UK hospitality firm Whitbread has now re-opened its current 19 Premier Inn-branded hotels in Germany after the coronavirus shutdown and is already exuding positive vibes about its future expansion plans for both Germany and the UK. For Germany it plans to open a further 20 hotels before the end of the year, to add to its altogether 52 hotels with more than 10,000 rooms in 20 large German cities.
Parent company Whitbread said that it has raised £1bn (€1.1 bn) through a rights issue with an acceptance rate of over 91%, to fund the expansion.
The move demonstrates ‘the high level of confidence’ in the firm’s strategy from both its institutional and retail shareholders, according to CEO Alison Brittain. ‘Our strong balance sheet has for many years been a source of competitive advantage and has underpinned our long-term success. This equity raise enables us to maintain this competitive advantage and retains our financial flexibility.’
The company plans to use the proceeds to take advantage of ‘enhanced structural opportunities’ that it expects to become available in both the UK and Germany. Brittain said: ‘This will mean that we are in a position of strength to continue to invest, increase market share, support our colleagues and guests and create significant value for shareholders.’
Whitbread believes there will be abundant opportunities to pick up hotels in Germany on the cheap come the autumn, after the corona crisis has wrought its destruction. According to Germany’s Federal Office of Statistics, hotel turnover plunged 88.6% in April alone. Given the complete lack of corporate seminars and workshops, the absence of trade fairs, congresses and other large events, much of Germany’s hotel business is paralysed.
Still, property adviser Colliers reports that for current bidding processes for hotels, the number of bidders is down by only 10-20%, which suggests resilience in the sector. Still, according to Andreas Martin, a consultant at PKF hotelexperts, the trade expects that by autumn about a third of new hotel projects will disappear or be put on the very long finger. This will particularly affect projects in B- and C-cities, expects Martin, with the expectation of financing now for such projects unrealistic.
For those with deep pockets, the expectations are that hotels will be cheaper to buy some months from now. According to Chris Norman Sauer, Acquisitions Director at Premier Inn Deutschland, the corona crisis offers opportunities. "We want to and can continue to grow. We want to use the crisis as an opportunity to show that we are a reliable partner with a very good credit rating even in these difficult times”, he said.
His company is interested in all three areas in which Premier Inn has already expanded - the takeover of hotel companies, the conclusion of leases and the purchase of real estate or land. Sauer is hoping for acquisition opportunities, especially in buying properties or land, as the crisis has shown how advantageous real estate ownership is.
In the UK, more than 60% of Premier Inn hotels are owned by Whitbread, and there with a low loan-to-value ratio, he said. In Germany, all properties have been fully financed with equity capital. Although the crisis is putting pressure on the return on equity, an overall low lease and interest burden would enable the group to return to profitability quickly.
Where Premier Inn acts as tenant and operator, the company made the decision to pay all their rents in full and on time, which Sauer believes has given it a decisive advantage over several of its peers, such as budget chain B&B Hotels, which didn’t manage to do that, despite signing several new lease agreements over the period. Some are negotiating with their landlords, others have just postponed paying their rent. Not all will survive, and well-financed bidders are waiting in the wings.
