Premier Inn is planning to withdraw from India and South East Asia, looking instead to Germany and the Middle East for its international growth.
The company said that it would begin a “phased withdrawal” from the countries, with the cost not considered “material.”
In May, CEO Alison Brittain described the company’s joint ventures in the Middle East as “growing and profitable” while the market in India and South East Asia was “promising,” but operationally “challenging.”
Premier Inn currently has one hotel in Singapore, one in Thailand and two in Indonesia, with three in India. It has six in the UAE. The hotel brand's parent company Whitbread said that it would concentrate the chain's international growth strategy on a smaller number of specific markets “where it can generate good long term sustainable returns and where there is the greatest long term opportunity to build scale”.
“In April, I laid out a three-point plan to build a bigger and better Whitbread,” Brittain said. “I reiterated the strong growth prospects for Whitbread in the UK, where we have laid out bold milestones for Premier Inn and Costa and confirmed that Whitbread also has an exciting future beyond the UK.
“A key strategic theme is to focus on our strengths internationally, and that means identifying those opportunities to invest our capital and management time wisely to generate the best and most sustainable returns. To build a successful future for Premier Inn overseas, we must focus on those markets where we can grow scale and where our brand proposition is most compelling for our customers.”
Earlier this year, Whitbread looked to accelerate its expansion in Germany with the purchase of two hotels for conversion, in Leipzig and Hamburg. In October last year, Premier Inn completed a deal on a new 200-bedroom site in Munich, due to open in late 2018. Whitbread has now secured four Premier Inn sites and 760 rooms in Germany as it targets six to eight hotels open and operating by 2020. It has one property open in Frankfurt.
Whitbread’s most-recent results saw it confirm plans to continue using its balance sheet to back growth. The company described acquiring commercial property, “particularly in London,” as “expensive, so we’re looking at the best use of our investment capital to grow the business.” The 389-room site will be the largest for the brand.
In July, the group agreed to the sale-and-leaseback of its Hub by Premier Inn hotel in Kings Cross, which is currently under construction. Legal and General is to pay £84.5 million in cash for the property, with an initial payment of £46.5 million on exchange. Further staged payments will be made during the construction period with a final balancing payment being made on completion of the hotel in June 2017. The total sale price of £84.5 million produces a net initial yield of just under 4 percent against an annual rent of £3.5 million.
“This transaction shows the strength of Whitbread's covenant and the strong asset backing to our balance sheet as well as our ability to recycle the value we create from our freehold developments into new opportunities,” Group FD Nicholas Cadbury said.