Cash key to survival as hoteliers search for new normal
Cash key to survival as hoteliers search for new normal
08 APRIL 2020 9:15 AM

The coronavirus pandemic has changed the global hotel landscape, making cash reserves, access to credit, good relationships and the ability to strike deals critical for recovery down the road.

GLOBAL REPORT—The global hotel industry is moving at different speeds in different markets during this COVID-19 era, and this will lead to problems when operations return to normal in different markets at different times, according to sources.

One major takeaway is that COVID-19 has changed everything, and everything in the hotel-industry world is now up for negotiation. Every line item must be addressed.

Speaking at the Hospitality Tomorrow online conference held 7 April, Kim Gauthier, SVP of Hotel Asset Value Enhancement, said no one could have predicted the hotel industry would fall so far and so quickly.

“So now everything is open for negotiations in order for hotels to preserve. You need to find a cash way, and you need to be tightly run,” she said.

Claas Elze, managing director of asset-management and business-advisory firm Apara Hotel Advisers, said that it appears China’s shoots of recovery might suggest other markets will have a three-month window in which to emerge. But he thought Western countries would take longer to rebound.

“Until a vaccine is found, I think it will be a longer-term exercise,” Elze said.

“Some airlines might not be around anymore. Unless something turns in the next three months, we will be in a world of hurt. If corporates and leisure do not travel, then more airlines will go, which will hurt the hotel industry further,” he said.

Capital availability and cash flow
Speaking during the“Crisis asset management during COVID-19” session, panelists asked if the capital be there to service any return.

Elze said loans and bridge financing will be more difficult to obtain.

Check your cash flows and untapped credit lines, sources said.

Those who do not have cash will see closures and conversion to other asset classes.

Brands, too, might disappear as hotel firms re-analyze their portfolios.

René Beil, managing director of Beaufort Global, said the focus on operational issues as being key is no longer here.

“Cash is king. Look at unused credit lines, look at accounts receivable. Have your cash flow situation under control,” Beil said.

“We all need an active plan for the long term, with the right capital expenditure,” Gauthier said.

“Extensive communication with lawyers will occur, as to contracts and force majeure. Ninety percent of minds are on cash-flow management, and then on loan management and mitigating shareholder worries,” said Tao Zhou, president of Huatian Hotel Group.

“Asset managers, 80% of those we asked, do not predict occupancy levels to return to pre-COVID-19 levels until between 13 to 24 months,” Zhou added.

Theodor Kubak, managing partner of Value One Arbireo Hospitality, said the industry needs to walk more symmetrically with all stakeholders.

Gauthier and Elze cited stimulus packages in the U.S. and Australia as two examples structured to stimulate employment, and within their clauses, some loans could be forgiven.

“The downside for the industry is that there is an extension to unemployment, and that might see more money coming to that labor than could be paid by the industry, so we might have a further shortage of labor,” she said.

“We already had (a labor shortage), but that might exasperate it,” Gauthier said.

Current thinking
A return to building and determining revenue streams will also develop at different speeds in different markets.

Gauthier said the midscale and economy sectors appeared to be not as affected as the luxury sector, “which has really bottomed out.”

She referred to U.S. occupancy numbers dropping to around 20%, with many hotel closures.

“There is a large expectation for unemployment (in the U.S.), when it has been at an all-time low. And we need to reduce costs. Now is the time to talk to lenders about the renegotiation of terms, and then to work out what reopening will look like, which will not be what it was planned to be a month ago,” she said.

Apara’s Elze said Asia-Pacific has been dealing with the crisis for a little longer.

“We are analyzing what has been the effect on working-capital levels, and it is about cash reserves. The big question now is how long will this last, and will it bring down cash to zero?” he said.

Elze said he is continuing some builds, but he is cognizant of construction largely having stopped.

“Unless you are fairly far down the road it will be difficult to further (hotel construction). You cannot, for example, get a designer to fly in,” he said.

Zhou noted that 95% of hotels in China are now reopened.

“We are seeing occupancy at 35% in some places, but 20% in most. We see revenue now about 70% down,” Huatian’s Zhou said.

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