Australian Hotel IndustrySentiment Survey

Impact of COVID-19

17 April 2020

In partnership with

Dear Hotel Industry ColleagueAs the COVID-19 pandemic wreaks havoc across the globe and at home, the travel and tourism industry inAustralia has effectively been shut down and the hotel industry finds itself in an unprecedented situation.Hotel owners and operators are currently looking at an empty horizon, uncertain when the first signs of aresumption of business and leisure travel will come into view. While no body knows the answer to this, webelieve that the collective thoughts of the industry can provide some guidance over the coming weeks andmonths as we all seek to understand the scale of the situation.We also hope that the survey will enable us to track the outlook over time so that we can better identify whenthe first signs of recovery emerge and better estimate the pace of return back to pre-COVID-19 levels.

Ron de WitManaging Director

AHS Advisory

Summary Findings• The majority of hotels in the survey (67%) are planning to remain open. This

is a higher ratio than had initially been expected heading into the survey. Agreater proportion of Hotels located in Regional markets (69%) are planningto stay open compared to their State Capital counterparts (65%) despite thefact that a greater proportion of participating Regional hotels have alreadyclosed.

• Most hotels that have closed, or are planning to close, are currently expectingto reopen in Q3 2020, with a smaller number holding a longer-term outlookwith expectations to reopen in Q4 2020 or in 2021.

• The majority of survey participants expect the impact of COVID-19 to be long-term, thus, occupancy performance is expected to start rebounding only in Q42020. There is no noticeable difference in the trend of occupancyexpectations among properties, regardless of location, although hotels inMelbourne expect Q3 2020 to record lower performance than Q2 2020. Thiscould be due to the looming amount of new supply to enter the market.

• A larger proportion (39%) of Luxury and Upper Upscale participants areexpecting a steeper decline in ADR (60% and above) compared to 28% of theUpscale and Upper Midscale properties regarding the CY 2020 outlook. Withsimilar levels of occupancy decline expected across all properties, thisresulted in a higher proportion Luxury and Upper Upscale properties (64%)expecting a steeper decline in Revenue (60% and above) for CY 2020compared to 50% of the Upscale and Midscale properties.

• Unsurprisingly, domestic-sourced demand segments are expected to recoverfaster, since there is more uncertainty surrounding the return of internationaltravel. This strongly aligns with Australia being a predominant domestic hotelmarket.

A total of 90 hotels (15,160 rooms) across Australia

participated in the sentiment survey with 61% from State

capitals and 39% from Regional areas.

66%

22%

12%Full Service

Limited Service

ServicedApartment

14%

23%

21%

19%

22% Luxury

Upper Upscale

Upscale

Upper Midscale

Midscale

Economy

36%

2%

25%

3%3%

21%

10%

ACT NSW NT QLD SA TAS VIC WA

Survey Respondents

Sydney 24%

Melbourne 16%

19% of hotels have already shut down (15% of State Capital

hotels and 26% of Regional hotels)

9

17

29

35

Isolation Facility

Closed

Fully Operational

Partially Operational Yes18%

No82%

Current Operating Status of RoomsIf still under operation, are

you planning to close?

4

4

15

15

4

4 3

Q2 2020

Q3 2020

Q4 2020

2021

For hotels that are closed or planning to close, what is the envisaged time for reopening?

42%

39%

19%

Delivery Closed N/A

What is the status of your F&B operation?

Operating Status

(number of respondents by category)

(number of respondents by category)

The majority of survey participants expect the impact of COVID-19 to be long-term, with 71% expecting the

impact to last 6 months or more, and 26% expecting the impact to be longer than 12 months.

As expected, occupancy is forecast to be impacted more than ADR with 78% of participants expecting a 50%+

impact on occupancy for H1 2020 and 49% expecting a greater than 70% impact. The forecast for CY 2020 is slightly moderated with 41% forecasting a greater than

70% impact on occupancy.

