( used in) operating activities	15,151	(84,653)
Cash flows from investing activities:
Purchase of property, plant and equipment	(23,101)	(3,345)
Net change in cash upon acquisition of Schiphol Victoria Hotel C.V. (Note A)	(739)	-
Net change in cash upon acquisition of Park Plaza Leeds and Park Plaza Nottingham (Note B)	(9,619)	-
Net change in cash upon acquisition of Park Plaza Victoria, Park Plaza Riverbank and Park Plaza Sherlock Holmes (Note C)	2,945	-
Loans to jointly controlled entities and to partners in jointly controlled entities	(8,396)	(1,670)
Decrease (increase) in restricted deposits	45,127	(8,019)
Purchase of available-for-sale investment in bonds and securities	(693)	(12,279)
Proceeds from maturity of bonds and securities	-	23,073
Purchase of available-for-sale investment in shares	(390)	(15,945)
Proceeds from sale of available-for-sale investment in shares	14,723	16,136
Purchase of treasury shares	-	(1,083)
Advance payments from unit holders	130,538	-
Decrease (increase) in restricted cash	28	320
Loans to unit holders	(2,180)	-
Net cash from (used in) investing activities	148,243	(2,812)

(UNAUDITED) CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year ended 31 December
	2010 €'000	2009 €'000
Cash flows from financing activities:
Increase in deposits from unit holders	1,757	3,130
Proceeds from long-term loans	100,358	42,158
Repayment of long-term loans	(114,441)	(44,485)
(Increase) decrease in short-term loans	(169,012)	85,032
Loans from jointly controlled entities and from partners in jointly controlled entities	8,635	1,733
Net cash provided (used in) by financing activities	(172,703)	87,568
Increase (decrease) in cash and cash equivalents	(9,309)	103
Net foreign exchange differences	528	1,250
Cash and cash equivalents at beginning of year	34,418	33,065
Cash and cash equivalents at end of year	25,637	34,418

NOTES TO THE CONSOLIDATED STATEMENTS OF CASHFLOWS

		Year ended 31 December
		2010 €'000	2009 €'000
(a)	Net change in cash upon acquisition of Schiphol Victoria C.V.:
	Current assets (excluding cash and cash equivalents)	393	-
	Current liabilities	(536)	-
	Non-current assets	15,308	-
	Non-current liabilities	(14,000)	-
	Negative goodwill	(308)	-
	Non-cash	(118)	-
	Net change in cash	739	-
(b)	Net change in cash upon acquisition of Park Plaza Leeds and Park Plaza Nottingham:
	Current assets (excluding cash and cash equivalents)	862	-
	Current liabilities	(2,330)	-
	Non-current assets	40,316	-
	Non-current liabilities	(23,837)	-
	Non-cash	(3,636)	-
	Negative goodwill	(1,756)	-
	Net change in cash	9,619	-
(c)	Net change in cash upon acquisition of Park Plaza Sherlock Holmes Park Plaza Riverbank Hotel and Park Plaza Victoria Hotel:
	Current assets (excluding cash and cash equivalents)	3,090	-
	Current liabilities	(11,807)	-
	Non-current assets	135,180	-
	Non-current liabilities	(99,520)	-
	Negative goodwill	(7,933)	-
	Non-cash	(21,955)	-
	Net change in cash	(2,945)	-
(d)	Significant non-cash transactions:
	Purchase of inventories under construction and Property Plant and Equipment	14,081	-
	Issue shares	1,729	-
	Total non-cash transactions	15,810	-

SELECTED NOTES TO (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 GENERAL

a.             The Preliminary Results for the year ended 31 December 2010 are extracted from the (unaudited) consolidated financial statements of the Company for the year ended 31 December

2010 and were authorised for release by the Board.

b.   Description of business and formation of the Company:

The Company was incorporated and registered in Guernsey on 14 June 2007.

The Company through its subsidiaries, jointly-controlled entities and associates, owns, develops, operates and franchises hotels in Europe and the Middle East primarily under two brands: Park Plaza Hotels & Resorts and art'otel.

