1. Is anyone asking for formal valuations at the moment? Who and why?
• Lenders - for refinancing, not aware of many valuations required for new lending given the lack of debt in the market
• Receivers as part of the administration process
• Fund valuations - in some instances the regularity of valuation requirements has increased
• Accounts valuations continuing to go ahead
2. How far have values fallen since December 2019?
• For the UK hotel market, in the region of up to 10%, similar for Germany
• Very asset specific, market specific, and also dependent on operating structures, for example leases where rents may have to be restructured and rent holidays or rent-free period being granted
3. Is the fall in hotel values mainly a result of forecast declines in profit or increase in yields/ cost of money?
• Combination of both cash flows and yield / discount rates softening
• Majority of drop however is through the impact on trading performance/cash flow
4. What is the impact of COVID-19 on investor risk?
• The investor pool is likely to retract back to those who have had longer exposure to the hotel market and are in it for the longer term
• Secondary markets are likely to see a greater change, it is anticipated there will be a ‘flight to quality’ with prime markets holding out better
• Greater scrutiny on rent cover ratios
• Development of new hotels in many markets could be shelved as development finance increasingly difficult to obtain
• Major disconnect between seller and buyer expectations now evident
5. What will the uncertainty around future trading do to hotel values?
• Values are likely to decline and anticipate cap rates to plateau
6. What is your hope for the hospitality industry in a post COVID-19 world?
• Social distancing may be in place for a long period hence the return to normality could take a long time
• It may lead to some positive changes, as hotels may find efficiencies during this time that they continue to implement in the post Covid world
• Encourages smarter ways of working
• Increased use of technology, a catalyst for innovation
• Greater scrutiny on new hotel development, particularly in markets that have a potential imbalance between demand and supply
• Creative solutions to getting investment deals across the line. An increasing level of price + earn out deals
• That individuals and businesses still place the same value in meeting and doing business face to face, in the same room, rather than on a video screen
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Never has it been more important for us to stay close to the sector, to inform and support. We're running a series of conversations - Checking In - and will be talking to members of the sector during the COVID-19 outbreak. If you'd like to be involved, please get in touch.
#solidaritywithhospitality