Second IHI cash dividend in a row - Edward Rizzo
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Second IHI cash dividend in a row - Edward Rizzo

International Hotel Investments plc published its 2018 annual report on  April 30 and there are some important details contained in the lengthy statements by the chairman as well as the joint-CEO’s which I think would be best to highlight for the investing community.

Since IHI also has several bonds listed on the Regulated Main Market of the Malta Stock Exchange, it publishes its financial forecasts on an annual basis given its obligations under the Listing Policies. The 2018 financial forecasts had first been published in June 2018 and an updated set of financial forecasts was contained in the Financial Analysis Summary annexed to the Prospectus published in March 2019 in conjunction with the new €20 million bond issue.

The actual results for 2018 should therefore not have been a surprise to the market given the information already in the public domain. The IHI group registered an adjusted Ebdita of €61.3 million in 2018 compared to €58 million in 2017.

The most awaited piece of news on April 30 related to any dividend recommendation following the payment of an interim cash dividend of €0.02 per share in July 2018 which was the first cash dividend since the distribution of €0.03 per share in May 2014. The dividend in 2014 had come about following the sale of most of the apartments in London adjoining the Corinthia Hotel.

In the meantime, since IHI’s listing on the MSE in the year 2000, bonus shares were issued on various occasions which increased the absolute number of shares held by each shareholder.

IHI announced on April 30 that it will be recommending the payment of a further cash dividend of €0.02 per share in July 2019. While the prospect of a second consecutive cash dividend may have possibly surprised many investors, it seems that this represents a new policy by IHI. In fact, in his address to shareholders in the 2018 annual report, chairman Alfred Pisani stated that “we shall use our best endeavours to maintain a regular cash dividend policy, yet I do not exclude the possibility that through the ever-increasing value of our assets, our accumulated reserves will likewise provide us with the possibility of issuing further bonus shares together with cash dividends”.

Pisani also repeated this during a meeting held with financial analysts on May 2. Given the improved operating performance in recent years from some of the hotels within their portfolio (most notably in Lisbon, Budapest and St Petersburg), IHI are favouring the distribution of cash dividends notwithstanding their heavy investment programme in the years ahead. 

In his address to financial analysts on May 2, Simon Naudi, joint-CEO, started off by reiterating the strategic vision of IHI. He explained that “IHI is a diversified business with one principal mission, that is the global expansion of our Corinthia brand through our activity as investors, developers and operators of luxury hotels and branded real estate”.

Naudi explained that IHI has six areas of business, namely (i) ownership stakes in 13 hotels; (ii) acting as operators of 22 hotels via the ownership of the Corinthia brand and Corinthia Hotels Ltd; (iii) acting as a developer for IHI and other investors via Corinthia Developments International Ltd; (iv) project management via QP Ltd; (v) event and catering via Corinthia Caterers as well as the Costa Coffee franchise in Malta and Spain; (vi) ownership of land, commercial and residential real estate.

On the latter point, he explained that IHI owns a number of prime sites in Malta, Tripoli, London, St Petersburg, Budapest and Moscow and some are earmarked for development while others are providing a steady rental income stream. For example, the penthouse adjoining the Corinthia Hotel in London which had not been sold together with the 11 serviced apartments in 2014, has been rented out at £1.8 million per annum.

During the meeting with financial analysts, Naudi provided a detailed overview of the operations of each of the hotels owned by IHI in which he highlighted the continued strong performances by the hotels in St Petersburg, Budapest and Lisbon.

He also depicted a graph showing the improved diversification achieved over the years both across the various properties and also from a geographical perspective by highlighting that several years ago, the hotel in Tripoli contributed almost 65 per cent of the overall Ebdita. In contrast, the hotel in Tripoli generated a negative Ebdita in 2018 while the rental income of the commercial centre in Tripoli amounted to €6.4 million.

An important revelation within the 2018 annual report was the statement made by the chairman that “the board is also considering to strategically exit the ownership of specific assets which have reached maturity in their capital gain”. While no specific property was mentioned, this strategy is important since it could corroborate whether IHI’s strategy of generating capital gains from its property investments has indeed materialised.

