Is it time for …THE QUARTER OF RECKONING?

Every few years the UK – and increasingly, this just means England – likes to have an unprompted sale of assets. It can be quite random, a sudden availability of cheap goods completely out of season. Economic cycles be damned: just keep an eye on the island, there might be offers to be had.

The last such bonanza was after the Brexit vote, when the pound dropped and overseas investment rose. This was somewhat predictable – press in China reported that Boris Johnson’s brother had set up a fund to invest in advantageously-priced hotels – but anyone saying it out loud was, of course, accused of indulging in Project Fear.

This latest offering can out of the blue, courtesy of the Chancellor not showing anyone his workings for his Budget. It turns out that the likes of the IMF, Moody’s and people with GCSE economics won’t just take his word for it and the pound dropped, causing an influx of buyers for all sorts of natty bits of real estate (just as those living within the country were finding it hard to get their own bricks and mortar. Oh well, you can’t please them all).

For observers of the hotel market, all this means that we could well be seeing THE QUARTER OF RECKONING, which has been looming since March 2020. And if there is going to be a time, that time is now. Energy bills, loan costs, all those independent hotels which Whitbread was going to scoop up, the time is scooping.

And is this why L&R Ventures decided to take a 3.5% stake in the budget group? The brothers Livingstone like a bit of the UK market and Whitbread is a solid business with assets which has a tendency to grind it out when others fail – and offering a product which sells on price will be valuable come the imminent recession. And L&R Hotels’ MD Desmond Taljaard used to be Whitbread’s development director. 

Whitbread’s market cap at the time of writing was £4.92bn, which is why you’re not seeing a lot of takeover chatter around this deal, or, indeed, around Whitbread ever. Maybe the brothers just had some dollars lying around. But it’s the kind of company where an agitating shareholder can certainly have a lot of fun and, well, it does have some tasty assets. 

So the brothers are in for a bit of the UK, but one of its safest bets. What about everyone else? For those flashing dollars, it’s an attractive time to go shopping, as US inbound tourist figures attest. And it’s not just about cheap real estate. Debt has got a whole lot more expensive and a whole lot less available, so there are openings all over the place to deploy that much-chatted-about wall of money.

Are hotels still attractive? They were moving into the mainstream as an asset class before All This and they remain so in much of the rest of the world. Domestic tourism looks likely to face a little pressure in the short term in the UK, but that weak pound is dandy for global travellers who, frankly, are less likely to go and eat free at a mate’s house during their stay so make more valuable guests.

The current scenario tends to favour long-term buyers, not the exuberant private equity types which have been enjoying the sector. Or does it? The wish of all observers and voters is for a period of stability. The longer the better. But at this point, unless things change, there could be a two-year period of jittering before, one hopes, a long period of boredom. This means that anyone looking for a quick exit could see an opportunity to buy now and exit when the regime changes and a deep breath is taken. Trading could be choppy in the meantime, but isn’t so much of hotels about the asset? 

The Quarter of Reckoning it may or may not be, but it’s a good quarter for gamblers. Fun for agents, but not fun for those trying to build long-term businesses. 

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