Looking beyond the uncertainty – unique opportunities in the Australian hotel accommodation market

• The Partners Fund currently has 4% exposure to senior mortgages backed by Hotels in NSW and Tasmania.
• The average LVR of these loans is 53% and are performing with both interest and principal amortisation being serviced.
• The current macro conditions are now presenting several new Hotel opportunities that are falling out of the banking system as low occupancy levels are expected to breach income covenants.
• With loan to value covenants in the 55% range all these potential opportunities are expected to be refinanced by the bank system once occupancy normalises.
• With loan balances expected to be significantly below physical replacement costs much of our due diligence is centred on the pathway back to normalised domestic travel and the quality of the sponsors to service interest should it take longer than expected.
• With Australians spending $26bn more on overseas travel than foreigners spend when they come to Australia our expectations are that the domestic market has the capacity to provide a fillip for hotel occupancy in 2021.
• With occupancy rebound from 20% in April to 50% last month we are increasingly confident to take on some of the low risk Hotel loans and bridge the financing pathway for borrowers as they hope to return to close to pre COVID-19levels by 2022.

Performance of the Asia Pacific hotel sector continues to improve – The HICAP Hotel Industry Conference (Asia Pacific) was held last month and STR, a global leader in CRE information and analytics in the hospitality sector, noted that the Asia Pacific hotel industry had reported continued performance improvement from the COVID-19 low points, as a result of strong domestic demand and holidays.