Index

OUR BUSINESS

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PRESENCE

NH Hotel Group is a consolidated multinational operator and one of the leading urban hotel chains in the world. The Company is present in 31 countries and operates 380 hotels and 58,916 rooms in four continents (Europe, America, Africa and Asia), in cities such as Amsterdam, Barcelona, Berlin, Bogota, Brussels, Buenos Aires, Düsseldorf, Frankfurt, London, Madrid, Mexico City, Milan, Munich, New York, Rome or Vienna.

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BREAKDOWN OF THE NH HOTEL GROUP PORTFOLIO IN 2017

At 31 December 2017

  TOTAL LEASED OWNED MANAGED FRANCHISE
  Hotels Rooms Hotels Rooms Hotels Rooms Hotels Rooms Hotels Rooms
TOTAL NH HOTEL GROUP 380 58.916 222 32.830 75 12.162 74 13.118 9 806
EUROPE                    
Spain 132 16.641 75 9.143 11 1.790 39 5.117 7 591
Germany 57 10.261 52 9.261 5 1.000 - - - -
Italy 51 7.904 34 5.395 13 1.880 4 629 - -
Netherlands 36 6.841 19 3.083 16 3.290 1 468 - -
Belgium 11 1.619 3 502 8 1.117 - - - -
Austria 6 1.183 6 1.183 - - - - - -
Switzerland 4 522 3 400 - - - - - -
Portugal 3 278 2 171 - - 1 107 1 122
Czech Republic 2 577 - - - - 2 577 - -
France 3 547 2 397 - - 1 150 - -
Romania 2 161 1 83 - - 1 78 - -
Hungary 1 160 1 160 - - - - - -
Luxembourg 1 148 1 148 - - - - - -
United Kingdom 1 121 1 121 - - - - - -
Slovakia 1 117 - - - - 1 117 - -
Poland 1 93 - - - - - - 1 93
Andorra 1 60 - - - - 1 60 - -
TOTAL EUROPE 313 47.233 200 30.047 53 9.077 51 7.303 9 806
                     
AMERICA                    
Colombia 15 1.700 15 1.700 - - - - - -
Argentina 15 2.144 - - 12 1.524 3 620 - -
Mexico 15 2.402 4 581 4 685 7 1.136 - -
Dominican Republic 6 2.503 - - - - 6 2.503 - -
Venezuela 4 1.186 - - - - 4 1.186 - -
Chile 4 498 - - 4 498 - - - -
United States 1 242 - - 1 242 - - - -
Cuba 1 220 - - - - 1 220 - -
Brasil 1 180 1 180 - - - - - -
Uruguay 1 136 - - 1 136 - - - -
Ecuador 1 124 1 124 - - - - - -
Haiti 1 72 - - - - 1 72 - -
TOTAL AMERICA 65 11.407 21 2.585 22 3.085 22 5.737 0 0
                     
AFRICA                    
South Africa 1 198 1 198 - - - - - -
TOTAL AFRICA 1 198 1 198 0 0 0 0 0 0
                     
ASIA                    
China 1 78 - - - - 1 78 - -
TOTAL ASIA 1 78 - - - - 1 78 - -
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GROUP EXPANSION

In 2017, the Group has continued the significant improvement in the quality of assets and destinations included in the portfolio, with the opening of 6 new hotels and 789 rooms during the year. Of particular note among these new hotels is the opening of the NH Collection Eindhoven Centre in the Netherlands, under the NH Collection premium brand.

EVOLUTION OF NUMBER OF OPENINGS AND ADDITIONS

In number of rooms

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CONTINUOUS GROWTH

Number of rooms 1996-2017
Compound average annual growth: 11%

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ROOM OPENINGS

6 hotels and 799 rooms opened between 1 January and 31 December 2017.

HOTELS CITY COUNTRY ROOMS
NH Curitiba The Five Curitiba Brasil 180
NH Puebla Finsa Puebla México 138
NH San Luis PotosÍ San Luis de Potosí México 111
NH Collection Eindhoven Centre Eindhoven Netherlands 132
NH Marseille Palm Beach Marsella France 150
NH Shijiazhuang Financial Center Shijiazhuang China 78
Total habitaciones     789

ROOMS SIGNED

8 hotels with 1,938 rooms signed between 1 January and 31 December 2017.

CITY COUNTRY ROOMS EXPECTED OPENING
Frankfurt Germany 428 2021
Frankfurt Germany 375 2021
Valencia Spain 47 2018
Milán Italy 150 2020
Cancún México 140 2019
Lima Perú 265 2020
Bruselas Belgium 214 2018
Bruselas Belgium 305 2018
Total rooms   1.924  

ASSET MANAGEMENT

In 2017, 5 hotels with a total of 371 rooms left the Group.

