EasyHotel said that it was “significantly” outperforming its competitive set and the wider UK hotel market.
The company was exploring the options for further financing, having now deployed all the funds from its 2016 equity fundraising and bank loan.
Guy Parsons, CEO, EasyHotel said: “We continue to see a good number of attractive potential development opportunities to further accelerate the growth of our owned hotels. These are both larger and more numerous than we had originally anticipated. It is for this reason that we are currently considering our long-term financing options, including raising new debt and equity capital, to position the group to take advantage of these opportunities and underpin easyHotel’s long term objective to be the market leader in super-budget sleep.”
Commenting to Hotel Analyst on the company’s options, Parsons added: “We have always said that our focus is predominantly on the owned and franchised model but we will look at the leased route for the right strategic opportunity, particularly if property costs in a strategic location do not meet the requirements of our owned site model. Our target town list for leases is limited to cities such as Cambridge, Bath, Edinburgh and London. Leases will remain no more than 20% of our balance sheet.”
The group has a committed pipeline of 941 owned rooms under development. The purchase of a 125-year leasehold site in Milton Keynes used the last of the group’s funding. Construction of hotels in Barcelona, Leeds, Sheffield and Ipswich has commenced and the 517 rooms should all open in the summer of 2018.
In the franchised pipeline, the company has franchised hotels in development in Holland, Germany, Belfast, Reading and Bur Dubai, which are all planned to open in 2018. Developments are also underway, the group said: “In Istanbul, Iran and Sri Lanka for beyond 2018 which will, on completion, enhance its position as the super budget hotel brand of scale in the UK and Middle East”.
While EasyJet was a recognised brand, the slow start for the hotel offshoot has raised concerns about brand recognition. Parsons said: “I think the continued outperformance of our hotels – both in the UK and overseas – against their competitive set is an important indicator here of the growing strength of the brand amongst our customers. Our new format hotels are proving particularly popular and our own data is showing us that customers are becoming increasingly loyal to us which is good to see.
“From a franchisee perspective, brand recognition is also building well internationally. Again, the success of the new format hotels has reinforced that further and we have built a very good franchise pipeline of high quality opportunities and we are confident we can continue to add to it.”
Looking at performance, Parsons said: “We are by no means complacent but our hotels are outperforming their competitive set with our newly owned hotels performing particularly strongly, which I think is testament to the strength and relevance of our customer proposition as well as the continued benefit of our newly implemented revenue management system. We also benefit because we have hotels operating in Europe which is performing strongly.
“We have been pleased with the group’s performance to date in the new financial year, reflecting the growing strength of the easyHotel brand. The like-for-like revenue growth trends across both our owned and franchised estates in the prior financial year have continued. Whilst we are very mindful of the wider UK macro-economic uncertainty and the impact this continues have on consumer confidence, we are encouraged by the strong outperformance of our hotels.”
Langton Capital’s Mark Brumby commented: “EasyHotel has identified a profitable niche into which it is expanding rapidly. Its brand is identifiable and trusted and growth prospects seem good. EasyHotel last raised money at a premium to its then share price and the 100p raising brought new shareholders into the company.”
HA Perspective [by Katherine Doggrell]: The arrival of Guy Parsons heralded a frenzy of development at EasyHotel, which had been a brand without portfolio for a number of years. Apart from a run in with Sir Stelios over wages, it has been smooth and enthusiastic sailing as the super-budget flag expands by any means necessary.
Now it has no means left. Parsons would not be drawn on the funding, other than to reiterate that options were being weighed up. At the end of last year Parsons told us that he expected additional financing to be in place in early 2018, a mix of equity and debt, with the exact mix undecided as the level of leverage which could be put into the business was decided. As at 30 September, EasyGroup Holdings was the largest shareholder, with 34.6%, followed by ICAMAP Investments with 29.9%, Polar Capital with 8.0%, then Aberdeen Holdings on 5.2% and Canaccord Genuity Group/Hargreave Hale holding 4.7%. With the company still performing well, who wants to dilute their stake?
With the UK coming under increasing pressure in terms of cost and, in London at least, performance, the question of yield is ever-more pressing on the minds of investors. As Parsons has told us, those who own an EasyHotel were driven by return, and are “less concerned about having a restaurant or bar they can take their friends to”. The group has significantly raised its profile in recent years, finding the right funding formula is imperative to maintaining momentum.