It has been a torrid time for hotel investors. After all, few if any sectors of the economy were hit has hard by the Covid-19 pandemic and the subsequent lockdowns. And that if particularly true for investors that operate in multiple jurisdictions - as is the case when it comes to L+R Hotels.
Not only did L+R have to find ways to keep the business going at a time when pretty much all hotels were forced to close and had next to zero operating income, the company also had to get its head around the support packages being offered by different national governments.
So, how did L+R cope during the pandemic? And how has its strategy evolved in order to respond to the new reality? Hospitality Investor caught up with Neil Kirk, chief operating officer at L+R Hotels, to find out.
Kirk joined L+R in March 2020 from Henderson Park, where he was a principle, just a week before lockdown in the UK began. It was, let’s say, interesting timing. A baptism of fire would be another way of describing it. “Hotels are normally open 24/7, so to turn up to a hotel to find a chain around the door was was very odd,” he says.
However, it is clear that Kirk was up to the task. “As everyone did, we tried to preserve cash as much as possible,” he says. “I think one of the things that we were very good at was trying to preserve the team and use the opportunity to tidy things up and get ready to open.”
He adds: “I suppose what [we believed] was that when the world reopened everyone would want to travel again where they could. We had a very good team who retained and moved bookings, kept the lights on where necessary and the heating flowing.”
Of course, it wasn’t quite that simple. “I just remember it was a time of constant re-forecasting,” Kirk adds. “One of the things everyone was constantly debating was when would the bounce back to 2019 levels [of occupation] and it pushed further and further out as the pandemic dragged on longer.”
Market recovery
Generally speaking, the market began to recover towards the end of 2021, but then the world was rocked again by the emergence of the omicron variant, making the beginning of 2022 “tough”, according to Kirk. “But then suddenly things just shot up in terms of occupancy and rate in Q2 2022,” he says.
Throughout the period, however, that basic faith in people’s desire for travel never waned. “We always felt that people would travel again,” says Kirk. “And because we have a global portfolio and the pandemic restrictions were dealt with in different ways and in different countries, we constantly saw pockets of demand across our portfolio where people could travel. So that gave us confidence that where people can travel, they will.”
It wasn’t all about government imposed restrictions. L+R owns a broad range of hotels catering to different levels of disposable income. Inevitably, those with the deepest pockets were the first to be on the move again. “For example, the high end Spanish resorts came back quicker than the mass market Spanish resorts because the high end people could afford to travel and spent the money to travel,” says Kirk.
The situation didn’t last long. Soon enough, the cost of testing kits and all the other additional expenses associated with all the various restrictions started to dissipate - and with that came the return of mass market tourism. On that front, Kirk does not believe there has been any lasting hangover from the pandemic. Business travel, however, remains an unresolved question.
“The one thing that people continue to debate is corporate travel and how that's changed,” he says. “I think the corporates are still travelling, but what we're seeing is potentially longer, less regular trips. It’s just changed the pattern of travel rather than the travel itself. And I fundamentally believe no change is permanent. Over time, corporates will change how they look at things.”
That said, Kirk does think that the pandemic has changed the way that people do business, although he adds that it merely accelerated a change that was happening anyway. “Covid definitely accelerated the use of technology,” he says. “But I still think that being face-to-face and being able to speak to someone creates a relationship that you just can't get through Teams.”
He adds: “I'm glad that I no longer have to do back-to-back half hour Teams meetings all day, every day. I was in the States earlier this month, but I went for seven days whereas before I might have just gone out for two. But it’s still about relationship building and about making that connection.”
All equity investing
As a result, L+R is is still actively making acquisitions across its portfolio, whether high end or mass market. “We are still active,” Kirk confirms. “We have the luxury that we can acquire all equity.” Given the way interest rates have shot up in most markets in the last year, that certainly can be described as a luxury. “With interest rates moving, we can be more attractive to sellers,” he adds.
“The transactions we've done over the course of the last couple of years have been all equity, at least initially. And we can demonstrate that to sellers. I know a lot of people will say they can buy all equity, but because of the nature of their IRR [initial rate of return] targets, they will always look for financing in one form or another before acquiring. We don't need to do that and it's made pricing more sensible”
So, the current economic situation actually represents an opportunity for a business like L+R. But that doesn’t mean Kirk doesn’t have his concerns, staffing being chief among them. He acknowledges that Brexit is an issue, but says finding the right people is a concern more broadly. “People have left the industry,” he says.
“That’s in the UK, but we’ve seen similar things in the US and Spain. We've seen it globally because hospitality opened and closed constantly throughout the pandemic. People left the industry to go and work in other industries where they felt there was a more consistent employment. People just couldn't work in a closed hotel or work from home.”