Credit Analysis: International Hotel Investments plc

The IHI Group consists of a large group of companies, which are involved in the ownership, development and operation of hotels, the management of real estate properties and the provision of catering services. The Group currently has an ownership stake in 13 hotel properties, 5 of which are located in Malta and the rest in Europe, Russia and Libya. Additionally, the Group also manages 8 other third parties’ hotels which are located in various countries.

The Group currently has six bonds in issue, five of which are unsecured and one is secured. The most recent bond issue was in 2019, which was a 7-year €20m 4% unsecured bond. Out of this, €10m was applied towards the redevelopment of the Corinthia Grand Astoria Hotel Brussels, $6m to the investment in Moscow and €4.4m were retained for general corporate funding.

Following the onslaught of the COVID-19 pandemic, the Group took the strategic decision to wind down the Costa Spain operation, and focus its efforts on Costa in Malta. IHI has also decided to liquidate the Azure Group (IHI owned 50% of this group), which for the past 17 years carried out the sales function of the timeshare operation at the Golden Sands Resort.

The impact of COVID-19 on the Group’s operations

The ramifications brought about by the pandemic has significantly impacted the hospitality sector and naturally the Group’s operations have been dramatically affected by the outbreak. In line with the directives issued by various governments and health authorities, IHI closed all of its hotels in March 2020.

Although the majority of IHI’s hotels re-opened for business in July/August 2020, the situation remained very fluid, with most of the Group’s operations not expected to exceed 20% occupancy during FY20. As a consequence, revenue in FY20 as per the latest financial analysis summary, is forecasted to fall by circa 65% when compared to FY19. Consequently, the Group’s EBITDA for FY20 is expected to fall in negative territory at -€5.2m. Notwithstanding this, the substantial impact on revenue was mitigated by the immediate cost cutting measures implemented by IHI.

Management reported that the Group halted all capital expenditure, except for committed projects which commenced prior to the outbreak. Additionally, IHI terminated all casual labour and fixed term contracts, introduced various pay cuts and redundancies. In fact, the Group reported that the headcount as at September 2020 stood at 2,851 a reduction of circa 37% from the headcount in February 2020 (4,539). IHI also benefitted from various government subsidies implemented worldwide to safeguard jobs and economies. Furthermore, the Group was able to defer financing costs with banks and renegotiate repayment schedules.

Outlook and road to recovery

In mid-2020, the Group announced that in FY21 it expects to reach 50% of the pre-pandemic revenue. Furthermore, following the positive vaccine news that augurs well with an increase in economic activity, it is expected that tourism recovers at steeper than previously anticipated recovery. The International Air Transport Association (IATA) predicts that domestic air traffic should recover to pre-pandemic levels in 2023, while cross-border travel is expected to recover in 2024. Assuming that approved vaccines are effective against potential new variants of the COVID-19 virus, we are optimistic that the Group achieves its recovery target and possibly exceed it.

A positive trait that might ensue as a result of the outbreak is that potentially a number of efficiencies and cost reduction procedures adopted during the pandemic are maintained post-COVID-19, thus improving the Group’s long-term profitability margins.

Overall, the Corinthia brand has strengthened throughout the years and is also being recognised worldwide, with numerous projects down the pipeline, especially managed hotels. Additionally, the Group has a strong share capital base and it owns several high value assets, with non-current assets standing at €1.5 billion as at 30 June 2020.

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