Investors seeking hotel industry financing and banks providing it have entered a phase of “frank and direct dialogue,” according to speakers at the UKHospitality Summer Conference in London.
Some of those seeking capital might not be happy, though. Cost pressures, high wages and the threat of a recession have combined to make loans more tenuous and expensive.
Panelists at a discussion on investment in the United Kingdom expressed a range of fears for the next 12 months to three years.
Luke Johnson, owner of Risk Capital Investors, which invests in hotels among other assets, said he fears the industry is heading into the worst recession of his adult life.
“Companies should be raising money to protect themselves. In the U.K., we have higher inflation, and we have a worsening currency against the dollar. … When the top line softens, we’ll see the weakest profits in living memory, or losses,” he said.
Jim Turner, corporate relationship director for hospitality and leisure at bank Barclays, said good business models and management teams will still be regarded as the most important criteria.
He said there remains a lot of business to capture.
“Show us a picture where there is sustainable revenue. If a business has a good balance sheet now and no debt hanging over it, then there will be discussion. There is fantastic demand in luxury and regional hotels,” he said.
John Miesner, managing director and head of debt advisory at Interpath Advisory, said the situation in 2022 is a world apart from that of before the Great Recession, even if some debt might be at higher basis points.
“In 2008, there were banks on one side, private equity on the other, and very little in between, but now we are so far more that. We have a much broader spectrum of capital,” he said.
Miesner said hotel businesses must have an exceptional story and show differentiation to lenders.
“There is capital there for them. There is more capital at more flexible terms. Yes, it is more expensive, but this was not available in 2008,” he said.
Miesner added he expects to see the full extent of consumer pressure by the end of the year.
From The Very Top
Government policy is another cog in the chain, according to Kate Nicholls, CEO of UKHospitality, the conference’s host and the principal membership lobbying body for the industry in the U.K.
“What we have now is a lack of a clear strategy as to how to help with the cost-of-living crisis," she said.
“Hospitality also is perceived as a higher risk, in part due to the level of debt the sector is carrying, even when the sector also is such a driver of growth. It is heavily indebted, and that is not so the case in mainland Europe and the U.S.,” she added.
Nicholls said the hotel industry, must work with the government to find creative ways of stretching and restructuring debt, including providing tax breaks to incentivize investment.
Johnson said he doesn't believe the market forces will be in place for investment until a year or two from now.
“After the physical and mental exhaustion we have now, until after some companies fail. There will be light at the tunnel at some point, but we are a discretionary sector,” he said, adding that everyone is aware food and energy costs will likely get even higher by the end of 2022.
Johnson and Nicholls said the hotel and hospitality industry cannot expect any more taxpayer help.
“[The hotel industry] probably got more support than any other industry, so do not expect any more. It is not coming. You’ve already had more than your fair share,” Johnson said.
Nicholls, who recently has asked the industry to remain “relentlessly positive,” said she also expects the cost-of-living and debt crisis to be worse and longer than most predict.
“The government needs to get a grip, and they need to again look at COVID-19 debt. They also need to look at [pay as you earn] and [value-added/sales] taxes, which keep money in businesses," she said. “We need to look at how businesses and sectors can remain sustainable. There is no big fix, but there are areas in which [government] can intervene."