NOTE 2 BUSINESS COMBINATIONS

a.   On 28 April 2010, the Group acquired jointly with Elbit Imaging Ltd ("Elbit") a large conference hotel in The Netherlands, located near Amsterdam Schiphol Airport. The hotel was acquired for approximately €2.0 million (attributable to the Group €1.0 million) from Melbourne Onroerende Zaken B.V. and is owned through Schiphol Victoria Hotel C.V. ("Schiphol"), a joint venture controlled 50:50 by the Company and Elbit. The Company and Elbit each contributed equity of approximately €1.0 million as consideration for the acquisition. The hotel, formerly operated as the 'Holiday Inn Amsterdam Schiphol', opened in 2007 and offers 342 contemporary guestrooms, bringing the Group's total number of rooms in The Netherlands to over 1,000. With over 1,800 square metres of flexible meeting space, this hotel is among the top meeting locations in The Netherlands. Other key destinations such as Amsterdam, Haarlem and Hoofddorp are also within easy reach. Given its close proximity to Amsterdam Schiphol Airport, the hotel was re-branded as Park Plaza Amsterdam Airport.

The fair value of the identifiable assets and liabilities as at the date of acquisition and the corresponding carrying amount immediately before is presented below.

	Fair value recognised on acquisition €'000	Previous carrying amount €'000
Property Plant and Equipment	15,308	15,293
Trade receivables	350	350
Cash and cash equivalent	261	261
Other current assets and liabilities	43	43
	15,962	15,947
Trade creditors	(142)	(142)
Long term loans	(14,000)	(14,000)
Other currency payables and accruals	(394)	(394)
	(14,536)	(14,536)
	1,426	1,411
Negative goodwill	(308)
Total consideration	1,118
Cash flow on acquisition		€'000
Net cash acquired with the subsidiary		261
Cash paid		(1,000)
Net cash outflow		(739)

      The fair value of the Property Plant and Equipment was evaluated by an external valuation using the DCF approach of discounted forecasted cash flows. The fair value estimate is based on:

·     A discount rate of and terminal rate of 8%.

·     Cash flow forecast based on the Group's budgets and based on rebranding the hotel as Park Plaza.

·     A reinvestment of 3.5% of total revenue of the hotel.

From the date of acquisition, Park Plaza Amsterdam Airport has contributed €1.7 million of revenue and a loss of €0.7 million to the net profit before tax of the Group. If the combination had taken place at the beginning of the year, Park Plaza Amsterdam Airport would have contributed €4.1 million of revenue and a loss of €0.1 million to the net profit before tax of the Group.

Transaction costs incurred in connection with this transaction were not material.

The negative goodwill is an outcome of the benefit that the Company sees from adding Park Plaza Amsterdam Airport to the Group's portfolio as a result of a bargain purchase.

The acquisition was financed via an increase to the existing facility with Aareal Bank AG ("Aareal"). The enlarged facility, the maturity of which has been extended to 27 April 2017, has a value of €111.0 million (attributable to the Group €57.0 million) and includes €28.0 (attributable to the Group €14.0 million) for the purchase and €5.0 million (attributable to the Group €2.5 million) for renovations and updates to the hotels.

b.   On 4 August 2010, the Company acquired, through its wholly-owned subsidiary, Euro Sea Hotels N.V. ("Euro Sea"), the entire issued share capital of each of Hotel Leeds Holding B.V. ("Leeds"), Hotel Nottingham Holding B.V. ("Nottingham") and Nottingham Park Plaza Hotel Operator Limited ("NPPHOL") from Leno Hotel Holding B.V. ("Leno"), a wholly-owned member of the Red Sea group, the Company's largest shareholder, for an aggregate cash consideration of £3.3 million (€ 4.0 million).

The Company also acquired Leno Investment Limited ("Leno Investment"), a wholly-owned subsidiary of Leno, for £1. Prior to its acquisition by Euro Sea, Leno Investment acquired certain bank loans owed by Leeds and Nottingham ("the Loans") for a total consideration of £5 million (€ 6.0 million), which represents a substantial discount to the book value of the Loans. Of the consideration, £2 million (€ 2.4 million) was paid on completion of the acquisition of the Loans (the "initial consideration") and the remaining £3 million (€ 3.6 million) has been deferred on a stepped interest bearing of Libor+6% on the first year, Libor+8% on the second year and Libor+10% on the third year, the principal of which is due no later than 3 years from the date of acquisition. The principal balance of £3 million (€ 3.6 million), repayment of which is guaranteed by Euro Sea, will become repayable earlier on the occurrence of certain events, including a disposition of either of the hotels or any dilution of the Group's interest in Leno Investment. In addition, if there is a sale or other disposal of the leasehold interests in either or both of the hotels at any time during the two-year period ending 3 August 2012 for an aggregate consideration in excess of £25 million (€ 30.3 million), Leno Investment will be required to pay further consideration to the original lender equal to 50% of the excess. As the Company presently has no intention of disposing the interest in these hotels, no provision has been recorded in respect of this contingent liability. Euro Sea provided Leno Investment with the necessary funds to meet the payment of the initial consideration for the Loans and has agreed to finance the deferred consideration payable when it becomes due.