HOTELES CITY COUNTRY ROOMS
NH Brescia Brescia Italy 87
NH Pamplona El Toro Pamplona Spain 65
NH Belagua Barcelona Spain 72
NH Ciutat de Vic Barcelona Spain 36
NH Forsthaus Fürth Nürnberg Nuremberg Germany 36
Total habitaciones     371

KEY FIGURES

RESULT AND EVOLUTION

The centralised business model allows it to offer a consistent level of service to its customers in different hotels in different regions. The corporate headquarters and regional offices offer hotels a wide range of functions such as sales, reservations, marketing and distribution systems.

In 2017, world economic activity grew at a pace of +3.5% (Data and estimates provided by the E.C. “European Economic Forecast – Autumn 2017” November 2017), greater than the previous year (+3.0%). More specifically in the Eurozone, the provisional growth rate for 2017 was 2.2% (+1.7% in 2016). Global growth has led to a positive cycle of trade and investment. likewise, European economies continue to grow, although the recovery has not ended, which suggests there is room for further growth. In line with the above data, when comparing the growth rates of the four countries that bring together the largest proportion of revenues and results of the Group, it is observed that in Holland (+3.2% in 2017 vs. +1.7% 2016), Germany (+2.2% in 2017 vs. +1.9% in 2016), and Italy (+1.5% in 2017 vs. +0.7% in 2016) growth increased compared with the previous year, while in Spain (+3.1% in 2017 vs. +3.2% in 2016) growth was similar to the previous year.

According to the World Tourism Organization (“UNWTO”) in 2017, international tourist arrivals globally reached 1,322 million, representing an increase of + 7.0% over the previous year, a rate much higher than the sustained and constant trend of 4% or more which had been recorded since 2010 and represents the best result in seven years. More specifically, the arrival of international tourists to Europe reached 671 million in 2017, recording remarkable growth of 8% after a comparatively weaker 2016 which was headed by destinations in the Mediterranean. The growth was driven by the extraordinary results of Southern and Mediterranean Europe (+13%). Western Europe (+7%), Northern Europe and Central and Eastern Europe (both +5%) also posted solid growth.

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In this European context, Spain has established itself as the second tourist power in the world only behind France but ahead of the United States, and managed to break its record with 82 million foreign tourists due to an increase of 9% in the number of international arrivals.

In this context, in 2017, as a result of the favourable trend in the hotel business throughout the year and the effect of the initiatives it carried out, particularly the repositioning of its brands and hotels, the Group recorded a significant increase in price per room (“ADR”, Average Daily Rate).

During 2017, the value of the price strategy continues to be enhanced, greater Group growth being obtained in the top cities compared to direct competitors, where there are market measures in place. The evolution of RevPar in these top destinations was superior to that of our direct competitors.

As part of its asset repositioning plan, NH Hotel Group invested almost 200 million euros from 2014 to 2017 to fully renovate or remodel its mid-range hotels with the greatest potential for improvement. With the aim of continuing to improve the quality and strengthen the NH Collection brand, the repositioning investment
phase in Germany which began in the previous year was completed during 2017, after the investment made in Benelux in 2016 and in Spain and Italy in 2015

Additionally, new repositioning opportunities have been selectively identified for 2018 and 2019, where the Group will additionally have contributions from the owners of hotels that are leased by the Group.

Among the main milestones reached over the last years of transformation, the appearance of a new NH Hotel Group value proposition stands out based on the improvement of the quality, experience and the new brand architecture with the NH Collection, NH Hotels, nhow and Hesperia brands. Along these lines, the Group improved its customer experience thanks to the implementation of a solid operational promise, including the new elements making up the hotels’ basic product range, known as Brilliant Basics, which are already in place in all of the establishments and which are contributing to a better experience and higher average quality score of the customers.

The trend in quality indicators confirms the improvement in user ratings for the Group’s hotels throughout 2017. At Group level, 35% of the portfolio is positioned in the top 10 of the city’s TripAdvisor and 55% of the hotels are in the top 30. In the case of the NH Collection hotels, these rates reach up to 45% and 63% respectively, demonstrating the a clear improvement in the level of quality perceived by customers.

Meanwhile, in 2017, another 6 hotels began operating in Marseille, Eindhoven, Curitiba, Puebla, San Luis de Potosí and Shijiazhuang with a total of 799 rooms, making a total of 380 operating hotels with 58,926 rooms at 31 December 2017.

In addition, in 2017 the Group signed 8 hotels with 1,924 rooms. All the signings were under lease and management contracts, many of them in the top brand segment and in primary cities (Frankfurt, Valencia, Lima, Brussels).

As a result, revenue in 2017 amounted to 1,546.1 million euros, representing growth of +6.8% (+98.1 million euros), well above the increase in operating costs. As a result of the operational improvement, the profit for the year attributable to the Parent Company stood at 35.5 million euros compared to 30.8 million euros in 2016.

