The summer season is now approaching and with it stories of hotels filling up with eager holidaymakers looking for a break after a stressful two years. Rates are rising and the hope is that past losses can be made up.
There has been an increase in M&A and the team at Global Asset Solutions has been working with a number of parties as they seek to maximise and protect the value of their assets, while also looking at potential for growth as opportunities build.
Times of Uncertainty Can Complicate the Process
Dimitris Mittas, Alex Sogno and Fabio Bianchetti wrote a column for Hotel News Now in which they looked at the issues around post-closing price adjustments and how to manage them.
In these unruly times, preparation and strategy becomes even more crucial. Be strategic from the start and deploy independent auditors or asset managers who know the potential pressure points and provide a solid start in terms of reporting, monitoring and control for the future development of your hotel assets.
Tips to ensure the value of your hotel asset is enhanced in post-closing arguments:
- Buyer To Drive the Critical True-Up Period
This includes implementing a detailed forensic balance sheet review immediately to unlock value opportunities during the true-up period and ensuring that the bank accounts were reconciled, and no outstanding amounts are sitting on a transit account. - Align Corporate Strategies with the Hotel Operational Team
As part of this, it is important to evaluate the existing hotel operational team and check whether it complies with new expectations. If not, make sure the seller terminates the contracts of those you don’t want to keep to avoid redundancy costs. - Maximise Profit and Loss Opportunities
The first step to achieving this is reviewing with the director of finance the complete cycle of invoices for three months and question all payments/contracts. - Establish Full Control Over the Cash Flow
If this was done, by ensuring an accurate and detailed cash flow was prepared – including all the future payments – there will be no need for further cash injection.
Read the full story here:
https://globalassetsolutions.com/how-enhance-hotel-asset-value-closing-adjustments/
European hotel transactions over the past six months and what to expect in 2022
The transactions market is continuing to build, with trophy assets and platforms highly sought after, as the pandemic drop-off in trading in the sector fails to deter investors.
Segments being in the past on the periphery of the hotel market, (such as extended stay which have been able to stay open during the pandemic), have been able to find their way into the front of investors’ minds.
The transactions market in Europe is not as far along as that in the US, where the decision to foreclose tends to be taken more quickly. European lenders have a reputation for being more lenient and focused on their long-term relationships with their clients, which is driven in part by the different mindsets of the lenders and part by the different laws in the assorted jurisdictions in the regions.
Europe has seen some activity in limited services and branded hotels, as well as family-owned hotels, the latter of which have come under tremendous pressure as the volatile recovery continues. Although we can see lots of cash-flow issues due to the challenging recovery and the repayment of the states-backed loans, there is much more demand for hotels than there are hotels on the market, which has ensured that prices remain high, and we have not seen yet the distressed pricing which many have anticipated.
Recovery remains uneven, but hotels continue to present as an attractive investment. The pandemic has meant that we have seen an interest in other operational real estates, such as warehouses, but with hotels you’re renting a room on a daily basis. This compares with a shopping mall where you need to sign a lease for a couple of years, and that’s it. Every day is a fresh opportunity with hotels, while it is a very specialised market, you can see a high return on investment. And if you have the right location, the right operator, and specialist asset managers, the profits can be remarkable.
What to expect in the coming months? Alex Sogno: “We all know that many funds are looking to deploy their capital at the moment. They couldn’t invest during the pandemic, and everyone is chasing the same deals. This situation is keeping the hotel values at respectable level. Unfortunately, the inflation and the cost of debt are increasing. This combination is a major concern for the end of 2022 and 2023. We are already feeling the impacts in the US. I would advise hotel owners to go back to their investment assumptions and run again their 10-year and DCF model with these new assumptions. The combo inflation/debt will have a major impact on hotel values. Be prepared for many more transactions in 2023.”
Read the full story here:
The sector in numbers
Share prices across the sector have moved down over the past two months – with the exception of Accor – despite a results season full of hope. This speaks to the contrast between dreams and reality, with the sector having seen a boost when hotels reopened, but analysts now wanting to see the higher-spending business guests put a foot over the threshold and limit the reliance on the leisure market. Accor, with its strong position in Europe’s budget and economy market, is reassuring as pressure grows on corporate and personal budgets.
Hotel companies were bullish about the impact of inflation on demand and margins. Hilton CEO Chris Nassetta was looking to revenue management to protect the group, telling analysts: “While macro risks and uncertainty exists, forecast for economic growth remain healthy. Additionally, our ability to reprice rooms in real time creates a natural inflation hedge”. The sector hopes that the guest will also play the game.
Case study: 34 -strong hotel portfolio, France
Since 2020, Global Asset Solutions has provided corporate finance on a portfolio of 34 hotels spread throughout France’s most prominent cities (including Paris and Nice), as well as famous mountain resorts in the Alps (e.g., Alpe d’Huez, Chamonix). Over 2,500 rooms with a large majority of hotels in the boutique range of 80-100 rooms.
Food & Beverage: Due to the variety of locations and types of hotels, the portfolio has a wide range of food offerings. It showcases each regions’ gastronomic reputation.
Meeting space: Some of the group hotels in the largest cities (Paris and Lyon) provide extensive offerings, and some of the southern properties are ideal for congresses in resort-style facilities.
Wellness and Private Clubs: The mountain resorts have extensive Spa facilities with hammam and saunas.
Highlights, Strategy & Improvements
Understanding the reporting requirements both on a property level for French GAAP and the US GAAP requirements.
Reviewing the systems, books, records, and historical financial statements as well as the existing procedures of the entire operation to determine if there was complete control, integrity and to ensure all parties involved are performing their roles in line with existing agreements. We highlighted areas of concern, provided specific recommendations for each hotel and the group, delivered guidelines to implement best practices, and provided new monitoring asset management tools to improve the control over the portfolio.
Understanding the life cycle of each property to ensure the proper management of documentation, reporting, and disposition of required.
Reviewing deadline calendars and ensuring timely submission of reporting.
Assessing the quality of financial information for accuracy and completeness (including all reconciliations and tie-outs).
Global Asset Solutions
Global Asset Solutions operates worldwide and is the largest independent asset manager in Europe, with assets under management worth over $15bn. The company leans on decades of experience in the luxury sector to deliver bespoke solutions which allow investors to grow their asset value and realise the potential of their assets.
