• Upgrade to lender mindset bodes well for global hotel sector growth

Launched at the International Hotel Investment Forum event in Berlin, the report, 'Hotel Investment 2014 – Finance on a different level', describes an evolution in the financing environment for hotel businesses.

According to a new Grant Thornton report, the financial crisis has given birth to a superior environment for hotel finance. Lenders learning from past mistakes have undergone significant changes and are ramping up their levels of sophistication to better understand hotel businesses. Drawing on interviews with banks, private equity houses, advisers and hoteliers, the report calls for hotel businesses to address the way they deal with lenders and investors if they are to raise money in the new environment.

Launched at the International Hotel Investment Forum event in Berlin, the report, 'Hotel Investment 2014 – Finance on a different level', describes an evolution in the financing environment for hotel businesses.

Gillian Sanders, global leader hospitality and tourism at Grant Thornton, said: “The world of hotel finance has changed massively in a short time. Despite the pain of the financial crisis, what's emerging, as a result, is a more sophisticated and ultimately more effective understanding between investors and lenders and hotel businesses. This new environment is welcomed by hoteliers and comes at a time when there is resurgent appetite to invest and lend to the sector. It’s promising for the financing of future growth in the sector.”

“Pre-2008 many banks treated hotel businesses like real estate. Now they’re viewing them as business enterprises. Instead of the historical focus on loan to value ratios (LTVs), specialist hotel finance teams are analysing EBITDA and leverage multiples. In short, checking whether debts can be serviced and cash flows sustained. It’s a more grown up dialogue.”

Grant Thornton is advising growth focussed hotel businesses to step up their finance proposals if they are to be successful in meeting the demands of increasingly measured lenders. The five areas for companies to address are: branding, management, finances, the business plan and marketing.

Gillian Sanders said: “Banks and private equity investors are saying that they want much more insight. The days of turning up with a one pager are over. Among other things, they want to hear a good equity story with aligned investor interests. It’s also vital to demonstrate an experienced, committed management team with a business plan that shows knowledge of target market segments and has a business case aimed at them.”

According to hoteliers the importance of a good online strategy, as a way to build direct engagement with clients, will grow for lenders, given that online travel agent sites are capturing a significant slice of the market and impacting revenues.

New forms and sources of lending
According to Grant Thornton’s global research, around one in five hotel businesses intends
to invest in new buildings in 2014. Half of the experts interviewed expected banks to be the
principal lenders for such projects. However, a third thought that insurance funds and
private equity would be the main participants, representing a move away from the retail
banks and high net-worths that previously dominated. However in Asia owner operators
and family owned companies are expected to continue to be major investors, with a strong
focus on Japan and Indochina1
Finance on a different level also reveals that the cautious approach by banks and the collapse in
LTVs has given rise to new creative lending structures. A number of banks are offering
additional protection or preference to investors as a way of attracting lending that is
conditional upon existing equity backing. This type of mezzanine financing can be
structured as either debt, which is prioritised below senior debt, or as preferred classes of
equity.
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For further information please contact:
Ken Atkinson
Managing Partner
T +84 (8) 3910 9100
E Ken.Atkinson@vn.gt.com
Notes to editors
Hotel Investment 2014 – Finance on a different level is a report produced by Grant Thornton. A
copy of the report can be downloaded from the Grant Thornton Vietnam website or by emailing Van.Ngo@vn.gt.com.