In this year, gross indebtedness decreased from 861.8 million euros in December 2016 to 716.9 million euros in December 2017. At 31 st December 2017, cash and cash equivalents amounted to 80.2 million euros (136.7 million euros at 31 December 2016). Additionally, this liquidity was complemented by credit lines at the end of the year amounting to 316.3 million euros, of which 250 million euros corresponded to a long-term syndicated credit line, compared to 308.9 million euros at 31 December 2016.

This value optimisation of the Company has recently been reflected in the improvement of the corporate credit outlooks assigned by the main rating agencies. Fitch improved the corporate rating outlook from “B with a stable outlook” to “B with a positive outlook” based on greater liquidity and operational improvement.

In turn, Moody’s improved the corporate rating outlook from “B2 with a stable outlook” to “B2 with a positive outlook”, due to the operational improvement, the hotel repositioning plan which has allowed NH to increase its revenues and profitability, its cost saving plan and the significant improvement of its liquidity position. Additionally, Standard & Poors improved its opinion on the Group’s business profile, mainly due to its successful repositioning plan which has resulted in improved sales and profitability.

However, it should be noted that in the first months of 2018, Fitch Ratings has increased NH Hotel Group’s corporate credit rating by one notch from B to B+ with a positive outlook, and secured corporate debt from BB- to BB. In turn, Standard & Poor’s has increased the outlook from stable to positive, maintaining the corporate credit rating at B and the secured corporate debt rating at BB-.

On 28th September 2017, the Group presented its strategic plan for 2018-2019 to the investment community. After a phase marked by a strong investment in repositioning and improvement of the experience, NH Hotel Group is in a favourable position to face future growth in the coming years. The Company defined its priorities until 2019, focused on revenue management through a dynamic pricing strategy, a continued focus on efficiency and debt reduction, whilst, at the same time, taking advantage of its current strengths for new repositioning opportunities and organic expansion as a means of additional growth.

The results of the plan will be reflected in the significant improvement in the Company’s cash generation and in the reduction of its financial indebtedness.

At the Annual Shareholders’ Meeting in June 2017, shareholders approved the payment of an interim dividend from 2016 results amounting to 17 million euros, representing five cents per outstanding share (gross). Additionally, the Group has established a shareholder remuneration policy in line with its debt reduction plans, defining a medium-term shareholder remuneration close to 50% of the recurring net profit. In the short term, it foresees a dividend proposal of ten cents per share in 2018 and fifteen cents in 2019.

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RELEVANT CORPORATE MILESTONES

APPOINTMENT OF RAMÓN ARAGONÉS AS CEO OF NH HOTEL GROUP

At the unanimous proposal of the Board of Directors, the Annual Shareholders’ Meeting held in June ratified the appointment of Ramón Aragonés, until hat time Executive Director of Business and Operations of the Group, as the new CEO of the Company.

His wide experience in the industry and in-depth knowledge of the Group, as well as his strategic vision, his capacity for leadership and team anagement were decisive in his appointment, which hopes to drive the rate of the Company’s growth.

RECOVERY OF DIVIDENDS

he Ordinary Annual Shareholders’ Meeting of the Company approved the distribution of a dividend in 2017 against the profits for 2016 of around 17 million euros, which represents a gross dividend of five cents per outstanding share. Hereafter, the Company’s intention is to normalize this remuneration and pay growing dividends every year.

ANNOUNCEMENT OF THE STRATEGIC PLAN 2017-2019 DURING NH HOTEL GROUP’S FIRST INVESTOR DAY

After a phase marked by the start-up of a significant investment in repositioning and improved experience, NH Hotel Group is in a more advantageous position to deal with future growth between 2017 and 2019.

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Taking advantage of its first Investor Day, with the presence of a hundred investors and analysts, in September 2017 the Company announced that for the 2017-2019 period it plans to emphasize significantly the efforts made in brand development and segmentation, revenue management, quality and repositioning, while at the same time encouraging efficiency and giving continuity to debt reduction.

In this way, NH Hotel Group proposes to concentrate the image of its brands even more on the high-level segment, increasing its portfolio under the NH Collection and nhow brands. The Company will take advantage of its current strengths to expand its presence geographically under strict criteria of profitability, in consolidated destinations and in new regions with potential as outbound markets.

The new plan also seeks to optimize the portfolio and thus plans to intensify the profitability level of its portfolio through an asset-light growth model and through the selective departure from mature markets with a lot of capital invested, taking advantage of the liquidity and current appetite of the market.

