S Hotels and Resorts Public Company Limited (SET: SHR), the flagship hospitality arm of Singha Estate PCL (SET: S), has disclosed its intention to divest a selection of its underperforming hotel assets in the United Kingdom, as part of its strategy to optimise its UK portfolio and maximise returns.
The company announced today that it intends to enter into a sale agreement for the 73-key Mercure Newbury Elcot Park. S Hotels & Resorts in the amount of GBP 4.25 million (equivalent to THB 182 million). In addition, the company is also considering to dispose up to five other UK hotels in the portfolio which have been identified as non-core assets. Proceed from sales will be used to reinvest in the renovation of core hotel assets in the portfolio to lift up the product and potentially enhance their profitability.
Mr. Dirk De Cuyper, Chief Executive Officer of S Hotels & Resorts, revealed that the transaction forms part of the company’s portfolio enhancement strategy comprises three elements:
- Asset enhancement: the company is evaluating to put capex to renovate core hotel assets – the asset that provides consistently solid performance and could generate higher EBITDA with proper enhancement program. These enhancements will boost the hotels’ competitive advantage and extend the profitability of those properties.
- Asset disposal: the company intends to dispose of some assets that have limitation on profit generation, but potentially can be sold at market price. The company targets the sale of 4-6 hotels which fall under these criteria and is currently in negotiations for potential buyers. The transactions are expected to be completed in 2021-2022.
- Assets optimization: 60% of the portfolio is fallen into this category. We would seek further opportunities to enhance the efficiency of this group to allow the asset to become a core asset e.g. conversion of leasehold to freehold assets.
“Strategically, we believe the optimal number of hotels in this portfolio should be around 20-21 hotels and in the medium to long run we wish to uplift the EBITDA performance of this portfolio back to the peak level of GBP 18 million (THB 720 million equivalent).
“This is a part of our strategic direction to focus on maximising our portfolio returns and creating value for the company and its investors.” Mr. De Cuyper commented.
In February 2021, S Hotels & Resorts invested THB 560 million to purchase additional 50% stakes in 26 of its 29 UK hotels, raising its total ownership of these properties to 100%. This marked a significant commitment to the UK, reflecting the company’s confidence in the future of the country’s hospitality sector. S Hotels & Resorts believes that ongoing international travel restrictions and the UK’s successful vaccination programme will drive domestic tourism demand in 2021, followed by the recovery of inter-regional travel from 2022.