Whitbread, the owner of Premier Inn, is set to announce a £1.5bn sell-off of a significant portion of its property portfolio on Thursday, aiming to win back investors after a period of underperformance.
Strategic Review Leads to Asset-Light Model
The FTSE 100 giant will sell and lease back one in five of its freehold properties, following a strategic review of its business model. Currently, Whitbread owns the freehold of around 50 per cent of Premier Inn hotels, but this is expected to be reduced to 40 per cent. Sell and leaseback allows companies to secure a short-term cash injection by selling properties but retaining the right to lease them. While this provides immediate funds, it can expose companies to rent hikes and economic headwinds.
Impact of Budget Tax Hikes
Whitbread faced a challenging year after the UK Budget introduced changes to business rates valuations, which the company estimated could cost up to £50m. Chief executive Dominic Paul expressed disappointment, stating the Budget would significantly impact the business and the wider hospitality industry. To mitigate the blow, Whitbread accelerated cost-cutting, aiming to slash up to £60m from margins, later widened to £80m.
The Chancellor's business rates shakeup intended to ease bills for retail and hospitality firms, but reassessments led to soaring costs for many hotels and pubs. Furious pub landlords secured a £300m concession, but only for pubs, angering restaurant and hotel owners. According to UKHospitality, the average hotel's business rates bill jumped by £28,900 (30 per cent) on 1 April and could rise by £111,300 (115 per cent) by the end of the decade.
Investor Sentiment and Market Reaction
In January, Whitbread breathed a sigh of relief when it revealed the Budget hit would be only £35m, lower than initially feared. Russ Mould, investment director at AJ Bell, noted that Whitbread has "found life harder going in recent years" but aims to woo the market with a shift to an "asset-light" model. He added that it is increasingly common for hotel operators not to own buildings, and for Whitbread, this means a big cash injection that could be returned to shareholders.
Reports of the sell-off boosted Whitbread to the top of the FTSE 100 risers on Monday, but the stock dropped nearly three per cent on Tuesday to 2,402p.
