Fitch Ratings said that there might be opportunities for consolidation in the sector if smaller operators could not get over “liquidity tensions”.
Looking at the branded operators, the agency said that Radisson was most likely to need additional liquidity support in the coming months.
The agency said that independent hoteliers who did not have a portfolio large enough to optimise their occupancy rate ran the risk of staying below break-even levels for a longer period.
It said: “Investment-grade names, such as Accor or Whitbread, show better resiliency against this disturbance, which does not constitute a driver of structural change for credit profiles. We also foresee liquidity to remain comfortable, as expected for an investment-grade credit.
“However, a delay of deleveraging, along with the uncertainty around the recovery path, explains the negative outlooks. This deterioration of deleveraging capacity is more acute in the non-investment-grade categories, where most companies’ credit metrics are not back within their guidelines by 2022, leading to rating downgrades.
“Radisson has a tighter liquidity position than the rest of the portfolio, which explains its Rating Watch Negative. According to our monthly forecast, the hotel company may need to be supported in the coming months with additional funds. On 29 May 2020, Radisson announced that its main shareholder, a consortium led by Jinjiang International, would contribute €200m under the form of subordinated debt.”
On 8 June the company updated the market, commenting that it was taking advantage of the low activity period to push forward strategic repositioning and development projects. At the end of May, more than 50% of the group’s hotels across EMEA were temporarily closed.
The group said NH Hotel’s liquidity was not as pressured as Radisson’s, despite the group being at the same rating level on a standalone basis and having a free cash flow that was “not as robust as previously predicted”. Liquidity has been reinforced with a €225m syndicated loan signed in May . In the case of Alpha Group, which owns A&O Hotels and Hostels, the liquidity cushion was more limited considering that their peak season takes place in spring with school groups. Nonetheless, Fitch said that the coupon payment was achievable with the current cash position and the revolving credit facility, which was fully drawn and expected to allow the company to cover operational needs in 2020.
Looking to the wider performance of the sector, Fitch said that it expected the coronavirus pandemic to cause more than a 60% drop in 2020 for European revpar, which would not recover until at least 2023, unlike previous crises such as Sars or swine flu, where hotel occupancies bounced back to pre-crisis levels within less than two years.
STR reported that, as at 30 April, 76% of hotels were closed in Europe and 17% in North America. The rolling 28 days occupancy to 16 May illustrated there was some recovery in China and in the US in the Central South and West parts, but not in Europe. China was at 43.5%, with the US at 32.4% and Europe at 11.7%.
Robin Rossmann, managing director, STR, said: “One of the reasons that Europe has struggled more is that it has seen stricter shutdowns than the US. It is more exposed and we should be more careful. Has the recovery in Europe started? Not yet. The occupancy in hotels open in April was ranging between horrible and terrible and worse. But there is light at the end of the tunnel, I think demand will come back in June, with domestic travel.”
For the weekly rolling seven days to 6th May no European cities showed occupancy growth. As for business on the books, there were very subdued levels of demand, 10% rooms sold or less for the next 90 days, but booking cancellations had slowed - because, Rossmann said: “there’s, not much left to cancel”.
Insight: Europe is particularly hopeful this week and who are we to rain on any parades? The EU is planning to open borders, the airlines are gradually getting back into the air, there is the potential for people to have an actual summer, maybe followed by some actual business meetings, with Kempinski illustrating how it can host hybrid events complete with themed lunches.
But, as Rossmann noted recently, ‘recovery’ doesn’t mean what you think it means, it just means moving off the bottom. A return to the revpar of 2019 is years off. The ‘planes were heading up, but, as Ryanair noted last week, prices would be depressed as airlines battled it out for travellers. The same will be true for hotels and now, we suspect, is when distress will start to be felt.
So back to our favourite game: who will buy whom? We still favour Accor for buying someone - Radisson, for that northern European flavour? And Hyatt is sniffing around, could it scoop up NH after losing out to Minor? And will Whitbread use the money it secured last week to buy a group, not just picking up sites piecemeal? So far there’s plenty of chat on the sidelines but no deals poking above the surface. That’s likely to change soon.