Boutique hotel group Vienna House is the latest casualty of the pandemic, after its parent investor opted to sell assets in order to reduce its borrowings.
The move has forced the Austrian hotel group to break up its central European portfolio, reducing its scale by more than half with two recent deals. The situation is one that could be faced by other foreign-backed hospitality groups, as covid-19 business upheaval plays out in unexpected ways.
The move comes as hotels and restaurants across Austria remain closed, with the government set to review lockdown measures in mid-February. Austria imposed its third national lockdown on December 26, in a bid once more to clamp down on rising covid-19 cases in the country. This included restricting foreign arrivals into the country.
Meanwhile, in Austria’s Alpine ski resorts, authorities have recently carried out a crackdown on foreign visitors who have wriggled past lockdown rules. At the end of January, police in St Anton found and fined 96 foreigners in the resort, visiting to ski in defiance of travel restrictions which have included the closure of hotels.
Vienna House has, since 2017, been owned by Thai conglomerate U City. The group, which already owned hotels in Thailand, made the acquisition as part of a strategic move into European assets and situations where it envisaged growth opportunities.
The purchase gave Vienna House the financial backing to acquire seven properties it had previously managed. At the time, Vienna House had 34 hotels, with around half of them owned and the balance leased.
By the late 2020, Vienna House had grown to 45 European hotels, with a further half dozen in development, putting the group on track for its target, announced by CEO Rupert Simoner in 2017, of 50 hotels by 2021.
However, through the last year, U City’s finances have been battered by its exposure to the hospitality sector, with 119 hotels in 18 countries held via its Asian business, Absolute Hotel Services, and Vienna House in Europe.
In Europe, cutbacks were already taking place last autumn. In its Q3 results announcement, U City noted it had terminated management contracts at two Paris area hotels operated by Vienna House, Dream Castle Paris and Magic Circus Paris, cutting the portfolio by 793 rooms. At this point, company management gave no hint of any further upheaval in its hospitality businesses.
However, at a board meeting on 14 December, U City’s executive team decided drastic action was required, to preserve liquidity; a director and the company secretary also resigned, followed shortly after by the chief legal officer. A massive asset sale, destined to raise THB3.8bn was signed off, including many development plots in Thailand, a UK office block, and the leases of 32 Vienna House hotels. The board said the move was deemed necessary “ in order for the company to have sufficient liquidity for its current and future operations.”
Of the 32 Vienna House properties listed, six were under construction, and all were on leases of up to 25 years remaining. Properties in development in Wroclaw and Raunheim have been surrendered to their lessors, while 20 hotels and three development projects have been passed to new lessee HR Group, a German hotel manager. A further five assets have been sold to Austrian developer Kerbler.
The deal with HR Group signals the decimation of the Vienna House brand, as HR is to take the properties in a different direction. Currently, HR operates a portfolio including Accor brands Ibis, Mercure, Movenpick and Pullman, several Ramada and Dorint branded hotels as well as several independent German properties. In early 2020, it completed on a deal to take over 16 Movenpick branded hotels from Accor, located across Germany.
HR’s senior development and asset manager Dana Wustrow told Hotel Analyst that operating under Vienna House was not a consideration, and the group will be looking to agree franchise deals with its current franchise partners. The company, which owns around one third of its properties, did not require any external financial support, to complete the deal.
The pipeline of new hotels continues to feed into the market, with Austria facing a periodic peak in delivery of new space. According to database Tophotelconstruction, Austria is expected to see 53 hotels open this year, adding 5,765 rooms to the market; of these, 30 will open in Vienna. The total Austrian pipeline is heavily oriented towards the upper end of the market. Of the total pipeline of 113 projects, it says 42% are first class, and 21% luxury.
HA Perspective [by Chris Bown]: Goodnight Vienna – hello Hoxton? With the hard work of Rupert Simoner and his Vienna House team unravelled by its hard-up owners, the slimmed down brand of less than 20 hotels will find it hard to pick up the pace once more. Perhaps it’s time for the brand’s Thai masters to give up on their European foray completely – and sell up.
And what better buyer than Ennismore, Accor’s new lifestyle brand. It could take hold of the existing portfolio of quirky properties, and either take on the brand too, or repurpose them under another portfolio brand.
Then there’s HR Group, who have taken on 23 quirky properties, and are probably just now discovering that they’re too quirky for some of the mainstream franchise brands they have worked with, to date – why not franchise the lot of them to Accor, where there’s already a working relationship.
While crossing continents has looked a good idea for many an Asian investor, and Europe’s hospitality sector has attracted a few, the Vienna House story shows just how the pandemic continues to deal unintended consequences, driven by enforced strategic change. There are several other UK and European portfolios currently backed by overseas owners – here’s hoping they don’t fall to a similar fate.
And once again, it has been the pressure of leases that has been the undoing in this particular scenario. Despite central European governments providing financial support to shuttered hotels, rent continues to be a killer, unless forgiving landlords are prepared to be flexible.