Owner Whitbread says landlords to Premier Inn now need to share the pain as lockdown bites.
Paul Norman is managing editor news for CoStar Group. CoStar Group is the parent company of STR, and HNN is a division of STR. This story has been edited to HNN style.
DUNSTABLE, England—Whitbread, the United Kingdom's largest hospitality group and owner of the ubiquitous Premier Inn budget hotel chain, has written to all of its landlords saying it will pay half its December quarter rent.
In a letter sent yesterday to all its landlords, Mark Anderson, managing director, property & international at Whitbread, the listed owner of Premier Inn, said it is calling on its "landlords, who have been the only stakeholders not to have shared some of [the] pain to date, to provide a proportionate degree of temporary financial support.”
Whitbread operates more than 800 hotels in the U.K. and Ireland, as well as restaurant brands Beefeater, Brewer's Fayre, Cookhouse & Pub, Bar + Block Steakhouse, Thyme and Table Table. The restaurants operate on Premier Inn sites.
Premier Inn has been notable in the sector for continuing to meet its rental obligations throughout the pandemic, and Anderson takes a clear dig in the letter at rivals that have already reneged on rental payments.
"Throughout this period, we have however continued to pay all our landlords our rent commitments in full, even when our sites were closed for over 12 weeks during the first lockdown period. This is in stark contrast to some of our competitors, some of whom have received the benefit of rent reductions through a CVA process,” he said.
That is in particular a reference to its budget hotels rival Travelodge, which finally agreed to a Company Voluntary Arrangement with landlords in June after a bitter public battle over non-payment of rent.
It is to be seen whether Premier Inn's move has the same galvanizing effect on landlords, who were particularly irked because Travelodge is owned by a well-capitalized private equity consortium.
Anderson says Whitbread believes the group's strategy is "as relevant as ever," having taken quick and decisive action to protect the business when the national lockdown was first announced in March.
He says: "As a result of our actions, we have traded well ahead of the market in the U.K. since reopening our hotels in July, with the growth in our market share from 7% to 10.5% demonstrating the strength of our trusted Premier Inn brand and the benefits of our unique operating model and network.
"We entered this crisis in a strong financial position. We have done everything we can to help preserve this position and the strength of our financial covenant by taking significant and immediate action, reducing all discretionary cost and uncommitted capital and getting financial support or concessions from our stakeholders."
Moves undertaken by Whitbread included: shareholders supporting a £1 billion ($1.3 billion) right issue in June; the cancellation of dividends to shareholders, obtaining covenant waivers from all lenders and pension trustees for 24 months to March 2022; 27,000 team members being furloughed under the Job Retention Scheme; executive directors and senior management taking voluntary salary reductions; and extending payment terms with suppliers of goods and services.
More recently it has announced a reduction in its head office teams of 20% and over 1,500 redundancies from its teams in the hotels and restaurants business, alongside significant reductions in maximum contracted hours for remaining employees.
Despite these actions, due to the impact of government restrictions on its business, for the six months to 30 August 2020, Whitbread reported a net cash outflow of £462 million ($618 million).
It has continued to pay all landlords its rent commitments in full throughout, even when its sites were closed for over 12 weeks during the first lockdown period.
It says that while its hotels continue to trade significantly ahead of the market, market occupancy levels remained very low at around 25% in November, during the second lockdown, and total hospitality market sales were down 79% year-on-year in the month. At these levels it continues to experience a net cash outflow, even if improved on the first half run rate.
It is therefore requesting that all landlords forgo 50% of the December 2020 quarter rent. This is equivalent to around half of the rent Whitbread paid during the first lockdown when its sites were completely closed.
It says the move is important in order that its balance sheet strength is retained.
It says all other major stakeholders have recognized this and have subsequently supported it financially, including "our shareholders, employees, lenders, suppliers and pension trustees."
It writes: "To help offset this impact we are asking our remaining stakeholders, our landlords, who have been the only stakeholders not to have shared some of this pain to date, to provide a proportionate degree of temporary financial support."
It adds: "The request will partially support Whitbread for:
- The 12-week closure period impacting the business ability to trade between March and July 2020;
- The continued restrictions including the second lock down in England in November and the continuing tiered restrictions; and
- The extra costs of protecting customers to allow us to trade where possible, including £9 million ($12 million) spend on PPE.
In turn this support will help Whitbread:
- Execute on its plan, including continuing to invest in its customer offers and the quality of its leasehold and freehold estate; and
- Retain a strong covenant that all stakeholders will continue to benefit from."
A spokesperson for Whitbread said, “Since the start of the COVID-19 pandemic, Whitbread has taken decisive action to ensure that our cost base reflects the low levels of demand, with the support of a wide range of stakeholders including shareholders, lenders, colleagues and suppliers. The actions we have taken, combined with the strength of the Premier Inn brand and our leading customer proposition mean that we continue to trade ahead of the market.
“Throughout the pandemic to date, we have paid our rent commitments in full, even when our hotels and restaurants were forced to close. With ongoing Government restrictions expected to result in subdued market demand into the first half of 2021, we are now asking our landlords to support us, as other stakeholders have during the pandemic, through a reduction in rent for the December quarter in recognition of the current environment. The business had arrived at this decision ahead of the most recent Government update on Saturday 19 December."