Why convention hotels will take years to recover from the coronavirus

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Under a worsening economic forecast, S&P Global Ratings anticipates a three-year recovery period for major conference center hotels.

“We are already seeing cancellation of group bookings for the next two to three years,” analysts wrote in a report that announced a two-notch downgrade on Austin Convention Enterprises senior secured bonds to BBB-minus from BBB-plus. t lowered the Austin issuer's senior secured revenue refunding bonds to BB from BB-plus.

S&P Global Ratings downgraded Austin Convention Enterprises bonds issued for the Austin Convention Center.

"The ratings remain on CreditWatch negative due to the unprecedented reduction in travel and cancellation of convention center events resulting from the global pandemic," S&P wrote Wednesday.

The rating agency also lowered Baltimore Hotel Corp.’s senior secured revenue refunding bonds to BB from BB-plus. The bonds also remain on CreditWatch negative.

S&P also maintained its CreditWatch negative on the BBB-minus ratings for the Denver Convention Center Hotel Authorityand Greater Columbus Convention Center Hotel Expansion Project.

The ratings agency noted that it expects a 5.2% contraction in U.S. gross domestic product in 2020, much more severe than the 1.3% decline forecast in March.

Under that forecast, analysts provided three scenarios from best to worst over the next three years for revenue per available room. The best case for 2020 is a loss of 50% while the worst case is 75%. By 2022, the worst case will be 15% down from pre-pandemic levels.

With the economy on lockdown, more data is surfacing on losses in convention and hotel bookings. Chicago, one of the top convention cities, anticipates a $747 million economic loss fom cancellations, according to the Chicago Tribune.

The Las Vegas Convention and Visitors Authority expects to lose up to $200 million in room tax revenue in its upcoming fiscal 2021 budget, per the Las Vegas Sun.

According to Visit Baltimore, the loss of seven conventions and events through June were expected to bring in more than $30 million.

Austin Convention Enterprises Inc. owns Hilton Austin, an 801-room, full-service hotel in downtown Austin, Texas, across from the Austin Convention Center. The hotel opened in 2003, and operates in a 31-story tower (24 stories are occupied by the hotel), with about 98,800 sq. ft. of meeting space. Below the hotel is a 750-space parking garage, 600 of which the hotel operates.

March occupancy of the hotel fell to 27.2% and revenue per available room to $67.7, significantly less than 89.0% occupancy level and $276.2 revenue per available room at the same time last year. About $195 million of refunding bonds were issued for the hotel in 2017.

Given possible extensions of stay-at-home orders (even though Texas hopes to be one of the first states to reopen), social distancing, wariness about travel, and economic contraction, hotel stays could be pushed to very low levels to the third quarter, S&P wrote.

According to city officials, Austin stands to see 261,275 potential job losses, with heavy losses in entertainment and hospitality. Tax revenue losses are estimated between $38.3 million and $57.6 million.

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Ratings Coronavirus Revenue bonds Texas Speculative grade bonds
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