Hopefully, the operational improvements in recent years will be sustained and will enable IHI to continue to distribute an annual cash dividend to shareholders

Pisani explained to financial analysts on May 2 that since the main strategic focus is to “establish Corinthia Hotels as a global luxury hotel brand”, IHI will continue to invest in property assets throughout the world. However, the chairman explained that “the only difference going forward is that rather than holding 100 per cent in each project, we shall share these developments with third parties, as we did in London, Brussels and very recently in Moscow”.

IHI has a 50 per cent shareholding of the properties in London and Brussels and while the other shareholder in these properties is also one of IHI’s largest shareholders, the situation is somewhat different in Moscow. Earlier this year, IHI announced that it acquired a 10 per cent shareholding in a company which was formed with a consortium of investors to develop a luxury Corinthia Hotel and branded serviced apartments in a very central location in Moscow. 

The chairman further explained in the annual report that the sale of certain property assets “will free up cash which would allow us to finance new acquisitions and developments and/or provide support in the form of key money or guarantees to secure more management agreements, restructure our debt funding and consider ad hoc distribution of profits”.

Apart from the upcoming developments in Brussels and Moscow, IHI will be involved solely as hotel operators as from 2020 in another two properties in Bucharest and Dubai. 

IHI had entered into a strategic partnership with the Meydan Group in 2016 which so far consists of providing management services in two other hotels in Dubai, namely the Meydan and the Bab al Shams Desert Resort. However, the new property being built by the Meydan Group on the prestigious Jumeirah Beach Resort will be branded as a Corinthia Hotel, the first for Corinthia in the Middle East. The 55-floor Corinthia Meydan Beach Hotel is expected to welcome its first guests next year.

Likewise, IHI will be acting as hotel operators in a new boutique hotel opening in Bucharest also in 2020 following extensive restoration to a historic building.

While IHI had set their sights some years ago on becoming involved as minority investors or solely as developers and hotel operators in certain places such as Rome and New York, Pisani indicated in the 2018 annual report that IHI is pursuing property developments and management opportunities in other regions including Saudi Arabia, Tunis and Beirut. These locations may also surprise many shareholders as the main focus of IHI in recent years was to establish Corinthia as a hotel operator in renowned city centres and tourist destinations. However, Pisani explained to financial analysts that IHI is constantly searching for new opportunities mainly as hotel operators and the increased attention to certain regions in Africa and the Middle East is due to the fact that there are added opportunities in these areas since several new hotels are being built and Corinthia may approach the investors to act as hotel operators.

The second consecutive cash dividend from IHI is a positive development. Hopefully, the operational improvements in recent years will be sustained and will enable IHI to continue to distribute an annual cash dividend to shareholders. However, possibly a more interesting aspect is the potential sale of certain properties which could not only enable IHI to crystallise a capital gain but more importantly to redirect the eventual proceeds to other development opportunities in order to generate more positive returns for shareholders in the future. 

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Rizzo, Farrugia & Co. (Stockbrokers) Ltd, ‘Rizzo Farrugia’, is a member of the Malta Stock Exchange and licensed by the Malta Financial Services Authority. This report has been prepared in accordance with legal requirements. It has not been disclosed to the company/s herein mentioned before its publication. It is based on public information only and is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. The author and other relevant persons may not trade in the securities to which this report relates (other than executing unsolicited client orders) until such time as the recipients of this report have had a reasonable opportunity to act thereon. Rizzo Farrugia, its directors, the author of this report, other employees or Rizzo Farrugia on behalf of its clients, have holdings in the securities herein mentioned and may at any time make purchases and/or sales in them as principal or agent, and may also have other business relationships with the company/s. Stock markets are volatile and subject to fluctuations which cannot be reasonably foreseen. Past performance is not necessarily indicative of future results. Neither Rizzo Farrugia, nor any of its directors or employees accept any liability for any loss or damage arising out of the use of all or any part thereof and no representation or warranty is provided in respect of the reliability of the information contained in this report. 

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