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By Christopher Durso, Vice President of Content Development, Hospitality Sales & Marketing Association International (HSMAI)
When it comes to determining the full scope of the coronavirus effect, hotel management companies are monitoring specific key indicators, as the three dozen participants in HSMAI’s HMC Chief Revenue Officer Virtual Roundtable — presented online on March 25 — shared. Four indicators topped their list:
1. CASH FLOW:
- Renegotiating vendor agreements — “One of the things that we’re looking at doing as a sort of first line of defense to protect cash flows is, every single vendor agreement we have, we’re either renegotiating or we’re asking to suspend payment for 90 days, even if that means suspending services for 90 days and then adding 90 days back on to the end of the term. In many cases we’re having success with, for example, free-to-guest TV providers, renegotiating contracts based on occupancy levels, which is great for us right now. We’re working through a lot on the vendor side to preserve immediate cash flows with short-term liabilities. We had just gone through a slew of refinancing, so our finance team had just wrapped up about 13 refi’s, but we are going to back to some of those lenders because it is a consideration in your lender docs if you’re allowed to temporarily close or not, which has been a hurdle to clear in a couple of cases.”
- Waiting on the stimulus — “We’re waiting for that stimulus package to kick in from the Senate here in the U.S., but in Italy and in Greece, where we have some properties, that was a decision that governments made a couple of weeks ago. They’re carrying 80 to 100 percent of the employee payroll, so it was an easier decision to shut down properties.”
- Stopping the pipeline — “We have a pretty active pipeline of new development, and obviously we’ve put the brakes on all of that. Part of that is not just liquidity but also because construction materials and labor are about to get a whole lot cheaper 60 to 90 days from now, so we’re going to renegotiate contracts on all of our projects as well.”
2. DAILY FORECASTS:
- Planning for the worst — “We took our business development department and completely redirected all their efforts. The focus is not getting these hotels open; rather it’s trying to keep the others from closing. We did projections with worst-case scenario performance and then layered in different staffing levels — what would it take to be at 10-percent occupancy, 15, 20, 25, up to 30 or 35 percent — and really tried to zero in on where we were going to land. Those types of things have been able to produce a burn report that would be able to help owners make these decisions. It was just a matter of getting everyone in the room and shutting the door — six feet apart, I should say — to get the answers to those questions.”
- Projecting three scenarios — “We’ve enlisted our business development and real estate team to help tackle a lot of this, usually with three scenarios: a moderate-occupancy scenario, assuming we get some base business; an extremely lean scenario; and a fixed-cost model, assuming we have to temporarily suspend operations.”
3. BUSINESS OPPORTUNITIES:
- Maintaining light staff — “At the handful of properties where we have temporarily ceased operations, we are keeping those lightly staffed, not leaving the asset unattended, and if we do find a piece of business, we’re able to move almost immediately. We’re trying to keep our hotels ready to go if we do hop on that piece of business.
- Working around shelter-in-place — “In heavily impacted markets with a shelter-in-place order, like New York, we’re finding that once we do land a significant piece of business, we’re struggling to get employees to want to come back to work when the city is in those circumstances.”
4. SHUTTING DOWN VS. STAYING OPEN:
- Analyzing cost models — “We did an analysis with our business development team, looking at a cost model of what it would take to keep the hotel open versus closing. We’ve spent a lot of time on those cost models and analyze those about every three days.”
- Making decisions — “We’ve spent the past three weeks scrambling to produce those models, and unfortunately decision-making started yesterday. It’s like spraying something on a fire ant’s nest. Owners now have a clear notion of what’s before them and are making decisions quickly this week.
- Prioritizing employee safety — “We, too, did the analysis, but a lot of our discussion had to be around certificates of occupancy and regulation about reopening. In many cases, it’s hard to quantify the value of what it’s going to take to get that stuff done on the flipside. For us, it was also a discussion around the cost of having people in the building to secure the assets, and then certainly to talk about how you can keep your costs at a minimum and still stay open. Most of our owners are choosing to stay open for now, but a lot of it had to do with the safety and security of our employees.”
For additional information, insights, and tools, visit HSMAI’s Global Coronavirus Resources page.