Covid19 hotel development analysis: Whitbread [Infographic]
For our latest exclusive report, we examine Premier Inn owner Whitbread’s hotel development pipeline to see how its expansion plans are holding up in the context of the coronavirus outbreak.
The unprecedented scale of the pandemic has had far-reaching consequences for all of the world’s top hotel groups, including Whitbread.
Founded way back in 1742, Whitbread now owns the UK’s biggest hotel brand Premier Inn as well as restaurant brands Beefeater, Brewers Fayre, Table Table and Bar + Block. Today, there are more than 800 Premier Inn hotels across the UK, while the business also has a few properties in Germany and the Middle East. But the company’s international expansion plans received a major shot in the arm in February 2020 when it acquired 13 open hotels and six pipeline hotels across Germany from Foremost Hospitality Group as part of a concerted push into Europe’s largest economy.
Whitbread, which is listed on the London Stock Exchange, is one of the UK’s biggest companies, generating revenues of £2.07 billion in the year ending 27 February 2020. Below, we take a closer look at the prolific hotel and restaurant operator’s development pipeline, as well as how its share price has fluctuated and what the company is telling investors in order to better understand its plans for the future.
Premier Inn’s progress continues
The TOPHOTELPROJECTS construction database indicates that Whitbread currently has 25 hotel projects in progress as of 7 July 2020, while three others have been cancelled.
Of Whitbread’s active schemes, 22 involve its flagship Premier Inn brand, while the other three relate to Hub by Premier Inn, its space-efficient digitally advanced hotel brand:
|Whitbread Group Plc / Whitbread Court||hub by Premier Inn||3|
|Whitbread Group Plc / Whitbread Court||Premier Inn||22|
TOPHOTELPROJECTS GmbH (2020): Whitbread Group Plc / Whitbread Court, Projects in Progress (Group and Hard brands).
What this means is that 88% of all Whitbread projects in the TOPHOTELPROJECTS construction database are still progressing. It may well be that other schemes face the axe in future as the realities of Covid19 take hold, but for now at least it seems that the company remains committed to realising the vast majority of its pipeline
Whitbread’s shares halve in value
One factor that shouldn’t be overlooked in all this is how Whitbread’s financial situation has changed during the crisis.
At the start of 2020, the company’s shares were regularly trading at more than £40 per share – on 21 February, for example, the value stood at £40.97. But that proved to be the calm before the storm as share prices dropped by more than a half over the course of the next month, bottoming out at £18.08 on 19 March.
Since then, confidence appears to have returned somewhat, and on 21 May the company announced plans to raise £1 billion through a fully underwritten rights issue to “ensure that Whitbread emerges from the Covid19 pandemic in the strongest possible position to take advantage of its long-term structural growth opportunities and win market share in both the United Kingdom and Germany”. As of 15 July, the share price stood at £22.88; this is a long way below the dizzy heights reached at the start of the year, admittedly, but still an improvement on the lows witnessed in mid-March.
Premier Inn hotels close as a result of coronavirus
We can see the extent to which Whitbread has had to radically rethink its business model because of the pandemic by reviewing the public statements it has shared with investors.
To kick us off, it’s worth going back to 24 March when Whitbread issued a statement entitled ‘Covid19 update’ in which the company signalled its intention to begin temporarily closing all Premier Inn hotels across the UK with immediate effect, while also closing its German hotels. Moreover, the business set out details of a number of sweeping cost-cutting measures such as cancelling non-committed development capital expenditure – which included all refurbishments, extensions, freehold builds and acquisitions throughout the UK and Germany – and placing “a significant number of our site teams on a temporary furlough”.
Whitbread reveals full impact of Covid19
The full picture had become somewhat clearer by the time Whitbread published its preliminary results for the year ending 27 February on 21 May. Shareholders were told that the vast majority of its hotels closed in the last week of March, although 39 properties remained open for use by NHS staff and other frontline key workers, and over 27,000 employees had been placed on a temporary furlough.
The business also reported that capital expenditure would “only be incurred for essential hotel maintenance, or where a site is significantly complete, including the refurbishment and rebranding of the acquired Foremost hotels in Germany”, noting that total capital expenditure for 2020/21 was expected to be approximately £250 million. By way of comparison, total capital expenditure was more than double this figure in 2019/20 at a staggering £588 million, which included £167m developing new sites and extending existing sites in the UK.
Whitbread also acknowledged the enormous impact that the pandemic has had on its finances. “Covid19 is expected to result in a very material loss of revenue during FY21 and, despite the actions the group is taking, this is likely, given the group’s high fixed and semi-variable costs, to have a material impact on earnings which may result in the group not making any profit during the financial year, with the clear possibility that it is materially lossmaking during that period,” it explained.
Premier Inn owner bullish as properties reopen
Then on 7 July, Whitbread issued a revealing trading update sharing fresh insights into the company’s current position and future strategy. Firstly, it noted that more than 270 UK hotels had now reopened and the majority of the rest of its estate was due to follow suit throughout the remainder of the month, while all 19 of its German hotels were open once more.
At the same time, Whitbread’s chief executive Alison Brittain reported that the pattern of bookings at its properties appeared to look quite different to the pre-coronavirus era. “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,” she said. “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.”
Interestingly, Brittain also hinted that the company was ready to invest in its pipeline once more, in news that will doubtless cheer many working in the wider hotel industry. “Our strong balance sheet, alongside both our leading operating model and the power of our brands, 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,” she said. “This will mean that we are in a position of strength to continue to invest, increase market share, and over time create significant value for shareholders.”