A decline of 0-25% in ADR is forecast by 36% of participants for H1 2020 and 29% of participants for CY

2020.

25%

29%

17%

26%3 Months

3-6 Months

6-9 Months

9-12 Months

12+ Months

What is the length of impact you expect COVID-19 to have on the market?

Impact of COVID-19 on Operational PerformanceH1 2020 Impact on Performance (number of respondents by category)

CY 2020 Impact on Performance (number of respondents by category)

0

5

10

15

20

25

30

35

Decline 0-25% Decline 26-50% Decline 51-60% Decline 61-70% Decline 71-80% Decline 81%+

Occ% ADR Revenue

0

5

10

15

20

25

30

35

Decline 0-25% Decline 26-50% Decline 51-60% Decline 61-70% Decline 71-80% Decline 81%+

Occ% ADR Revenue

Impact of COVID-19 on Operational Performance (By Class)H1 2020 Impact on Performance

(number of respondents by category)

CY 2020 Impact on Performance(number of respondents by category)

0

5

10

15

Decline 0-25% Decline 26-50%

Decline 51-60%

Decline 61-70%

Decline 71-80%

Decline 81%+

Occ% ADR Revenue

0

5

10

15

Decline 0-25% Decline 26-50%

Decline 51-60%

Decline 61-70%

Decline 71-80%

Decline 81%+

Occ% ADR Revenue

0

5

10

15

Decline 0-25% Decline 26-50%

Decline 51-60%

Decline 61-70%

Decline 71-80%

Decline 81%+

Occ% ADR Revenue

0

5

10

15

Decline 0-25% Decline 26-50%

Decline 51-60%

Decline 61-70%

Decline 71-80%

Decline 81%+

Occ% ADR Revenue

Upscale & Upper Midscale

Upscale & Upper Midscale

Luxury & Upper Upscale

Luxury & Upper Upscale

Expectations of Hotel Occupancy in 2020

77% 81% 80% 77% 79% 80%

75% 76%

48%

24% 24%

38%

0%10%20%30%40%50%60%70%80%90%

Jan-20 Feb-20 Mar-20 Q2 2020 Q3 2020 Q4 2020

Budget Actual/Forecast

In January and February, actual occupancy was slightly behind budget for the participating hotels, most likely due to the impacts of the bush fires across the country over the summer months and the initial impacts of the Chinese travel ban. Following the cancellation of the Melbourne Grand Prix and other major events in cities throughout the nation,

together with the introduction of social distancing measures across the country in mid-March, occupancy performance dropped dramatically as the travel industry came to a standstill and all types of large gatherings were banned.

The outlook for the remainder of the year looks bleak at the current point in time, with participating hotels collectively estimating low- to mid-20% levels for Q2 and Q3 with some improvement in Q4 at 38%, which still represents over

50% impact on that originally budgeted.

79% 85% 85% 81% 83% 84%

74% 75%

53%33%

23%39%

0%20%40%60%80%

100%

Jan-20 Feb-20 Mar-20 Q2 2020 Q3 2020 Q4 2020

Budget Actual/Forecast

Expectations of Hotel Occupancy in 2020 (By Location)

83% 89% 87% 82% 84% 85%

79% 83%

49%

26% 27%40%

0%20%40%60%80%

100%

Jan-20 Feb-20 Mar-20 Q2 2020 Q3 2020 Q4 2020

Budget Actual/Forecast

74% 67% 66% 68% 68% 68%

72%61%

36%13% 17%

30%0%

20%40%60%80%

100%

Jan-20 Feb-20 Mar-20 Q2 2020 Q3 2020 Q4 2020

Budget Actual/Forecast

70% 76%

77% 74% 77% 79%75% 80%

50%

23% 25%42%

0%20%40%60%80%

100%

Jan-20 Feb-20 Mar-20 Q2 2020 Q3 2020 Q4 2020

Budget Actual/Forecast

Other Capital Markets

Sydney Melbourne

Regional

Demand Profile and Expectations of Recovery

1

2

43

49

49

53

58

Middle East / Africa

Other Americas

USA

China

Europe

Other Asia

New Zealand

42%

79%

38%

82%

24%

80%

39%

82%

56%

21%

56%

18%

50%

20%

47%

17%7%

26%14%

Corporate(Dom)

