Deal structure, recessions and value top Europe worries
 
Deal structure, recessions and value top Europe worries
03 OCTOBER 2019 7:10 AM

A panel of eight European hotel-industry veterans see demand shifts, asset and operations values, the changing mores of consumers and behavioral changes in the face of a likely recession as top concerns.

LONDON—Deal- and business-structure trends, distribution, continued mergers and acquisitions activity, geographic shifts and the timing of the next recession are the front-page hotel-industry headlines likely to loom ever larger in the next two to three years, according to sources at the Hotel Investment in Europe Conference.

At the closing panel titled “Expert views from the International Hotel Investment Council,” eight industry veterans went through the barriers and what’s keeping the industry leaders up at night. Here’s what they had to say on those topics.

Deals and operating structures

  • “The separation of operations and ownership (OpCo versus PropCo) is continuing to widen.” —Nikola Reid, director and head of hospitality advisory, Deloitte
  • “Deal structures are becoming more complex and multi-layered. They are now taking a long time to work out and conclude.” —Marvin Rust, head of tax, Europe, at legal firm Alvarez & Marsal
  • “We’re seeing some private equity topped with debt, but there still remains some deals of 100% equity, which are then later refinanced.” —Tim Helliwell, head of hotel finance, Barclays Bank

Distribution

  • “Some consumers are pushing against brands. Look at (InterContinental Hotels Group). It is almost as though it is keeping Kimpton (Hotels & Restaurants) and Six Senses a secret. Brands see that (trend) resonating, and I think we are at a weird inflection point now.” —Scott Woroch, partner and managing director of investment- and asset-management firm Kadenwood Partners
  • “(Owners) see a little less value in brands than do shareholders, but I rarely take a brand off as it is very expensive. I’ll flatter some brands in London who bring in Americans and higher (average daily rates).” —Desmond Taljaard, managing director, London & Regional Hotels

Mergers and acquisitions

  • “Private equity spent less (on hotel operations and real estate) in 2018 than it did in 2017, but still (that spend) is equivalent to the gross domestic product of Australia. Debt has never been as cheap as this in living memory, and the atmosphere is right for continued (mergers and acquisitions), but whether that will happen in this or the next cycle remains to be seen.” —Steffen Doyle, managing director, Credit Suisse
  • “But in Europe there are some 750 hotel brands with hotels having between four and 10 rooms, and there is no consolidation as they are all leased and out of the radar. A big chunk of the market is just sitting there.” —Paul Slattery, director of business consultancy Otus & Co.
  • “Airbnb and Uber have high worth, but do they have any cash? … People today are focused on value for money, and that is reflected in deals such as the 23-times multiple paid by (LVMH Moët Hennessy Louis Vuitton SE) for Belmond.” —Doyle

Geographic shifts

  • “Chinese gross domestic product is set to surpass that of the U.S. by 2026, and by 2030 its millennial population will have more than $4 trillion of assets and spending power.” —Jan Hazelton, VP, Kerzner International
  • Slattery has a contrary view to the idea Chinese guests represent a new boon to Western operators: “The majority of the Chinese middle class earns less than $15,000. They have no money to travel. Chinese travel outside of China is government subsidized, so (hoteliers) take as much of their money as you can, as it isn’t theirs.”
  • Arguing against that stance is Woroch, who said “the industry remains a little abusive of Chinese travelers. They are becoming more sophisticated and will make a lot of hoteliers very rich.”
  • “Most spending powers remains in the hands of adults. It took (celebrated British hotel) Chewton Glen five years to transition from a grey market to a family one.” —Taljaard
  • “By 2100, 80% of the world’s population will live in Africa.” —Hazelton
  • “Air passengers are set to double to 7.8 billion per annum by 2036.” —Hazelton
  • “It took us two and a half years in Athens between signing and opening, and I was told that was the fastest (such process) in decades. In Lisbon, which is hot right now, (everyone chasing the ball) is rather like football for seven year olds, while in Italy it is like playing at home but starting 0-2 down and winning on penalties.” —Taljaard

Recession

  • “Staycations are on the rise, and why not with climate change? A third of holidays (booked by Brits) are staycations, and that rises to 50% for those aged 20 to 25. (Staycations) are convenient, and as they continue, there will be more positive previous experiences.” —Helliwell
  • “Youngsters are disgruntled. They have student debt, and rental accommodation is at its greatest pace. There is no money left, and you seeing that has led to a rise in microgapping.”—Slattery, referring to the trend of taking shorter trips, although the number of days spent travelling over a year could amount to more than the traditional fortnight’s break
  • “Cost inflation is rampant, so profitability is squeezed.” —Doyle
  • “Every other travel-company share price went up when Thomas Cook was gone, so the industry is not in trouble, just that one company.” —Taljaard

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