• Owners, operators, brands pile into UK

Rising costs and ongoing uncertainty over Brexit have failed to deter expansion in the UK, with Dalata and PPHE looking to growth.

Adding a low-cost alternative to the brand mix, Magnuson Hotels has also announced its debut in the UK, as rising costs put pressure on owners.

At Dalata Hotel Group, the company was targeting 1,200 new rooms this year. Dermot Crowley, deputy CEO, Dalata, told Hotel Analyst: “The bulk of the rooms will be in the UK. Our performance is very strong in the cities we’re in, such as Leeds, Manchester and Cardiff. There is some supply coming onto these cities, but the reality is that in the UK over 40% of three and four star sites are over 40 years old. So many of these properties are owned by people with four or less properties and operated by people with four or less properties and they are not well funded or have money to refurbish. We see that as the opposition.

“What we want is to be the number one operator in the three and four star segments, which is 10,000 rooms or so.  We’re encouraged by the response we’ve had. It has become easier, we are more recognised by developers. Because we’re putting a covenant behind a lease – we’re the only ones doing that in this segment. Developers are bringing properties to us.”

For the full-year 2017, the group reported a 23.3% increased in adjusted Ebitda, with a total pipeline of 2,200 rooms, including five new hotels and four hotel extensions under construction. The group said that trading was marginally ahead of expectations for the first quarter and that outlook “remains positive”.

At PPHE Hotel Group, the company reported 10.3% growth in like-for-like revenue, mainly due to an increase in hotel room inventory following the full opening of two new hotels in London and the first full year contribution of Park Plaza Nuremberg. Like-for-like Ebitda improved by 8.7%.

Boris Ivesha, president & CEO, said: This strong performance was once again delivered alongside corporate activity, including a significant fundraising in Croatia, the addition of 706 rooms to the UK portfolio and refinancing of debt.”

The group said that trading in 2018 to date was in line with expectations, with the group looking at “a strong pipeline of renovations and developments which will further expand and enhance our hotel portfolio”.

The results came as Magnuson Hotels announced plans to expand into the UK, 15 years after its launch in the US. CEO Thomas Magnuson said: “Airbnb now counts for 22% of total UK room supply and corporate giants like Travelodge and Premier Inn represent an additional 20%. In 2018, major brands will achieve a combined 51% market share in the UK.”

Magnuson told us: “It’s not so much that owners need another brand, they need a platform partner to compete against the advance of corporate brands and the impact of Airbnb. If you have a hotel in the market in the UK you need a strength, you need more than a channel manager and an OTA.

“All hotels need help – if they are in a franchise they are often suffering under crushing property improvement plans, so now they can divest themselves of this fee structure.”

Faith in the potential of the UK was further underlined by Starwood Capital, which bought seven UK Hilton hotels in a GBP135m deal. The portfolio included sites in London, Edinburgh, Bath and Belfast and was sold by Park Hotels. Kew Green has been appointed to manage the properties, which will operate under franchise from Hilton. Refurbishments are planned at several of the hotels.

This marks the second acquisition in 12 months where Starwood and Kew Green have partnered, following the acquisition of the 298-key Holiday Inn Manchester in April 2017.

“We are delighted to be partnering with Kew Green on yet another exciting transaction involving prime UK city centre assets,” said Jon Asumendi, VP, Starwood Capital Group. “We are acquiring this well-located portfolio at a substantial discount to replacement cost and with significant upside potential still to be realised. We look forward to investing in these properties alongside Kew Green and leveraging Starwood Capital Group’s hospitality expertise to maximise portfolio performance and investment returns.”

HA Perspective [by Katherine Doggrell]: The clever money in hotels at the moment is ignoring the politicians completely and getting on with it. As one executive, spotted drinking with enthusiasm at an event Hotel Analyst was also cheering itself at said: “I haven’t read a newspaper in six months, give me a call when it’s all over”.

While we would encourage a more quality-based approach to the news, against a complete cessation, a certain refusal to participate in the hysteria will go a long way. But that said, the approach to the UK is getting more nuanced and with a strong eye on costs, which have increased, wherever in the sand you choose to put your head. At Dalata, Crowley told us that the company had invested in procurement and staffing software, although not, he emphasised, cutting wages.

The group, which is a strong brand with developers, but less so with the consumer, did not see the need to seek refuge with one of the global operators. Crowley said: “We’ve never seen a major change in revpar with a brand, we don’t see the benefit of a big brand.”

The same message was being spread by Magnuson Hotels, which is bringing the message of platform over brand to the UK. While the UK has a history of affiliate programmes which have also provided a low-cost route to market, the CEO told us that they too have seen fee increases in recent years. In a market where costs must be managed, the cost of a brand appears to be the first to be queried.

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