As well as continuing to improve the perceived quality, the Group’s managing capacity will be enhanced by applying dynamic pricing strategies that are increasingly efficient and associated to big data, which will allow the Company to continue the sustainable growth it has been reporting in terms of activity and profitability.
Finally, efficiency will concentrate a significant part of the Group’s attention. In 2017 the Company has already started to implement initiatives such as the new operating model for the Group, structuring the entire hotel portfolio under three business units (Southern Europe, Central Europe and America). This model allows the Company to adapt quickly to change, reducing redundancies and facilitating the implementation of initiatives.

The Strategic Plan in progress expects to increase pro forma EBITDA for 2019 to around 300 million euros (61% more than in 2016), reach a net recurring profit of around 100 million euros, significantly reduce borrowing and increase the current dividend proposal.

SUCCESSFUL COMPLIANCE WITH THE ASSET ROTATION COMMITMENT

• Amsterdam (Netherlands)

In December 2017, NH Hotel Group reached a binding agreement with the German asset manager Deka Immobilien for the sale and lease-back of the building housing the NH Collection Barbizon Palace hotel, located in the heart of Amsterdam.

The operation, which is expected to be closed by the end of January 2018, involves the sale of the building for 155.5 million euros (584.5 thousand euros/room), which represents an estimated accounting gain for NH Hotel Group of 55 million euros in 2018, while not affecting the Group’s EBITDA target for the year.

In the context of the operation, both groups have agreed on a subsequent lease contract with variable rent and guaranteed minimum, which will allow NH Hotel Group to maintain operation of the hotel in sustainable and profitable conditions for an initial term of 20 years, with the option of two extensions of 20 years each.

• Malaga (Spain)

NH Hotel Group and Hispania, the leading investment and asset management vehicle in Spain, reached an agreement in February for the sale and lease-back of the current NH Malaga hotel, as well as for the future acquisition of the extension to the hotel, which NH Hotel Group is carrying out on the land adjoining the hotel. The operation has been valued in total at 41 million euros.

Initially, Hispania has purchased the NH Malaga hotel from NH Hotel Group and has agreed for the hotel group to continue operating it through a long-term lease agreement at variable rent with a guaranteed minimum. Hispania has also committed to make investments to improve the existing product, through the refurbishment of the establishment scheduled to be completed by June 2019. In the context of the operation, both companies have agreed on the future acquisition by Hispania of the extension of the hotel which NH Hotel Group plans to develop on the land adjoining the NH Malaga, which is currently owned by the hotel group. This operation is subject to completion of building of the extension, scheduled for between the last quarter of 2018 and the first quarter of 2019.

OPERATIONS ON THE COMPANY’S DEBT STRUCTURE

• Early redemption of debentures

On November 30 th 2017, the Company executed an operation aimed at continuing to reduce its debt, with the early redemption and full cancellation of the outstanding balance (100 million euros) of its senior secured notes, issued for 250 million euros and maturing in 2019.

Furthermore, as a result of this operation, the syndicated credit facility signed in 2016 with a limit of 250 million euros is automatically extended until 2021.

• Issuance of bonds to refinance debt at more favourable conditions and extend maturities

In March 2017, the Group issued senior secured notes totalling 115 million euros, by extending the issue of bonds carried out in 2016, with a coupon of 3.75% and maturity in 2023, similar to the current issue, although this placement has been carried out at a price of 3.375% above their face value, which means an effective interest rate for the Company of around 3%.

The purpose of this operation is to manage proactively the Group’s forthcoming maturities, extend the average life of its debt, reduce its gross borrowing and improve its financing costs.

Following the issues of senior secured bonds in 2016 and 2017, which have allowed for a significant reduction in the financial cost as well as the extension of maturities, with this early redemption NH Hotel Group completes the process of refinancing its long-term debt, with the only remaining maturity in the medium term being the convertible debenture of 250 million euros maturing in November 2018.

MANAGEMENT AGREEMENT WITH GRUPO INVERSOR HESPERIA

NH Hotel Group reinforced its leadership in the Spanish urban segment through a new agreement for the management of 28 hotels owned by its shareholder Grupo Inversor Hesperia.

The definitive agreement, signed in April 2017, forms part of NH Hotel Group’s strategic approach of operating part of its portfolio under management contracts and reinforces the positioning of the NH Hotels and NH Collection urban brands in Spain.

The 28 Hesperia hotels included in the operation have a total of 4,000 rooms and represent 30% of the portfolio operated under management contracts by NH Hotel Group. They comprise six 5-star hotels, sixteen 4-star hotels and six 3-star hotels.

The new management contract replaces and extends the previous contract formalized in 2009.

ECONOMIC, SOCIAL AND ENVIRONMENTAL CONTRIBUTION IN 2017

Through its activities, NH Hotel Group creates shared value at an economic, social and environmental level in the countries where it conducts its operations. For four years the Company has analysed the key indicators that identify the contributions generated by its activities. This allows reporting on its main direct impacts:

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