• Whitbread secures 19 in Germany

Whitbread has announced a deal for a portfolio of 19 hotels in Germany, from Foremost Hospitality Group, for an undisclosed sum, thought to be around GBP250m.

The agreement took the brand to a pipeline of 31 hotels in the country, with all hotels due to be open by 2020.

Whitbread told us that IHG currently had the management contract for the hotels, running them under their Holiday Inn Express brand. Whitbread will taking them over after the IHG management contract period has expired in two years, when they will be rebranded as Premier Inn.

Whitbread said that it would continue to explore options to further accelerate growth in Germany, through a mix of freehold property developments, leasehold sites and acquisitions of small existing hotel portfolios.

The transaction and consideration are conditional upon obtaining consent from landlords to rebrand the hotels and upon the termination of the franchise agreements with the current franchisor. This could take up to two years for the 13 trading hotels, with the company telling Hotel Analyst that it was confident that consent would be achieved across the portfolio. The hotels being acquired will continue trading under their current brand, in advance of being refurbished in to the Premier Inn brand. The acquisition is expected to be earnings enhancing the year after completion.

Alison Brittain, CEO, Whitbread, said: “One of our three key strategic priorities is to focus on building strong and sustainable growth in key international markets. We believe Germany has many of the structural growth drivers that have underpinned the success of Premier Inn in the UK and that Germany is a market that will deliver strong returns in the future.

“This acquisition mirrors the strategic opportunity that we identified with Costa in China, where we recently bought out Costa’s South China joint venture partner. Whitbread’s strong businesses still have considerable growth opportunities in the UK, however, these two transactions and our continued investment in these new markets, gives us confidence in our ability to build international businesses of scale in both Germany and China, that will underpin our growth for decades to come.”

The acquisition in Germany includes 13 leasehold hotels (comprising 2,140 rooms), which are already open and trading, and six committed pipeline leasehold hotels (comprising around 970 rooms), the majority of which will open over the next two years.

Premier Inn currently has one hotel open in Frankfurt and a further 11 hotels in its committed pipeline in Germany, having recently secured an additional organic development in Munich for 216 bedrooms. Whitbread reported that the German hotel market was 35% larger than the UK and similar to the UK 10 years ago, and was experiencing a structural shift from independent hotels to branded hotels.

The branded budget hotel sector was identified as the fastest beneficiary of this shift, but still only represents a 6% market share, compared to 24% in the UK.

News of the deal came after Mark Anderson, managing director, property and international, Whitbread, told delegates at the Hotel Alternatives Event 2018, hosted in London by Hotel Analyst, that the company was “about 10 years late, but not too late, in Germany. We’re going to be loss making for three or four years in Germany for bringing in costs before we have any income”.

When asked how the company could compete for sites in the popular German market, Anderson said: “We’re competing with our cash, we’re able to use the Whitbread balance sheet to get in quickly, but it’s pricey, it’s a bit lumpy. We’re prepared to pay to be in these locations.”

The deal in Germany was announced as Sachem Head, the investor which last year took a 3.4% stake in the company, was thought to have increased its agitation for Costa Coffee to be separated from the hotels and restaurants business. Whitbread has yet to comment, but Anderson told the conference: “Neither Premier Inn or Costa Coffee are capable of standing on their own at the moment”.

HA Perspective [by Katherine Doggrell]: This deal was not as simple as it appeared on first look, but then, when attempting a move into what has become the darling of Europe’s investors. In a study released to coincide with the International Hotel Investment Forum in Berlin, Christie & Co commented that the top German cities had become expensive terrain and both operators and investors have started to feel comfortable with secondary and even tertiary locations.

Lukas Hochedlinger, managing director, Central & Northern Europe, Christie & Co, said: “To date, both national and international investors’ and brands’ interest in the market remains strong. This has resulted in record-low yields and large supply waves. The pipelines are still full and new concepts have also been announced, including the founders of Meininger launching Schulz Hostels later this year in Berlin. There are new brands, new concepts and a lot motion in the German hotel market, which will make the next few years interesting.”

Commenting on the Whitbread deal, Hochedlinger told us: “I think it’s a great opportunity for them to increase their footprint. It would have taken several years to get there with individual acquisitions/leases.” And true enough. But to get to the volume Whitbread needs to truly give balance to its UK business, it will have to do many more deals like this. Time to get creative.

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