The financial crisis was devastating for the hotel industry as consumers and businesses pulled back on discretionary spending. However, the report we released this week ‘Hotel Investment 2014 – Finance on a different level‘ reveals that the impact of the crisis was not all bad – certainly in terms of placing the hotel financing environment on a more balanced and sustainable footing.
It’s important to state at the outset how the relationship between hoteliers and their investors and lenders worked pre-2008. In many ways, hotel investments were analysed like real estate; as bricks and mortar with loan to value ratios (LTVs) rather than as businesses in their own right.
But since the crisis, things have changed; in my opinion, for the better. Lenders and particularly banks had their fingers burnt in the crash but they have learned from past mistakes. They have ramped up levels of sophistication to better understand hotel businesses, employing specialist teams which analyse EBITDA and leverage multiples. In short, checking whether debts can be serviced and cash flows sustained. The dialogue has become more modern; more grown-up.
The result is a better and thus more effective understanding between investors, lenders and hotel businessesBut there is a trade-off from this increased scrutiny: that is a need for hoteliers to really improve their finance proposals. The days of turning up with a one pager are over. Hoteliers must be able to present concise, clear business plans which encompass marketing, management and financing if they are to meet the demands of increasingly well-informed lenders.
The advice I give businesses in this sector is to have a good story or plan ready which aligns with their interests if you want to attract banks and private equity investors. Impress them with a management team that is committed to the business plan and shows knowledge of target market segments. Potential financers might soon want to see your online strategy, how this will mitigate the power of the online travel agent sites, help build direct engagement with your clients, grow your business and ensure their returns.
None of this is easy, but few of the hoteliers I speak with yearn for simpler times. They recognise how increased interest in their business plans from investors can result in a more sustainable financing structure for the long term. And with the resurgent appetite to invest and lend to the sector, and good fundamentals for industry growth this shift of focus could not come at a better time.
Gillian Saunders is global leader for hospitality & tourism at Grant Thornton.