PHOTO: Everett Collection/REX Features
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Analysis
While there are still plenty of mid-market bargains to be had for buyers, the general health of the sector is a little harder to diagnose. David Churchill reports
WHEN MALMAISON and Hotel du Vin were voted the top two smaller chains last September by readers of Buying Business Travel’s sister magazine, Business Traveller, it seemed that both iconic collections were on the top of their game, riding out the tough market conditions facing all hoteliers outside the buoyant London hospitality market. But within three months the parent company of both chains – MWB Group Holdings – had collapsed, with debts of more than £200 million, into administration, where it was still languishing as BBT went to press, although the Malmaison and Hotel du Vin hotels are continuing to trade. The MWB slide into administration was partly due to an internal financial dispute with another subsidiary, MWB Business Exchange, which provides serviced offices. But the two hotel chains had reportedly been up for sale for some time to help reduce the corporate debt, and a change of ownership is still on the cards. Yet the MWB collapse was not a one-off financial failure. Other, mainly regional, hotel groups have
also fallen foul of over-optimistic financial engineering, which has left them saddled with hefty debts – estimated at up to £16 billion in total by professional services firm Deloitte – and forcing them into considering fire- sales of key assets (see panel, below). A quarter of all UK hotel sales last year involved “distressed transactions”, according to hospitality property consultants Colliers International.
PROVINCIAL PROBLEMS But the UK hotel sector has other problems. While London hotels – especially at the top-end – have remained relatively buoyant ever since the 2008 financial crash and recession, many of those in the provinces have struggled. At the same time as the debt cloud is hanging over regional hoteliers, the traditional independent mid-market sector outside London has been squeezed by the enforced trading- down of four-star hotels, as well as the bottom-up pressure from the fast-growing budget hotel operators, especially Premier Inn and Travelodge (although the latter, too, has recently
been forced into a debt refinancing). “The mid-market is a difficult sector to operate in,” points out Russell Kett, chairman of hotel consultants HVS London. “Cash-pressed travellers tend to trade down and squeeze the mid-market, particularly those hotels which are not clearly branded.”
MID-MARKET MOVES Just under 30 per cent of the UK mid- market sector is branded, compared with 43 per cent of the hotel industry as a whole, according to research carried out by Accor. Not surprisingly, Europe’s biggest hotelier therefore sees scope for expansion in the UK mid-market, taking advantage of the administration of Ramada Jarvis in 2011 to franchise 26 former Ramada Jarvis-branded properties under its mid-market Mercure label. Other international chains have
also moved into the UK mid-market sector. Hilton, for example, has been quietly pushing ahead with expansion of its midscale Hilton Garden Inn and Doubletree brands into key regional cities. Marriott is bringing its international
midscale Courtyard brand to the UK, with the opening this spring of the 194-room Courtyard by Marriott at Aberdeen airport, adding to the Courtyard at Gatwick which opened in 2009. With over 900 Courtyard properties worldwide, Marriott has delayed bringing the brand to the UK
A MARRIAGE OF CONVENIENCE
The current trend for refinancing means the relationship between banks and hotel groups is becoming ever closer...
NEARLY 20 YEARS AFTER Hugh Grant spent a (fictional) romantic weekend with Andie MacDowell at Amersham’s 16th-century Crown Inn in smash-hit film Four Weddings and a Funeral (see right), the cold wind of 21st-century reality has finally caught up with the 41-room, Grade II- listed hotel, which went into administration last autumn. The Crown was one of
four hotels operated by the
privately-owned Dhillon Group that were put into administration at the same time, although all are continuing to trade normally while buyers are sought. Although the administrators, BDO, are confident about prospects for the four hotels, it is a tough time for sellers. “Difficulties in accessing debt funding and the continued disparity between buyer and seller in
terms of price expectations means the disposal process is likely to continue to be longer and more difficult to complete,” says Deloitte’s Nick van Marken. The professional services
firm’s data shows that the number of UK hotel transactions fell in the second half of 2012, from about £1 billion of sales in the first six months to just £300 million in the last half. Moreover, a recent Deloitte survey of hotel industry professionals found that some seven out of ten felt
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it would be another three-to- five years before transaction prices reached their previous pre-crisis peak. The problem is not
usually one of the quality
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