Spaniards look to sell up

Spanish hotel groups Melia and NH are anxiously looking forward to reopening hotels for summer 2021, after another becalmed quarter. And both are selling assets, to repair tattered balance sheets.  

As of mid-May, Spanish government officials were frantically lobbying UK and German authorities, in a bid to restart arrivals from their main source markets: in a typical year, 18m Brits and 11m Germans visit. But despite Spain’s progress on vaccines and reducing covid-19, the UK left the country off its “green” list, while German authorities were advising against non-essential travel.  

At Melia, hotels are being reopened after a first quarter that saw revenues 80% down on the same period of 2019. Melia CEO Gabriel Escarrer Jaume said the first quarter numbers “contained no surprises” with markets closed. But he remained “optimistic about the next few months, in which…. we expect to return to near-normal levels in resort hotels.” 

Melia has already seen the signs of life in its Caribbean resort properties, where US customers are already booking and arriving. Caribbean sales were up 181% in week 16 of 2021, compared with week 6.  

At NH, majority shareholder Minor International has agreed to a cash injection, while the company is pushing hard to achieve further asset sales to improve liquidity. The company has also extended existing debt maturities for a further three years.  

Minor will put in EUR100m, in the form of a loan that will convert via a rights offering, into new shares. Minor currently holds 94.1% of NH equity, and other shareholders will be offered the opportunity to put cash in, for the same share rights.  

NH is also committing to a substantial asset disposal programme, aiming to bring in more than EUR200m. As investors acquire hotels, NH will look to agreeing long term leases, or management agreements on the properties.  

“The reinforcement of our capital structure thanks to the equity investment and the enhancement of our debt maturity profile lay the foundations for our financial sustainability, which will be further bolstered when we complete the asset rotation transactions currently underway,” explained NH CEO Ramón Aragonés. 

“As a consolidated hotel operator, we also aspire to position ourselves as a preferred strategic partner for those investors keen to increase their exposure to the hotel property sector, a move that will help us rebalance our business model.” 

Melia, too, is looking to asset sales, to maintain liquidity. It expects to draw in EUR150-200m from asset sales, having already refinanced all of its debts due to mature in 2021. The company finished the first quarter with liquidity of EUR230m, while its net debt grew through the quarter by EUR143.6m to EUR2,747m.  

Melia, whose portfolio expanded internationally during the previous decade, is no longer reliant predominantly on its home market. It has all its Asia Pacific hotels open, and 80% of those in the Americas. Of those in Spain, it expects to have 70% open by the end of June.  

Melia has used the pandemic to sharpen its digital operations, testing such things as software robots, and most recently pulled in 55% of sales via its direct sales channels. It is also seeking to grow its portfolio virtually, with an “Affiliated by Melia” collection brand of independent hotels, tapping into its loyalty programme and distribution platform.  

NH also believes its leaner, stripped down structure will perform more strongly once markets reopen: “We expect to return to our pre-COVID EBITDA levels one year sooner than expected in the sector, which estimates that 2019 activity volumes will not be revisited until the end of 2023 or beginning of 2024. 

Melia’s Jaume commented: “Although short-term visibility is still very limited, the number of online bookings and searches, the consistent increase in bookings, the progress with vaccinations, and the relaxation of travel restrictions in our key markets, invite us to enjoy a certain degree of optimism.” 

HA Perspective [by Chris Bown]: The pandemic appears to be pushing NH and Melia towards a more asset light structure. But there was no detail on where – and, importantly at what discount – the Spanish hoteliers are planning to make disposals. We’ve previously heard agents describe the hotel investment market as a Mexican standoff, and buyers may be expecting cash-strapped Spanish hotel groups to blink first, if they need a liquidity injection. But there are buyers out there, ready to acquire at the right price.  

The commitment from Thai parent Minor comes as the group faces its own challenges in its home market, still reeling from the impact of covid-19. Minor has interests across the hospitality landscape, in food and restaurants as well as hotels, and all have taken a big hit. Minor will be hoping that European reopening will give NH the cash inflow it so desperately needs – and soon.  

Additional comment [by Andrew Sangster]: How bad is it going to get? While North America and Northern Europe look to be starting their recoveries, Southern Europe is waiting to see whether this summer will come to its rescue. At present, it does not bode well. 

EasyJet, one of the big three low-cost carriers in Europe, said back in January that it was planning to fly no more than 10% of its Q2 2019 capacity levels for Q2 2021. The summer season is thus off to a very poor start. 

Worse news came this week with the comment from easyJet that it expects to fly just 15% of 2019 capacity levels in Q3. While it can quickly ramp up to meet demand, it warned that “late announcements of changes to travel restrictions will impact load factors”. 

At Tui, Europe’s biggest tour operator, summer 2021 bookings are down 69% versus 2019. The company has capacity plans of 75% but this looks increasingly overly bullish. 

As we have pointed out before, bad news for the south is good news for the north. Hoteliers in the UK, Germany and Scandinavia should enjoy a bumper season as the usual summer net exodus of tourists turns into a positive balance on the tourism account. 

For NH / MINT and Melia, along with myriad privately held groups both big and small, a poor summer season will likely lead to some significant corporate restructuring.  

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