Insider

Taking the burn

Three am is the time when the monsters under our beds get into our heads and wake us up for some proper cold-sweat frightening. Not often, fortunately, but one suspects more and more given the background of global pandemic.

For those of us in the sector who have tamped down thoughts of ventilators, the source of the chill is coming from hotel performance, the gruesome reality of which has been laid out across results season.

The state of this can be distilled to one point: we had an OK summer with the cheap people of leisure, but now we need the corporate market to come back. In the UK this week the government shelved its Back to Work campaign  - rumour had it that it couldn’t find a natty slogan - despite the prime minister telling the media that people had gone back to the office in droves.

They haven’t and part of that can be attributed to fears that the return to schooling in schools will only be temporary, but the rest comes down to concerns over health. Bosses really, really can’t run the risk of their staff getting sick on the job. It’s expensive in multiple ways. Many companies are running split shift patterns to get people in part time, which are slowly ramping up, but there are concerns that, as in France, clusters will be attributed to office workers and we’ll all go back to square one.

None of this help conferences, with many jurisdictions across Europe still skittish about meetings where everyone doesn’t share the same surname. A way out and back into the realm of the buffet lunch before we run out of branded pens, you may think. Those who would make our laws need more persuading.

So the sector will need more government support, for at least as long as it remains vulnerable to government strategy. PPHE CFO Daniel Kos summed it up when he told us: “We can break even with government support, but if that support is taken away in the UK it is less sustainable for us at these occupancies and we will have to take some decisions. This is the hardest-hit sector and the pandemic is not going to go away by October”.

PPHE has close to £200m available to it and a cash burn during the second quarter of £3m operationally and £12m to debt servicing. It can, he noted, kick on for quite some time. But it is this burn which is causing those 3am palpitations elsewhere and here is the key question currently facing the sector: when oh when will we see distress and who will pick it up and run with it?

At the moment, there is not enough of a discount for private equity, they want proper suffering and preferably a second wave. But for those who would just like to feel they’d done a decent deal and could congratulate themselves on negotiations-course-money well spent, are we there yet? Who is suffering the burn?

The thoughts from our investor sentiment survey were that the vast majority - more than three quarters - of investors consider themselves to be net buyers over the next 12 months. They seem to see signs of transactions. Critically, more than half saw a hold time of six to 10 years. Investing in hotels may look hairy at the moment, but the feeling of the investment community was that, while there was little opportunity for a quick flip, hotels were still worth a gander.

For those who could be bought, there is no quick fix for those terrors, but maybe spend that hour from 3am to 4am lobbying your government representative about showing they give a damn about a sector worth $5bn a day.