Ratings agency DBRS has warned of the potential fallout from coronavirus on UK hotel CMBS deals.

Hilton hotels

The hotel sector is expected to be hit by coronavirus outbreak

Source: rmnoa357

DBRS, which rates three UK hotel CMBS deals – Helios (European Loan Conduit No. 37), Magenta 2020 and Ribbon Finance 2018 – said that a prolonged outbreak would be a cause for concern.

“We believe the metrics of these transactions to be strong enough to withstand any short-term declines in revenues,” it said. “However, in a scenario where the COVID-19 virus continues to worsen, the international hospitality sector faces a challenging time ahead because of a decline in demand which will lead to lower occupancy rates.”

The ratings agency warned that hotels reliant on income from meetings, conferences and exhibitions as well as those with a strong focus on food and drink would be hit the hardest.

It said the assets securing the three UK CMBS deals comprised a broad mix of hotels, mitigating the potential impact of coronavirus.

DBRS noted that many of the hotels securing the Helios deal had been refurbished in recent years and that meeting and event space had been transformed into extra rooms. 

“This could prove a good move in light of the short-term impact of COVID-19 could have on meetings, incentives, conferences and exhibitions revenue,” it said.

It also said that one of the hotels in the Ribbon Finance deal, Ariel Hotel at Heathrow Airport, has reportedly been booked out by the Department of Health for use as a quarantine facility. This would be a mitigating factor, it added.