The AHV Hospitality Index showed a small monthly decrease in May but has achieved strong growth year to date. This highlights the recovery of the hospitality sector as the easing of restrictions globally provides a positive outlook.
We are encouraged by the industry data provided by STR for US hotels which in April reached 60% of the comparable gross operating profit 2019 level. Additionally, the data for April shows that in London the absolute occupancy level was the highest for any month since October 2020, whilst the ADR and RevPAR levels were the highest since December 2020. This is all before the re-opening of hotels on May 17th.
We believe that one of the lasting consequences of Covid-19 in the hospitality sector will be an acceleration of the trend towards sustainability and ESG compliance. This is already happening in the US where ESG compliance has become an important part of the corporate decision making process when selecting suppliers.
This will inevitably extend to their choice of hotels for their employees, accelerated by the pandemic. These trends tend to start in the US, and then expand everywhere.
It has already started to extend to finance, where yields for green bonds are on c. 15–20 basis points lower than that of conventional bonds. In private finance ESG compliant hotels and new developments are expected to get cheaper finance than others. Note that Qatari Diar in May secured a £450m green loan to finance the construction of The Chancery Rosewood and Whitbread Group Plc (rated BBB-), owner of Premier Inn, secured two major green bonds of £300m and £250m at 2.375% and 3% respectively.
The average coupon rate for non-green debt, with a similar maturity issued by public hospitality companies (rated BBB-) in the last 12 months is 3.712%. This suggests that the spreads between green and non-green bonds in hospitality could be higher than the general market.
There have been important M&A transactions in Europe and the UK over the last month, which confirm the positive view on the staycation market by the financial community. These are:
- the acquisition by Park Holidays UK of Bridge Leisure, which will add 9 sites to their UK portfolio
- Awaze’s acquisition of 3 holiday rental firms to its portfolio, 2 in the UK and 1 in Denmark
Other interesting M&A occurring in May was
- Accor’s €300m SPAC to target acquisitions in the leisure and lifestyle sectors, showing that even Accor is getting on the SPAC bandwagon
- La Salle’s purchase of a £54m ground lease on the St Martin’s Lane Hotel in London at a 2% yield, showing that ground rent financing is alive and well despite the pandemic
Andrew Harrington is a partner and the co-founder of AHV