Management fees of £ 3.3 million (€4.0 million) owed by NPPHOL to Park Plaza Hotels Europe BV ("PPHE") were paid in full prior to the acquisition of NPPHOL by Euro Sea.

As part of the transaction, the Company has also acquired the entire issued share capital of Waterford Investments Limited ("Waterford") from Julian Donn for £1. Waterford's principal assets are:

(i)   the freehold of the Park Plaza Leeds hotel (held through Waterford's wholly-owned subsidiary, Laguna Estates (Leeds) Limited ("Laguna")).

(ii)  a long lease of the main site of the Park Plaza Nottingham hotel which runs until 2145 (held through Waterford's wholly-owned subsidiary, Katmandu Limited ("Katmandu")); and

(iii) a long lease of land for storage use adjoining the Park Plaza Nottingham hotel which runs until 2061 (held through Katmandu).

Laguna has a term facility from The Royal Bank of Scotland plc. Prior to completion of the acquisition of Waterford, the Company provided Laguna with funds to enable it to reduce the amount outstanding under this facility by £1.3 million (€ 1.5 million) which was a condition of the bank's consent to the change of control of Waterford. Immediately following such repayment, approximately £13.6 million (€ 15.8 million), was outstanding, of which £11.3 million (€ 13.7 million) carries a variable interest of three month Libor plus 1.3% per annum and £2.3 million (€ 2.8 million) carries a variable interest of three month Libor plus 1.7% per annum. The facility is repayable in 2019. Laguna entered into a swap agreement to fix the variable interest to an interest rate of 5.1%.

Katmandu has a term facility from National Westminster Bank PLC, under which approximately £5.9 million (€ 7.2 million) was outstanding on acquisition. The loan carries a variable interest of three month Libor plus 1.3% per annum and is repayable in 2027. Katmandu entered into a swap agreement to fix the variable interest to an interest rate of 5.5%.

As part of the acquisition of Waterford, the Company's wholly-owned subsidiary, Park Plaza Hotels Europe Holdings B.V. ("PPHEH"), acquired from Martin Morris a deep discount bond for a cash consideration of £2.0 million (€ 2.4 million).

As a result of these transactions, Park Plaza Leeds hotel and Park Plaza Nottingham hotel are now fully-owned as well as continue to be operated by the Group. This will facilitate the planned refurbishment of the two hotels.

The fair value of the identifiable assets and liabilities as at the date of acquisition and the corresponding carrying amount immediately before is presented below:

	Fair value recognised on acquisition €'000	Previous carrying amount €'000
Property Plant and Equipment	40,316	55,934
Trade receivables	402	402
Cash and cash equivalent	757	757
Other current assets and liabilities	459	459
	41,934	57,552
Long term loans	(22,782)	(27,473)
Other long term liabilities	(4,691)	(4,691)
Trade creditors	(648)	(648)
Other currency payables and accruals	(1,681)	(1,681)
	(29,802)	(34,166493
	12,132	23,059
Negative goodwill	(1,756)
Total consideration	10,376
Cash flow on acquisition		€'000
Net cash acquired with the subsidiary		757
Cash paid		(10,376)
Net cash outflow		(9,619)

The fair value of the Property Plant and Equipment was evaluated by an external valuation using the DCF approach of discounted forecasted cash flows. The fair value estimate is based on:

·      A discount rate of and terminal rate of 8%.

·      Cash flow forecast based on the Group's budgets.

·      A reinvestment of 3.5% of total revenue of the hotel and additional future refurbishment of total £1.5 million (€ 1.7 million) in 2012.

From the date of acquisition, Leeds and Nottingham have contributed €4.7 million of revenue and a loss of €0.5 million to the net profit before tax of the Group. If the combination had taken place at the beginning of the year, revenue of Leeds and Nottingham would have contributed €10.9 million of revenue and a loss of €2.1 million to the net profit before tax of the Group.

Transaction costs due to this transaction were not material.

