TORONTO — Colliers Hotels and CFO Capital have begun jointly producing a webinar series to provide information on the COVID-19 crisis and its impact on the Canadian hotel market. The first instalment of the series took place April 2.
The webinar, moderated by Alam Pirani, executive managing director, Colliers Hotels, featured six panelists who provided their insights on the response to the COVID-19 crisis. Speakers included Brian Flood, VP & practice leader, Hospitality & Gaming Group, Cushman & Wakefield; Carrie Russell, senior managing partner, HVS Canada; Deepak Ruparell, chairman, Silver Hotel Group; George Kosziwka, CFO, InnVest Hotels; Kenny Gibson, president, Sunray Group; and Mark Kay, president, CFO Capital.
Among the key topics discussed was crisis management. As panelists explained, companies such as Silver Hotel Group and Sunray Group had put plans in place for a potential economic downturn in 2020 ahead of the COVID-19 outbreak. However, the plans didn’t account for a crisis of this magnitude.
“Never did we imagine it was going to go down to this level,” explained Ruparell. “We’d planned for some slowdown, but never a slowdown like this.”
“We started looking at the fourth quarter last year and thought there was going to be some slowdown —not a decline, but a slowdown in growth — in 2020 and possibly 2021,” Gibson shared. “We learned some lessons from SARS, so when we saw things were getting worse in China in mid-January, we reached out to our suppliers for things such as hand sanitizer and the stands to put in for all of our hotels, masks, gloves and those types of [items]. And one of the leading indicators for us, was suppliers indicated those items were on backorder. So we started thinking about the impact of [COVID-19 in] mid- to late-January.”
Looking at lending and the debt markets during this time, Kay noted many institutions have stepped up during this time. “It was great to see how lenders across Canada have been very supportive of the hotel industry,” said Kay. “The majority of the institutions have been providing both principal and interest relief for a minimum of three months. The balance of these institutions have been providing three to six months of interest only and they’re reassessing the situation down the road and we’ll get some further clarity in the market.”
“What’s very interesting is dealing with the current acquisitions that are in place, as well as the construction loans and refinancing we have approvals on. The majority of these institutions across Canada are honouring the commitment letters that are in hand, as well as the scheduled closing dates,” Kay added. “Furthermore, some of these institutions are providing interest-only relief for the term loans the day of closing, knowing some hotels are operating at five to 10 per cent or maybe closed.”
“Since we started communicating with our lenders, we received nothing but cooperation and support,” Kosziwka said of InnVest’s experience. “I received the first approval from a lender, of a three-month principal holiday, within five minutes of sending him an email.”
When asked about the impact COVID-19 is having on hotel valuations, Flood pointed out: “Mid- and long-term prospects for the industry, as a whole, are still very positive. The value of hotels is really driven by the long-term performance of the property and not just what happens in the short term. So the value of a hotel asset is really the performance of that property over an investment horizon.”
“It’s appropriate to make adjustments to 2020 forecasts and, obviously, this is going to be a challenging year — a lot of hotels will have very little, if any, income or perhaps even negative [income],” Flood added. “But, going into 2021 and beyond, we’ll see recovery and, within a year or two, we’ll be back where we were.”
Speaking to the recovery process, Gibson noted Sunray looked at what it learned from SARS and how long it took for room rates to recover when determining its strategy. “One of the things we’re doing is we’re not trading on rate,” he explained. “And that will help stabilize the income as occupancies improve.”
“There’s no way to stimulate demand based on rate in this environment, so there’s really no reason to drop rate,” agreed Russell.
When it comes to the marketing aspect of recovery, Ruparell recommended hotels leverage their brand relationships, as well as their data. “We need to start focusing on businesses we’ve lost and trying to bring them back and then try to see what else is out there. Until the European and American markets open, we need to focus on the Canadian market.”
Panelists noted there will likely be pent-up demand, once the pandemic is considered under control and emergency and travel restrictions are loosened, that will lead to a large number of Canadians taking shorter trips within Canada — especially if low gas prices continue. “There’s a tremendous amount of pent-up demand and it could potentially be a sharp recovery,” said Flood.
A complete recording of the webinar is available on YouTube. Colliers Hotels and CFO Capital are planning a second webinar for April 16, details to be announced.