Whitbread has signed up to 15 hotels in Germany through a transfer of leases, with a total investment of between €40 and €50m.
Alison Brittain said that the group was seeing “signs of distress in the competitive landscape”, which it hoped to take advantage of.
Brittain said: “During September we started to see local retractions and lockdowns introduced, as such the near-term environment is challenging. In the short-term the extension of local and regional lockdowns drives uncertainty and means that we will have to protect our business and carefully manage our cashflow.
“We are already seeing signs of distress in the competitive landscape. Our strong financial position goes Whitbread the opportunity to take advantage of the structural opportunities in the UK and Germany. Some of our best returns have been achieved by investing during periods of weakness.
“Our focus is continuing to protect and restore. The impact of the pandemic will be significant and will change the competitive landscape with potentially a material slowdown in room growth, significantly restrained investment and the acceleration of decline in the independent sector. Whilst we are not immune, we are the largest player and our strong balance sheet give us confidence to invest. We have a track rescued of deploying capital with discipline, we have great importunity to grow in the UK and Germany offers potential for growth.”
Nicholas Cadbury, CFO, added that the group’s 60% freehold property estate gave it “options to support future funding for investments or to protect our balance sheet”. Commenting on the transactions market, Cadbury said that he would have expected yields to have moved out, adding: “We are one of the few hotel companies to have continued to pay rent and would expect yields to have moved out less than the rest of the market. If we needed to raise cash we have options”.
In Germany, the 15 hotels were currently operating under the Centro, Ninetynine and Fourside brands, by Centro Hotel Group, of which eight were open and seven are pipeline. The investment related to refurbishment and rebranding, which was expected to happen in the first half of next year. In the meantime, the open hotels will continue to operate in the Premier Inn estate under their existing branding. Brittain described the deal as “Cherry picking from a group of big hotels and the type of deal we’d be interested in doing going forward”.
Successful competition clearance on the signing of the group of 15 hotels would increase the open and committed pipeline in Germany to 68 hotels and over 12,000 rooms. In the UK the company had a pipeline of over 13,000 rooms.
Brittain said: “We are well on the way to being able to build national brand awareness and being able to operate at scale in Germany.”
The news came as the company reported its first-half results, in which it described a “challenging’ environment, reporting a pre-tax adjusted loss before tax of £367.4m, with occupancy of 20.3%, ADR down 16.4% on the year to £53.58 and revpar falling by 78.3% to £10.87.
In October the group reported a slowdown in the overall market performance, with the group commenting: “Our performance has remained ahead of the market, but with the fast-changing nature of the Covid-19 environment, near-term visibility remains limited”.
The group saw 97% of its UK hotels open by the end of July. At the end of the first half, the business had access to £936.2m of cash and cash equivalents, an undrawn Revolving Credit Facility of £950.0m, and up to £600.0m available under the government's Covid Corporate Financing Facility scheme.
Brittain said: “Since reopening in the UK, we’re taking significant market shares our share of the total hotel market has increased by 3.5 percentage points in August to around 10.5%. Our reopening strategy was to maximise total sales and we achieved this by leveraging the strength of the brand and our direct distribution model. We introduced flexible rate classes, that enable customers to cancel or amend bookings, which helped drive conversion rates to help drive bookings.”
Insight: Depending on who you talk to, the distress is here, it’s not quite here or it’s not as distressed as people would like. Angus Johnston, UK real estate lead, PwC, advised hotels that, “longer term, whilst iconic properties will no doubt recover, the future viability of many locations must be in doubt if both international travel and corporate events fail to bounce back. Hotel owners may therefore need to consider how to repurpose or divest any non-core existing assets.”
This is not cheery news. At Whitbread, the group is prepared to divest any non-core existing assets to make the most of others’ and has the cash to see any number of suffering hotels out.
What hasn’t changed at the company is that, despite its strong cash position, it seems to have no appetite to buy big, market-shifting chunks at once, so will continue to expand piecemeal, as Brittain said: “There may be opportunities in the UK for infill, but that’s cherry picking, not taking big blocks of other people’s business”. But at a time when survival is a challenge for most, this still seems remarkable.
What is the same for Whitbread as other companies is that remaining open is critical. The group said that it was at breakeven at 55% occupancy, where it was for August and September. Brittain said: “Having a low breakeven means that having the business open is better for us, even in low demand places. The smaller the market gets, the less you can outperform it, but whilst it is open we are pleased to be able to do that.” As restrictions increase, that market gets smaller and smaller.