Hospitality execs plan investment as optimism increases

By Lorraine Heller

- Last updated on GMT

Related tags: Real estate, Mergers and acquisitions

Hospitality executives are gearing up for more investment
Hospitality executives are gearing up for more investment
Senior executives in the hospitality sector worldwide are more optimistic than their peers in other industries about the prospects of the economy, with many of them gearing up for growth in their business, according to a new survey by Ernst & Young.

The group’s latest Capital Confidence Barometer, conducted together with the Economist Intelligence Unit, found that just under 80 per cent of executives in both the hospitality and real estate industries were optimistic about the economy.

This is significantly higher than the 66 per cent of executives in other industries polled, and also marks a distinct improvement in the optimism recorded in the hospitality sector six months ago, which was just 57 per cent.

Hospitality investment

The report, released last week and based on a poll of 1,000 global firms including companies in the UK, also revealed a renewed interest in investment in the sector.

“Not surprisingly, given the heightened sense of optimism among hospitality and real estate executives, a significant proportion are gearing up for what is expected to be an extended period of growth and transactional activity in the real estate and hospitality sectors,” said Ernst & Young. “In fact, 42 per cent say they are focused firmly on either raising or investing capital.”

“The outlook for M&A activity in the hospitality and real estate sectors seems to be brightening. In October 2010, only 20 per cent of executives polled expected to execute a transaction in the next six months, but that figure more than doubled in our April 2011 survey,” said Michael Fishbin, global hospitality leader at Ernst & Young.

Emerging markets and non-distressed asset acquisitions currently appear to be the most attractive to investors in the hospitality sector, with interest up 50 per cent and 75 per cent respectively since the last survey in October 2010.

Improving cash flow

Preserving cash flow is a key area of focus for industry executives over the next 12 months, which is likely prompted by their intentions to pursue new acquisitions in the six months ahead, said Ernst & Young.

“Companies in the hospitality and real estate sectors are clearly positioning themselves for the next phase of growth by focusing on ways they can stabilise and maintain cash flow and also preserve capital and reduce costs by instituting operational efficiencies in their company operations,” said Fishbin.

“More companies are moving toward merger and acquisition activity, and we expect deal activity to increase in the next six to 12 months.

“Debt levels don’t seem to be a problem for most companies in the sector – 70 per cent report debt to capital ratios below 50 per cent; and two-thirds of those surveyed claim that access to funding is not a problem for them. However, 42 per cent of firms that are looking to grow plan to fund deals through cash compared to 32 per cent who will tap bank loans.”

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