Private equity and family offices step up as more Asian hotel owners source short-term financing

By Timothy Tay

/ EdgeProp Singapore |

May 6, 2020 6:38 PM SGT

SINGAPORE (EDGEPROP) - Hotel owners across Asia are seeking greater access to debt financing to bolster their cash flows, according to a JLL report. They are facing an unprecedented period of historically low occupancy rates and severe limitations on air travel due to ongoing measures to curb the Covid-19 pandemic.

Hotel owners and investors face an unparalleled cash crunch and significantly constrained revenues as they struggle to offset fixed costs, says JLL. In Asia, only a handful of hotels are accommodating any meaningful demand, by providing quarantine facilities or accommodation to support government initiatives.

However, the report says that these hotels still struggle to break even, much less cover their debt service obligations. As a result, some owners have had to fill the gaps. Despite short-term measures such as furloughing staff, most of the industry is operating with insufficient cash flow to cover existing obligations.

“Travel restrictions are forcing owners to look at an array of short-term financing options, but with abundant investment capital still available to be deployed, this temporary dislocation is expected to also create new opportunities,” says Corey Hamabata, senior VP of JLL’s hotels & hospitality group.

He adds: “As the hotel industry is typically the fastest to react to demand shocks and also the quickest to recover, certain owners are looking for near-term solutions to bridge cash flow until travel, hotel demand and revenues return.”

EDGEPROP SINGAPORE - Hotel owners and investors face an unparalleled cash crunch and significantly constrained revenues as they struggle to offset fixed costs. (Picture: Pixabay)

Hotel owners and investors face an unparalleled cash crunch and significantly constrained revenues as they struggle to offset fixed costs. (Picture: Pixabay)

Many owners are seeking additional credit lines to stabilise their businesses and temper the downturn until demand returns. In general, owners that are the most concerned are those in resort destinations, which are reliant on a high proportion of international guests – a segment which many are assuming will be the slowest to recover post-Covid-19, says Adam Bury, executive VP of JLL’s hotels & hospitality group.

Private equity groups and family offices are complementing the existing volume of capital already in the market from traditional debt funds. According to Hamabata, “while traditionally more expensive, these capital providers are able to act quickly and flexibly in order to fill the void with typically-shorter term solutions”. Thereafter, the loan can be replaced with more permanent financing or the asset can be divested at more reasonable pricing, he says.

JLL expects debt financing solutions will most likely be needed in Thailand, Indonesia, and Vietnam as well as the Maldives. Some of these countries already face lack of liquidity in the local banking sector and relatively high interest rates.

“Where these short-term fixes can’t be achieved, there is potential for distressed assets to come to market in the second half of 2020. Post-Covid, we will likely see limiting of future new supply and firming up of balance sheets of those who are able to survive the downturn,” says Bury.

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