Show me the money 

Some hotel sector catchphrases never die. Right now, any number of CFOs are eager to hold onto ‘pretend and extend’ and we hope they’re successful in their endeavours, the many pressing needs of vulture funds aside.

But this week’s favoured bingo term is one of the more gruesome in the sector: skin in the game. Fitting, perhaps, given the appearance of a new Mission Impossible film over the summer, but in this case the reappearance was not triggered by the need to operate under cover of a clingy organic disguise, but by last week’s PPHE Hotel Group results.

The company took the opportunity to update the beach-bound and air-traffic-controlled masses about its inaugural European Hospitality Real Estate Fund, which was announced earlier this year and has now gained regulatory approval. 

The fund of up to €250m equity will enable the group to further accelerate its strategy of identifying, acquiring and developing ‘attractive hotel assets’ across a range of key European markets via the use of non-dilutive third-party capital. Hotels acquired by the fund will be operated by PPHE’s hospitality management platform, adding heft.

In London, the art’otel London Battersea Power Station fully opened in February 2023, operated by PPHE under a management agreement through this hospitality management platform.

The fund will launch with the initial contribution of its existing asset in Rome and an equity commitment of up to €75m from a cornerstone investor (with an upper limit of 49% participation).

Boris Ivesha, president & CEO, PPHE Hotel Group, said: “This new fund would represent another significant step forward for PPHE strategically, as we continue to expand our leading portfolio of premium hotels while also taking advantage of our unique flexible and scalable in-house hospitality management platform. 

“The fund would enable us to accelerate our ability to capture the attractive opportunities we see in front of us, via the use of non-dilutive third-party capital, while also playing to our strengths as a fully integrated acquiror, developer and manager of attractive city centre hotels. This would also provide a compelling financial return profile for all fund investors, including PPHE, helping to further drive our future growth and enhance returns for our own shareholders.”

The skin, in this case, would be the Rome hotel and/or up to €50m in cash. So a definite commitment, as opposed to, say, some hotel brands, who, when asked about what they’re throwing into the mix, make a comment about their ‘reputation’. 

Now, reputation is a real and actual thing and we’re not going to deny it. It puts food in the dogs’ bowls. But when you’re signing a deal for your very expensive asset which you’ve spent millions and millions tricking out with locally-sourced artisan chairs, you might want to see a bit more commitment and this is particularly true if you are about to be one of 200 in the same brand stable, where loss of reputation at one property can be diluted like so many homeopathic remedies. 

Skin in the game takes many forms in the sector and PPHE’s is the latest in an intriguing evolution, as the industry continues to move away from the owner/operator model with all the many varieties of a shiny new world after the Big Bang. 

Expanding through management contracts is a popular move for those with assets: see Cheval Collection for further details. There is proof of product with the reassurance that it’s not going to blow the brand up. 

We have pontificated before about the sector’s need to embrace the consumer brand ethos if it really really wants customer loyalty. It hasn’t so far, but the owner/operated brands have realised that their proof-is-in-the pudding model can provide a little more comfort that a loyalty scheme. And while the sector gazes into autumn under cost and other pressures, some owners may need more than a catchphrase to help them sleep at night. 

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