• Brands shore up the balance sheet

Hotel groups are reacting ever faster to the challenging environment as governments act to restrict the impact of coronavirus on their populations. While policy is being led by the need to restrict the spread of the virulent flu strain, those decisions are having a potentially lethal impact on the hospitality and travel sectors.
Generally, moves to conserve cash and cut expenditure have been implemented at lightning speed, to counter the massive and sudden fall in business. Across the board, publicly quoted hospitality businesses have cut dividends, and laid out details of their cash and borrowing positions.
Hilton has drawn down a USD1.75bn loan from its revolving credit line, to ready itself for a collapse in hotel revenues; on 10 March, it withdrew previous guidance for the forthcoming period, with CEO Chris Nassetta acknowledging: “We believe that the potential negative impact will be greater than our previous estimate.”
Last week, Nassetta joined industry colleagues in lobbying the White House for help to mitigate the situation in the USA, saying: “Hilton’s been around 100 years — we’ve never closed a hotel that wasn’t going to be demolished or rebuilding. The bulk of our hotels in the major cities are closing as we speak.”
Accor announced it had completed two major transactions, the sale of its stake in Polish affiliate Orbis, and the sale of a portfolio of Movenpick properties. The Orbis deal saw properties sold to AccorInvest, releasing EUR1.06bn, while the Movenpick deal had a EUR430m impact on reducing debt. In a statement, the company said it was still planning to carry out promised share buybacks.
In a trading update, IHG said its China hotels saw an almost 90% decline in revpar in February, adding that it expects a global average 60% decline. But the situation had improved in China: “We now have 60 hotels closed compared to 178 at the peak, and in recent days have begun to see improvements in occupancy, albeit at low levels.” A range of cost containment measures aim to take USD150m out of business fee overheads, with salary and benefits cuts, renovations culled and even brand standards relaxed.
In a 20 March message to associates, Marriott CEO Arne Sorenson said the covid-19 crisis “is like nothing we’ve seen before.” In China there was a 90% fall in business in January, and most other markets now see a 75% fall. All hotel initiatives for 2020 have been stopped, Sorenson is taking no more salary, and most associates are being asked to take 60-90 day leave. He said there was some good news from China, where “we are seeing some early signs of lodging demand beginning to return.”
At Pandox, CEO Anders Nissen cancelled the company’s planned dividend, and declared the company ready to weather the coronavirus storm, with access to SEK4,500m of cash or credit lines. He said staff and planned capex had already been culled, with plans in place to close hotels in Belgium and Germany, in response to the crisis.
Also weighing in with an update was Covivio, the French property investor. Hotels account for just 18% of revenues, against 57% from offices and 23% from residential, and Covivio said it was pressing ahead with a tender to acquire German office group Godewind, in a EUR718m deal. Of the hotel exposure, half of revenues are variable and half fixed, with the portfolio split across Accor properties in France, and a broader mix of branded properties across France and Germany. For the year to 15 March 2020, Covivio said it had seen an average revpar decline of 11%. For its fixed rent properties, it said the liability was with “solid counterparties” including IHG, B&B and NH.

HA Perspective [by Chris Bown]: Across many sectors, companies of all sizes are wondering whether they will survive the coronavirus onslaught. Government support is one thing, sharing the burden is another – and we all wait to see whether the slowed money-go-round will fall off its pivot, at some crucial point.
As Marriott’s Arne Sorenson told associates of the massive cuts he has been obliged to take to the business, there was plenty of emotion in his voice. He’s just fought cancer – but covid-19 sounds like he’s tackling a far bigger enemy.

Additional comment [by Andrew Sangster]: In a world where the best hope for hotels is to become a quarantine centre for infected patients or even an overflow hospital, it is clear that this is not business as usual.
As we wrote earlier this month, it is probable that there will be no resumption of anything approaching normal trade for around two years. But travel, tourism and hospitality will return and the strongest companies who have survived the current crisis will be positioned to exploit the opportunity.
In a world of heightened risk awareness, big, recognised brands should be able to command a premium. But the resilient model that asset-light hotel groups have bragged so much about will be tested to destruction. If governments really do want businesses and the economy to bounce back they will need to do much more than is currently on offer.

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