UK demand due to weak pound not boosting budget hotels
UK demand due to weak pound not boosting budget hotels
27 JANUARY 2017 9:15 AM

In its latest earnings report, Whitbread executives said they were pleased by good RevPAR numbers despite evidence that tourists taking advantage of pound sterling weakness are choosing higher-end stays.

DUNSTABLE, England—According to Whitbread PLC executives on the company’s quarterly earnings conference call, tourists flocking to London because of currency advantages are choosing hotels at the higher end of the spectrum.

Whitbread CFO Nicholas Cadbury said he believes strong demand following the weakness in the pound sterling helped London’s Upscale and Upper Upscale segments, but that boost has been slow to trickle down to the other end of the scale.

“Hotels in the U.K. benefitted from the weaker pound, but I’d be very careful of extrapolating entire growth across all the market. … Looking further out, we do see more supply, +2%, later on around +3%,” Cadbury said.

During a call with analysts on 26 January, executives at Whitbread, which owns hotel brands Premier Inn and Hub by Premier Inn, said the firm added 3,003 rooms in the last quarter. In the U.K. in that period, it opened 2,056 rooms for a total of 66,333.

On 12 January, Whitbread completed two sale-and-leaseback transactions on two London assets that netted it approximately £203 million ($256 million).

The company’s goal for London was to mature its properties by driving occupancy.

Year-to-date total revenue per available room in London fell in the third quarter of 2016 by 2.2%, which Alison Brittain, CEO of Whitbread, said was due to weaker corporate demand.

Premier Inn like-for-like sales grew by 1.8% in the last 13 weeks to 1 December, but that represented a slight slowdown compared to the 2.2% growth seen across the 39 weeks up to that date.

Analysts were not unduly alarmed by those numbers. The brand had posted noticeable supply increases in the last year, the overall picture hinting at the continued trend of staycations in the United Kingdom, where the majority of Premier Inn’s footprint lies.

In the last quarter, occupancy was maintained at just short of 85%.

Whitbread executives added the firm opened its first property in Germany last March at the Messe convention and exhibition center in Frankfurt, and it has two more Germany properties in its pipeline.

Despite claiming on its website that the brand aims to have 50 international properties by 2020, Whitbread’s only other assets overseas currently are six in the Middle East, mostly in the United Arab Emirates. Its pipeline includes another hotel in the UAE and one in Qatar, but Premier Inn announced an exit from India and Southeast Asia, where it has eight hotels, in July.

Brittain said the focus, as it always has been, remains on the U.K., where already in 2017 it has opened 15 hotels.

She made a point of sounding caution, with the principal headwind being the U.K.’s political stability following the decision to leave the European Union.

“We are maintaining our financial framework to be in a position where we can still make the necessary investment, especially in information technology, that will allow the business to go forward,” Brittain said.

“It is about the right spend at the right time, so there is caution when it comes to forecasts. We do not want to be too exuberant and risk profit warnings, but we are quietly confident,” Brittain said. She added that company guidance has not changed, and Whitbread still expects annual numbers to meet forecasts.

“Our brands continue to win market share. The majority of sites are freehold, which provides us a strong covenant that helps secure both freehold and leasehold sites. We are recycling capital into strong hotel sites, which then allows the bolstering of shareholder value,” she said.

Careful consideration
Cadbury said that Premier Inn’s total sales for the last quarter increased 9.2%, as opposed to 9% in the last three quarters. He added that “high single-digit like-for-like growth is stronger than our competition’s.”

Brittain said that 2016 saw her team trying to make sense of the volatile politics of the U.K. as it strategized over the company’s international rollout.

“We’re laying out a lot for investors to think about. We are making sure we have sufficient flexibility, as it is awfully difficult to predict where consumer confidence will go (in 2017),” she said.

Shares in the company fell approximately 4% by close of day of the earnings announcement. Whitbread’s other core business is its Costa Coffee chain.

As of press time, Whitbread’s stock value decreased 4.53% year to date. The Baird/STR Hotel Stock Index was up 0.53% for the same time period.

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