The negative goodwill is an outcome of the benefit that the Company sees from adding Park Plaza Leeds hotel and Park Plaza Nottingham hotel to the Group's portfolio as a result of a bargain purchase.

c.  On 31 December 2010 ("the closing date"), the Company acquired from Elbit, through, PPHEH, the entire issued share capital of each of the holding companies of Park Plaza Sherlock Holmes Hotel ("Sherlock Holmes Hotel"), Park Plaza Victoria Hotel ("Victoria London Hotel"), Park Plaza Riverbank Hotel (including Plaza on the River) ("Riverbank Hotel"), which the Group did not already own. Prior to the acquisition, the Group owned 50% of Victoria London Hotel and 55% of Sherlock Holmes Hotel and Riverbank Hotel. The total nominal consideration for the acquisition was £21 million (€ 24.4 million), subject to the adjustments, as described below:

·      The Euro equivalent of £8 million (€ 9.3 million) as at completion, to be paid by the Group in 7 equal quarterly instalments with interest of 7% per annum payable quarterly. The first instalment payable at completion of the acquisition;

·      The Euro equivalent of £8 million (€ 9.3 million) as at completion, to be paid by the Group in December 2013 with interest of 7% per annum payable quarterly;

·      £1.5 million (€ 1.7 million) by the issue of 1,000,000 of the Company's shares ("the consideration shares"). Elbit is subject to a lock-up until the first anniversary of completion, following which the Company will have a right of first refusal in respect of the consideration shares; and

·      £3.5million (€ 4.1 million) to be paid as to £1.8 million (€ 2.0 million) in December 2015, £0.9 million (€ 1.0 million) in December 2016 and £0.9 million (€ 1.0 million) in December 2017. This amount may be reduced depending on the performance of the Company's shares during the five-year period following completion.

This amount may be adjusted and should be paid as follows: £1.8 million (€ 2.0 million) on December 2015 ("settlement date"); the remaining amount is paid in two equal instalments on the sixth anniversary (December 2016) and seventh anniversary (December 2017) of the closing date. The amount is adjusted as follows:

a)   If at the settlement date, the average share price of the Company (over the last 60 business days) is higher than £5, the remaining cash payment is cancelled.

b)   If at the settlement date, the average share price of the Company (over the last 60 business days) is lower than £5 but higher than £1.5, the remaining cash payment will be reduced by the difference between the share price and £1.5 multiplied by the amount of shares issued to Elbit (1 million).

c)   If at the settlement date, the average share price of the Company (over the last 60 business days) is lower than £1.5 the remaining cash payment is £3.5 million (€ 4.1 million).

The Company has been granted the option to buyback all of the consideration shares which Elbit may own from time to time at a price of £5 per share. If this option is exercised, the balance of the £3.5 million (€ 4.1 million) (under (c) above will be reduced by an amount equal to £3.5 multiplied by the number of shares actually purchased. Any such exercise would require shareholders' approval under Guernsey law. All amounts due to Elbit are fully guaranteed by the Company.

As the Company achieved control over these hotels, which were previously under joint control, the transaction is accounted for as a business combination achieved in stages ("step acquisition"). Accordingly, at the acquisition date the Group re-valued its previous carrying value for these hotels at fair value and recognised a capital gain of   € 50.8 million, including reclassification adjustment of foreign currency translation reserve of € 9.3 million.

Following the acquisition, loans amounting to a total of £30.1 million (€ 34.9 million) from Elbit to the purchased companies were assigned to PPHEH.

The fair value of the identifiable assets and liabilities as at the date of acquisition and the corresponding carrying amount immediately before is presented below:

	Fair value recognised on acquisition	Previous carrying amount
	€'000	€'000
Property Plant and Equipment	173,728	92,705
Trade receivables	1,374	1,374
Cash and cash equivalent	4,282	4,282
Other current assets and liabilities	4,603	6,419
	183,987	104,780
Long term loans	(86,756)	(86,756)
Other non-current liabilities	(8,634)	(8,634)
Trade creditors	(2,018)	(2,018)
Short term loans	(1,306)	(1,306)
Other currency payables and accruals	(12,613)	(12,613)
	(111,327)	(111,327)
	72,660	(6,547)
Negative goodwill	(7,933)
Capital gain from obtaining control in a former jointly controlled entity	(41,435)
Total consideration	23,292

Cash flow on acquisition		€'000
Net cash acquired with the subsidiary		4,282
Cash paid		(1,337)
Net cash outflow		2,945

The fair value of the Property Plant and Equipment was evaluated by an external valuation using the DCF approach of discounted forecasted cash flows. The fair value estimate is based on:

·     A discount rate of 10.75% for Sherlock Holmes hotel and 8.75% for Victoria London Hotel and Riverbank Hotel.

·     A terminal value, calculated based on long-term sustainable growth rates for the industry ranging from 2.5%-4% which has been used to determine income in the future years.

·     Cash flow forecast based on the Group's budgets.

·     A reinvestment of 3.5% of total revenue of the hotel.

