Meininger to triple beds

Meininger Hotels said that its strategy after floating was to triple the number of its beds in five years, mostly outside Germany.

The group, which was planning a flotation on AIM in London, said that it required no additional capital to achieve its growth target.

The company’s £300m-plus flotation would, if successful, value the business at €400m.

The Times reported that Zeus Capital has been appointed to advise it on an Aim listing within the next four to six weeks. Zeus Capital also acted as nominated adviser and sole broker to Elegant Hotels when it listed on Aim in 2015.

Meininger is an international hybrid hotel operator, that provides a low-cost, attractive and modern accommodation service throughout Europe. It markets its product on both a per room and per bed basis, aiming to appeal to a wide clientele, from school groups and families to backpackers, city tourists and business travellers.  The group does not own its hotels’ freeholds, instead deploying a capital light roll-out strategy, where landlords contribute to the upfront capital commitment of converting a site into a Meininger in return for a long lease backed by a strong rent cover.

Founded in Germany in 1999, its first hotel was on Meininger Street in Berlin. Today it has 30 hotels with a 4,700 rooms and 16,600 beds.  As well as Germany, it has a presence in Austria, Italy, the Netherlands, Belgium and Denmark plus one in London.  The group’s bed occupancy rate is c.74% (Industry standard is <50%) and its room occupancy is c.90% (industry standard is 77%).

Meininger’s latest results for the year to 31 March 2019 saw it report revenues of £98.1m and Ebitda of £16.5m. Meininger, under its CEO Hannes Spanring, has more than doubled the room count since 2016.

Last year saw Meininger sign on its first hotel in Israel, a 210-room, 800-bed site in Tel Aviv, due to open in 2024. Spanring said: “We are the first internationally operating hospitality company to bring the hybrid hotel concept to the Middle East. Although the city's supply has grown immensely over the last 10 years, accommodation in the hostel, economy and budget segments is severely under-represented.”

The branded hostel market has grown in recent years. Earlier this month Safestay said that it had almost doubled its hostel network last year and was well placed to grow “substantially” in 2020. During the year Safestay undertook six transactions, adding eight hostels, increasing the portfolio to 21 sites and over 5,100 beds. The deals meant that Europe went from 43% of sales to 49%.

Last month the company agreed a new five-year £23m loan facility with HSBC, replacing the £18m  five-year loan facility agreed in 2017 providing, Safestay said “additional headroom to support commercial objectives”.

At the end of last year the company bought hostels in Bratislava and Warsaw from Dreamgroup, with the completion of the acquisition of the third hostel of the Dream portfolio, located in Prague, due to take place in the next weeks.

Larry Lipman, chairman, Safestay, said: “In 2019 we near doubled the size of the Safestay network. In doing so, the Safestay brand has become Europe’s leading premium hostel network totalling 21 sites, all in sought-after central locations in the UK and Europe’s best known cities. The brand is now well established and positioned to sell over a million bed nights in 2020 in unique hostels ranging from Edinburgh to Athens.

“Trading in 2019 was good, all key indicators were strongly positive, in particular the organic growth performance, and critically we have yet to really benefit from the recent acquisitions agreed towards the end of the year. Safestay is therefore well placed to grow substantially in 2020 and take advantage of the increasing popularity of the modern hostel sector.”

The company said that, while still very early in the year, performance in the first month of 2020 and forward bookings for first quarter were very encouraging, “a positive signal for the coming year”.

Phoenix Chow, associate, hotels, Savills, described hostels as providing: “lean and efficient business models, presenting investors with an attractive growth and yield proposition. They are a volume-driven business coupled with low operational costs reflective of a price sensitive guest segment.

“Supply, relative to potential demand, remains constrained across most European gateway cities pointing to expansion opportunities, such as in the UK where hostels account for just 1.41% of room supply and 0.23% of the active pipeline. Smaller hostel chains across Europe offer excellent platforms for investors to enter and further consolidate the market.

“We predict that this immature sector will continue to grow from strength to strength, presenting opportunistic and forward thinking investors with an excellent opportunity to capture capital and secure income growth across a global hostel platform as the younger demographic continue to push the boundaries of travel, hostel operators are in a good place to respond.”

 

Insight: The sale of Meininger Hotels was keeping any number of brokers alive with delight at the end of last year, with anticipation of a joyous price in keeping with the festive season and any number of potential buyers piling in. But, as the season of giving approached and the deal still hadn’t been done, we wondered what was occurring at the hybrid group.

What wasn’t was a lack of interest. And now, with a flotation, all those institutions, who, like BlackRock, have seen a good thing in heads in beds, can own a slice. And why wouldn’t they? As Navneet Bali, Meininger chairman, pointed out to this hack, the group was 40% more profitable per square metre than the standard hotel.

Bali has long been the drum-banger of profits per square metre rather than revenue per room and the importance of transparency in what money was coming in and where. The group, which will now stand alone with Spanring at the helm, can only benefit from the scrutiny of the public markets.  

Ahead of the sales process it was thought that the complexity of the model would be off putting - the number of bidders suggested that the market has matured and got its head around the structure.

The era of the unused ballroom is over, it’s time to make every part of a hotel work. The hybrid model the group runs targets leisure and school groups, which are counter-cyclical and also at a very low price point. The sale of Generator made every investor want one of their very own. Expect Meininger to meet its floatation target and for others to follow in its wake. The impact for traditional hotels will be a more demanding investor, wanting to know how much ROI those meeting room biscuits are bringing in. In this era of pressured profit, that’s no bad thing.