• Values muted on lack of debt

Ongoing limited availability of funding to the hotel sector is likely to keep asset values suppressed, delegates at the Annual Hotel Conference in Manchester heard.

While trading stabilises and bankers remain cautious in their outlook, investors looking for an uplift in values in the short term were likely to be disappointed. With financing seemingly set to remain at fixed levels for the foreseeable future, banks are unwilling to encourage assets to be priced any higher than their current levels.

Tim Helliwell, head of hotel finance, hospitality and leisure team, Barclays Corporate, said: "In the present market, valuation could be challenged via the price of debt. So if we are lending at six to seven times Ebitda, could that have a suppressive effect on prices? Access to liquidity is going to be a key point. How quickly will markets recover and how quickly will lender appetite to lend more recover?

Commenting on the likelihood of an increase in the Ebitda multiples that banks were likely to lend in the future, he added: "Hotel owners are mindful of the asset, but focused on the cashflow. A valuation is a point-in-time report, but we are looking at five, six, seven years so we have to take a long-term, conservative point of view. Potential is really difficult, because potential is just that. Putting London aside, there's still uncertainty. Performance is improving, but what it looks like next year is hard to say."

Julian Troup, director at Colliers International, agreed, adding: "Trading performance and the availability of debt will affect price."

Considering whether asset prices had reached the trough in the cycle, Stuart McCaffer, director at BDL Hotels, said: "The heady days of 2005,6,7 are never going to come back. In theory, in terms of the cycle, now is the time to buy. But there's less availability of bank debt, so you need 40% to 50% equity and that money's going to be in there for quite a long time.

"There's a great divergence, in value and in opportunity. We are seeing a twin-track market between London and the provinces. It's not the time to buy if you're looking to make a fast buck. When is the exit position going to get better? In a few years."

Dermot Power, partner at BDO Stoy Hayward, added: "There's so much uncertainty in the market it would be hard to say if it was the bottom of the market," to which Helliwell responded: "We know that we're at the bottom of the market as far as the provincial market is concerned. The question is: where does it go from here? We sense that there should be upside."

The panel agreed that the diversity in trading as well as in hotel product made it hard to see a cross-market pattern.

David Bailey, deputy managing director, TRI Hospitality Consulting, said: "It's all about the story. Is there a repositioning opportunity? It's dangerous to generalise. We knew going into this that it wouldn't affect every brand and type of hotel the same and that's true coming out of it too. There is product out there that is obsolete and while that's bad for the individual, it's good for the industry. We see continued improved trading in London and a flatline in the provinces, but it's dangerous to generalise."

Helliwell commented: "We're really busy. The market has got to the kind of levels where the banks think they can work. Whether the terms are attractive and can improve is another question.

"It's all about horses for courses. We'll fund a boutique in London. We'll fund a brand. Sometimes a brand can be a red herring though – people try to mitigate a secondary location by putting a brand above the door."

"We will fund a good proposition and value will come out of that. Good product, good location and good management – you've got a good deal."

For the local delegates, the message from Power was less reassuring, as he added: "There is a polarisation of assets – poor quality assets will struggle to get an exit. Our international city, London, is going to go back to the days of before the recession and may not see a recession. We have gone back to the days where the recession is just for Northerners."


HA Perspective: "It's grim up North" became a cliche in Britain during the 1980s recession as the manufacturing industries of Northern England and Scotland shed jobs.

This recession is seeing a similar regionalisation of pain, only this time it is the public sector dependency of these same regions that is leading to the suffering.

For hoteliers in these regions the outlook is similarly mostly tough. But there remains plenty of money to be made with the right business model.

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