From the date of acquisition, Sherlock Holmes hotel, Victoria London Hotel and Riverbank Hotel have contributed €30.0 million of revenue and a loss of €10.1 million to the net profit before tax of the Group. If the combination had taken place at the beginning of the year, Sherlock Holmes Hotel, Victoria London Hotel and Riverbank Hotel would have contributed €56.6 million of revenue and a loss of €18.6 million to the net profit before tax of the Group

NOTE 3 EARNINGS PER SHARE

The following reflects the income and share data used in the basic earnings per share computations:

	As at 31 December
	2010 €'000	2009 €'000
Profit (loss)	61,903	(7,449)
Weighted average number of Ordinary shares outstanding	40,815	41,460

Potentially dilutive instruments have not been included in the calculation of diluted earnings per share because they are anti-dilutive for all periods presented.

NOTE 4 SEGMENTS

For management purposes, the Group's activities are divided into Owned Hotel Operations and Management Activities. Owned Hotel Operations are further divided into three reportable segments: The Netherlands, Germany and Hungary, and the United Kingdom. The operating results of each of the aforementioned segments are monitored separately for the purpose of resource allocations and performance assessment. Segment performance is evaluated based on EBITDA, which is measured on the same basis as for financial reporting purposes in the statement of comprehensive income.

	As at 31 December 2010
	The Netherlands €'000	Germany and Hungary €'000	United Kingdom €'000	Management €'000	Holding companies and Adjustments €'000	Consolidated €'000
Revenue
Third party	22,847	27,700	81,179	8,103	-	139,829
Inter-segment	-	-	389	12,618	(13,007)	-
Total revenue	22,847	27,700	81,568	20,721	(13,007)	139,829
Segment EBITDA	7,607	(286)	24,512	10,438	(4.638)	37,633
Depreciation and amortisation						(12,409)
Financial expenses						(28,873)
Financial income						10,421
Interest expenses on advance payments from unit holders						(4,279)
Other income, net						60,351
Share in loss of associate						(2,362)
Loss before taxes						60,482

	The Netherlands	Germany and Hungary	United Kingdom	Adjustments	Consolidated
Geographical information
Non-current assets1	75,166	7,620	682,523	43,076	808,385

¹     Non-current assets for this purpose consist of property, plant and equipment, prepaid leasehold payments and intangible assets.

	As at 31 December 2009
	The Netherlands €'000	Germany and Hungary €'000	United Kingdom €'000	Management €'000	Holding companies and adjustments €'000	Consolidated €'000
Revenue
Third party	19,779	23,456	27,518	9,573	-	80,326
Inter-segment	-	-	1,504	6,869	(8,373)	-
Total revenue	19,779	23,456	29,022	16,442	(8,373)	80,326
Segment EBITDA	6,474	(3,725)	11,369	5,928	(3,802)	16,244
Depreciation and amortisation						(9,066)
Financial expenses						(18,940)
Financial income						5,797
Share in loss of associate						(1,195)
Loss before taxes						(7,160)

	The Netherlands	Germany and Hungary	United Kingdom	Adjustments	Consolidated
Geographical information
Non-current assets1	59,775	7,428	121,173	45,385	233,761

¹     Non-current assets for this purpose consist of property, plant and equipment, prepaid leasehold payments and intangible assets.

NOTE 4 POST BALANCE SHEET EVENTS

On September 2008, three wholly-owned subsidiaries, Parkvondel Hotel Real Estate B.V. ("PHRE"), as borrower, and Parkvondel Hotel Holding B.V. ("PHH") and Parkvondel Hotel Management B.V. ("PHM"), as guarantors, entered into a €21.0 million secured term facility agreement with Aareal Bank AG ("Aareal") as lender (the "Facility Agreement"). The maturity date of this facility is 3 September 2013.

The Facility Agreement provides that the borrowers must ensure that the aggregate amount of the outstanding facility does not exceed 70% of the value of the hotels as set out in the most recent valuation (LTV test). In addition, the borrowers must ensure that, on each interest payment date, the Debt Service Cover Ratio  (defined as the Net Operating Income of the hotel for each of the four preceding financial quarters relative to the principal, interest and other costs payable by the borrowers for the next four financial quarters) (DSCR test) is not less than 120%. As at 31 December 2010 and 31 March 2011 PHRE, PHH and PHM failed the DSCR test and as at 31 March 2011 the aggregate amount of the outstanding facility exceeded 70% of the hotel value. On 12 April 2011 the Group reached an agreement with the Aareal to reduce the principal facility amount by € 0.9 million in order to "cure" the position as at 31 December 2010 and 31 March 2011 (DSCR test) and 31 March 2011 (LTV test). In addition certain requirements under the Facility Agreement were waived for a period of 12 months ending 30 June 2012.

 

END

 

 

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