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Examining the hotels market

Interview with...

Haydn Fentum
Formerly chief executive of Furlong Hotels
Business name:
Bespoke Hotels
Specialises in luxurious niche properties, growing from three hotels in 2001 to 52 hotels in 2011, totalling £225m worth of assets
UK wide, head office in Buckinghamshire
Trading for:
Eleven years

BFS: Haydn, you told us [in part one of this interview] that many hotels are fighting a losing battle - why is that?

HF: Yes. There's been a proliferation of good quality, new-bed stock from Premier Inn, Travelodge, Holiday Inn Express, Park Inn and Park Plaza, which I think provide pretty good value for money.  And you compare that to old coaching inn types in market-town centres that historically are underinvested…

There are more ring roads and arterial road networks where parking is more of an issue. You look at a lot of market towns and the two or three star players on the ring road have soaked up all the business while the old-fashioned market coaching inn in the middle of town probably can't survive unless it is completely reinvented - and of course the cost of refurbishing old buildings, many of which are listed, is huge.

BFS: Where do you think the value lies in the hotel sector for a prospective hotel buyer right now?

HF: Distressed properties. The von Essen hotel people went into administration recently and the chain was subsequently sold off, and this was a collection of top-end, boutique, country house hotels. And it was odd because I gather that a lot of them went for very high prices and have fantastically low yields. 

I think value can be found in provincial city centre, non-London hotels that have been maintained to a decent standard but are underperforming because of cash flow and funding issues

Haydn Fentum, Bespoke Hotels CEO

Sometimes even where they're making a loss they're still attracting very high prices, because it seems to be very much a trophy business. People want to buy that manor house in the Cotswolds or whatever it might be, so they're not really looking at the income attached to it.  

I think that it's an anomaly so we shouldn't get overly focused on it as an industry. It's a very false indicator to the health of the sector. 

I think value can be found in provincial city centre, non-London hotels that have been maintained to a decent standard but are underperforming because of cash flow and funding issues. Undoubtedly the banks will make provision for write-downs and over the next 12 months you'll be seeing a lot more of these being sold - so there'll be an opportunity for buyers to get these for decent prices I think. 

BFS: So how are things in the sector in such challenging trading conditions? 

HF: The market is quite volatile at the moment, there's quite a lot of activity. It's only the last two or three years that have not been great for the hotel sector. 

They're capital-hungry and valuations have gone down probably by 30% to 40%, so there's a lot of people who have got negative equity or are in a distressed lending position. Banks are beginning to make some inroads in terms of changing that and we do quite a lot of work with banks and administrators and accountancy firms.  

So there's a lot of enquiries. We're slightly in that business where other people's misfortune is to our benefit, as we're providing services to alleviate a bad position for an owner or bank. So, it's quite busy and banks, having sat on their hands for quite a long period of time, are actually beginning to start making some changes and crystallising a few of their losses.  

BFS: Is there a danger that business travel might decline over the long term as the cost of travel by road or rail soars and videoconferencing software becoming more advanced?

HF: I'm sure that technology will replace some business travel. Although when I left school everyone was talking about the computer revolution and how offices were going to become redundant and everyone was going to work from home, but we still like to get on a train and meet people. 

The big areas at the moment are residential conferencing and training and that will take some time to recover.  Commercial travel is still pretty good. 

There's always a flight to value, so hotels that have been underinvested and undercapitalised suffer, and properties in good order and which provide good value for money prosper. The market has become more polarised that way; you're less inclined to forgive a bad experience. 

People will always seek out value and it's important to deliver it when the market's tougher.  But, I don't know whether Skype will take over the world and we'll all work from home and talk on our laptops.

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