Hotel finances

In March, our Horwath HTL UK team held an in-person workshop with notable figures in the hotel industry addressing two topics; Roll-back of COVID-19 measures and ‘Where is the money?’.

In this article we have summarised some of the key insights that came from the discussion.

Roll-back of COVID-19 measures

Caroline Fleet, National Head of Real Estate, set the scene around the increasing pressures on costs and cashflow, amplified by the roll-back of COVID-19 measures.

• End of VAT reduction on 31 March 2022.
• Increase of minimum and living wage in April 2022.
• Business Rate Holiday / cap ends on 31 March 2022.
• Increasing Inflation and material costs.
• No further Covid VAT Deferral.
• CBIL repayment deadlines.
• Furlough Scheme ended in Sept 2021.
• Talent Retention.

Also covered, was how hotel owners could may take advantage of Super Capital Allowances for qualifying expenditures between 1 April 2021 and 31 March 2023.

Key questions discussed

Question 1: What impact will the roll-back of Covid-19 measures have on UK Hotel Business performance in 2022/23?

Key takeaway from audience: “It is hard to tell. When hotels have been allowed to trade - many have done very well, albeit that this has been on the back of a strong domestic tourism recovery. International travellers have however yet to return in number and if other factors such as rising inflation and cost creep reduces disposable income considerably, the future may be more challenging.”

Question 2: How can hotel businesses most effectively manage / plan repayments of CBILs and other short-term loans?

Key takeaway from audience: “Owners should be talking to their lenders as early as possible to arrange re-financing, where necessary. Do not leave it too late!”

Question 3: What further measures or existing measures should the UK Government consider?

Key takeaway from audience: “The UK Hotel sector is very largely dependent on the success and growth of the UK economy as a whole. Regeneration / levelling up of city centres needs to remain a government priority, otherwise many places (and their hotels) may not survive in the longer-term.”

Where is the money?

Andrew Reitmaier, Director Horwath HTL kicked-off the second part of the event taking a poll of which segment of the hotel sector attendees consider most appealing to investors. Unsurprisingly limited service products seem to be the most attractive with serviced apartments, interestingly being favoured by some 50% of the attendees. Andrew then introduced 3 further questions for the break-out groups to consider.

Question 1: Why invest in Hotels rather than in other real estate classes in the UK?

Key takeaway from audience: “Hotel investments often offer a greater level of flexibility in product mix than other classes of real estate – giving investors the opportunity to actively impact returns.”

Question 2: What are banks and other debt providers lending to in 2022 and what’s changed since 2019?

Key takeaway from audience: “Banks are looking for owners to now provide more equity or release more cash to cover debt service levels. Other areas that are equally important for lenders are having far more detailed business plans, scrutinising the sponsorship track record and strength, understanding what PIP requirements are required in the short and medium term and also understanding the segmentation and guest profiles of the hotels – as many are more and more reluctant to lend to a property that is too focussed on any one particular market segment.”

Question 3: What are hotel owners doing (or need to do) to recapitalise and get their business back on track?

Key takeaway from audience: Banks are trying to bring the books back to pre-covid levels. It is however difficult, because what does a normal operating business now look like? What should it be based on?  There is often a big variance between the valuers estimates and the operators.

In summary

On average, the industry seems to be cautiously optimistic that, despite ongoing uncertainly and increasing costs, the hotel industry will continue to adapt, increase operating efficiencies and support underlying growth in asset values over time.

If you are interested in finding out more about the services that Horwath HTL can provide you with, please get in touch with Malcolm Kerr or your usual Crowe contact.