Whitbread said that it the successful completion of its £1bn rights issue meant that it would be able to execute its strategy in the UK and Germany.
The comments were made as Union Investment said that it expected to see consolidation in the hotel sector in Germany, after seeing the market reach record highs in recent years.
Whitbread CEO Alison Brittain said: Our strong balance sheet…means that we are in the best possible position to take advantage of enhanced structural opportunities that we expect to become available in both the UK and Germany. This will mean that we are in a position of strength to continue to invest [and] increase market share.”
At Whitbread, a trading update ahead of the group’s AGM saw it report that over 270 UK hotels and had now reopened with the majority of the rest of the estate due to reopen throughout July. All 19 operational hotels were now open in Germany, including 13 new hotels that were refurbished and rebranded as Premier Inn during lockdown.
Brittain said: “It is still very early days and therefore too early to draw any conclusions from our booking trajectory, especially as there has been volatility in hotel performance in other countries that relaxed controls before the UK. However, in traditional regional tourist destinations, we are seeing good demand for the summer months, whilst the rest of the regions and metropolitan areas, including London, remain subdued.”
First-quarter total sales growth at the group was down 79%.
The investable hotel market in Germany has grown to €61.1bn over the last 12 years, according to Union Investment and Bulwiengesa, who reported that it had increased in value by around 6.3% compared to 2018. As in previous years, growth was due to sustained strong new-build activity and increasing asset values.
The pair reported transactions volumes of around €5bn in 2019, against €4bn the previous year. The value of a hotel room in Germany was around €150,800, approximately €5,600 more than in 2018. Luxury hotels achieve an average value per room of around €265,000, while budget/economy hotels came in at approximately €109,000.
From 2007 to 2019, the economy and midscale segments recorded the highest gains in percentage terms, as the brands spread through the country. According to MKG, average revpar of €60 was achieved in the economy segment in 2019. Of the investable room market in Germany, approximately 19% was in the economy segment.
In 2019, the total branded hotel segment share increased from 50.4% to 52.1%.
Martin Schaller, head of asset management hospitality, Union Investment Real Estate, said: “As welcome as this further increase in value in the hotel sector is for property holders, we are naturally aware that the 2019 market volume figures are unlikely to increase much over the next one to two years due to the current situation. However, projects currently under construction should have a positive impact on the next survey. As far as our portfolio is concerned, we are well positioned both in terms of locations and operators. Nonetheless, we are working very closely with our leaseholders to structure suitable solutions and provide them with the best possible support.”
Insight: Ah Whitbread, one of the last companies out there paying its rent, which is something bound to recommend it in Germany, if not the rest of the world. If it’s thinking of changing its tag line, it could do worse than dropping it in there instead of ‘the UK’s number one hotel chain’.
But how to become Germany’s number one hotel chain? Competition in the budget sector has been building in recent years, with Accor and Holiday Inn Express moving in to help the market come to terms with branding and think deep thoughts about the lease model. There were hopes that the company would use the sale of Costa to buy its way in, but it gave cash to shareholders instead. The rights issue gives the group a second bite of the cherry. Cash rich it may be, but it’s not the only one and many investors are hoping that prices will fall and Germany will be that bit more accessible now. It has been cautious in what it spends, which may mean that, if it doesn’t throw at least a bit of that to the wind, then it will continue to expand site by site, setting nothing on fire.
In the UK, with Travelodge continuing to grip all with its thrashings, is there anything there for Whitbread? According to a recent note from Credit Suisse, with Travelodge having 6% market share in the UK, any 0.5% gain by Whitbread would add 5% to Whitbread Ebit. Not the worse thing to happen. There are concerns about cannibalisation, but some cherry picking could yet add some decisive dominance to the domestic market.