Hotel owners are about to blow through cash on virus travel cuts

Seattle

SOME Seattle hotels saw occupancy rates fall below 10 per cent last week, even before fresh guidance against public gatherings from the federal government presented a new challenge to the hospitality industry in the United States.

The data from the Downtown Seattle Association shows how bad things could get for hotel owners in cities where cases of the novel coronavirus were slower to arrive.

Travel restrictions and restaurant closures aimed at stopping the spread of the virus, along with a looming recession are all bad news for the hospitality industry, and even well-capitalised owners are going to blow through cash reserves quickly, Jonathan Falik, chief executive officer of JF Capital Advisors, said in an interview.

More highly levered companies are at greater risk. Among publicly listed hotel owners with the highest debt to earnings before interest, tax, depreciation and amortisation ratios are Ashford Hospitality Trust Inc, Braemar Hotels & Resorts Inc and Hersha Hospitality Trust, according to Mr Falik's research.

Companies with the lowest debt-to-Ebitda ratios include Sunstone Hotel Investors Inc and Host Hotels & Resorts Inc.

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Owners can respond to cratering occupancies by shuttering properties and laying off staff, but debt service, property taxes, and basic building maintenance will eat through capital. Many lenders won't want to take over a hotel in the middle of a demand shock, so owners may be able to modify loans.

Real estate investors are sitting on dry powder that could be used to buy distressed hotels, but "it's a little early for that because no one knows what the government response will be", Mr Falik said.

A Bloomberg index of hotel owners was down 22 per cent as of 2:11pm New York time.

Ashford Hospitality Trust fell 30 per cent, one of the worst performances in the index.

Washington State moved swiftly to constrain public gatherings as it fights one of the worst outbreaks of coronavirus in the country.

Governor Jay Inslee banned gatherings larger of 250 people last week and has since further ratcheted down the number to 50. BLOOMBERG