Investors in UK hotel debt are likely to suffer a negative impact, in the short-term, due to the coronavirus’ effect on the hospitality sector, according to ratings firm DBRS Morningstar.
DBRS said the mix of holidaymakers revising their travel plans and large business conferences being postponed could - at least in the short term - reduce revenues of European hotel owners and operators.
“The negative impact on hotel revenues would deepen further if the virus continues to accelerate into the seasonal peak months of the summer,” the ratings firm said.
It said the Covid-19 impact is likely to be negative, in the short-term, for UK commercial mortgage-backed securities - or CMBS’ - backed specifically by hotel assets.
These are sold by lenders as bonds to institutional investors looking for higher returns and act as a mortgage loan to hotel developers. The loans are typically secured against hotels and other forms of commercial property.
“The recent outbreak of the coronavirus disease is beginning to have an economic impact wherever cases increase. In the UK, recent developments in Europe and the increasing number of cases are likely to negatively affect hotel CMBS,” DBRS said.
DBRS studied three CMBS portfolios in the UK - invested in Holiday Inn, Marriott, Crowne Plaza and Hilton hotels - but said disruption could be mitigated, initially, by a number of issues including some being used as quarantine venues.
“In a scenario where the Covid-19 virus continues to worsen, the international hospitality sector faces a challenging time ahead because of a decline in demand which will lead to lower occupancy rates,” it said.
Last week, Ireland’s Dalata Hotel Group said it has seen a “significant reduction” in bookings and a “significant increase” in cancellations following the spread of the Covid-19 virus to Europe.
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“The extent of the impact of Covid-19, the rate at which the virus spreads, and the period for which it continues cannot be predicted at this time. It is, therefore, too early to estimate the financial impact on the group,” Dalata said.
Dalata owns the twin Clayton and Maldron hotel chains and has been growing rapidly in the UK in recent years. It said, last month, that it had seen no change in demand when announcing its annual financial results.
“Dalata’s decentralised operating model means that we have responsibility at a local level, co-ordinated through group, enabling us to respond quickly and effectively as this situation evolves,” Dalata boss Pat McCann said last week.