The Canadian Centre for Ethics & Corporate Policy presents a panel on ‘Ethical Issues in Tourism and Hospitality During the Pandemic.’
Hotels and their lenders during COVID‑19
If we learned anything from the financial crisis, it was that communicating with your lending institution is essential during these difficult times, say Steve Hedington and Salim Gulamani of Clifton Blake Asset Management.
By Steve Hedington and Salim Gulamani
If we learned anything from the financial crisis, it was that communicating with your lending institution is ESSENTIAL. Maintaining contact along with providing updated and frequent data are key during these difficult times.
Financial institutions want to know that you are dealing with the issue at-hand as well as what your strategies are when dealing with employees, clients, suppliers, franchisors, and government agencies. At the end of the day, lenders are the owner’s partners and they want the satisfaction and comfort that all possible measures are being taken to ensure the longevity of the business over a substantial period of time.
At this moment, the entire hotel industry is struggling so that is not a point of discussion or something that owners need to tell their lenders. Instead the key points of discussion should be what you are doing in the short and long term, what are your existing issues, and what have you done thus far to name a few.
Over the next few weeks, we will discuss what hotel owners can do when it comes to dealing with their lenders including some suggestions, franchisors, daily expenses, and customer communication.
In the meantime, we feel it is very important to maintain contact with your financing partners and provide them with the following information.
- Financial Statements – as a lending institution, the first thing most want to see are recent financial statements. It is in each hotel’s best interest to have their quarterly and year-to-date financials completed for their lenders. This will also come in handy when applying for financial assistance from the provincial and federal governments.
- STR Report – this will reinforce that your market/competition is dealing with this issue and that your market share remains unchanged.
- Quality Assurance – sharing your most recent quality assurance report and scores will show that you are maintaining, if not exceeding, the brand requirements.
- Cost Savings – communicating to your lender your plan on speaking with all of your suppliers and whether you have made any modifications to expenses in the short term like staff reductions, deferring lease payments, or reducing the frequency of garbage pickups
- Demand Generators – provide a summary of your primary corporate accounts and demand generators which will show that these have been strong over the years and that this demand will likely continue once the business starts coming back.
- Bookings – it is important to inform lenders on the trend the hotel is seeing in regard to modifications to current bookings and whether transient and group travel are cancelling or postponing for the time being. For group/conference-focused hotels, it will be important to provide lenders information on the amount of business that has been lost for 2020 and how much of this has been rebooked to a future date.
- Capital Expenditures – the annual capex/renovation plan for 2020 will likely be modified and these changes can be shared with the lenders. This information can be coupled with a letter from the franchisor that the hotel will have additional time to complete any brand required refurbishment, like new signage.
- Franchisor Fees – at this point most brands have come out with their plan for all franchisees and this reduction or deferral in fees should be something that the lending institution should be aware of.
- Tenants – many hotels have leased space within their properties, and the assumption is that conversations with each of them is ongoing. Lenders will want a summary of what changes/deferrals/closures are occurring and the revenue impact on the hotel as well as the timeline for these modifications.
- Community Involvement/Volunteering – this is a difficult time for everyone and each hotel is doing their part to give back in their own way whether it be providing housing for the front-line workers, financial assistance to employees, or any other community support.
At the end of the day, we are all in this together and keeping the lines of communication open will only benefit all parties. There is certainly a financial aspect to this, but also a human side and they both must be considered by all of us.
If you have any questions please do not hesitate to contact Steve or Salim as they will be more than happy to have a conversation with you and assist you in any way possible.