Corporate (Int) MICE (Dom) MICE (Int) Leisure FIT(Dom)

Leisure FIT (Int) Leisure Group(Dom)

Leisure Group(Int)

Unlikely to Recover 100% Same as Before COVID-19 Better Than Before

Australia is a predominantly domestic market and so while a ban on international visitors entering Australia does have a large impact on the tourism industry overall, an international travel ban on its own would not close down the hotel industry in Australia. Conversely, the closing of State borders and banning of non-essential travel has

effectively had a far greater impact on the hotel industry in Australia, reducing demand to the levels as reported by survey participants.

Most international source markets are likely to be locked out for the foreseeable future, however, perhaps there is the possibility of seeing arrivals from New Zealand if both Australia and New Zealand are able to get on top of the outbreak. Most hotels identified New Zealand as a key international source market. Heavily impacted source markets such as Europe and the USA might remain locked out for a longer duration. For Asian source markets, there is a lack of clarity on the current status of COVID-19

outbreaks in many countries, such as Indonesia, which might result in borders remaining locked to a number of important sources of tourism demand to Australia.

Domestic source markets are expected to recover better than international source markets with around 50%+ of participants expecting business to return to pre-COVID-19 levels. 26% of participants expect the Domestic Leisure FIT market, when it does recover, to be better than pre-COVID-19 levels. Conversely, the majority of participants

do not expect International demand segments to return to pre-COVID-19 levels, particularly for MICE and Leisure Group demand.

Top International Source Markets

Expectations of Demand Recovery by Demand Segment(number of respondents by category)

Demand Profile and Expectations of Recovery

Survey participants expect that the domestic segments of Corporate, Leisure FIT and MICE will be the demand segments that will recover the fastest following the loosening of travel restrictions

across Australia in the COVID-19 recovery period. Domestic Corporate demand is expected to recover the fastest, although as we saw from the previous page, Domestic Leisure FIT demand is expected to come back stronger than before by more participants.

Of the International demand segments, Leisure FIT travellers and Corporate travellers are expected to be the first to return as there appears to be more pessimism regarding recovery of International

MICE and Leisure Group demand.

2

35

51

MICE (Dom)

Leisure FIT (Dom)

Corporate (Dom)

25

25

30

MICE (Dom)

Corporate (Dom)

Leisure FIT (Dom)

10

17

38

Leisure Group (Dom)

Leisure FIT (Dom)

MICE (Dom)

14

18

24

Leisure Group (Dom)

Corporate (Int)

Leisure FIT (Int)

Fastest Segment To Recover (number of respondents by category)

Second Fastest Segment To Recover

Third

Fourth

Temporary Support Measures

99%

Have Implemented Cost Control Measures

43

49

57

62

70

77

Mandatory unpaid leave

Reducing permanent headcount

Reducing part-time headcount

Mandatory clearing of paid leave

Postponing CAPEX

Hiring freeze

Number of Respondents Adopting Measure

Horwath HTL is the world’s largest hospitality consulting brand with 50offices across the world providing expert local knowledge. Establishedin Asia in 1987, Horwath HTL APAC has been involved with thousandsof hotel and tourism related projects throughout the region for clientsranging from individually held businesses to the world’s mostprominent hotels, developers, lenders, investors and industrialcorporations on issues pertaining to the development, financing,operations, asset management, and valuation of hotel and otherhospitality related properties.

We are the industry choice; a global brand providing quality solutionsfor hotel, tourism & leisure projects and recognized as the founders ofthe Uniform System of Accounts which subsequently has become theindustry standard for hospitality accounting.

We are Horwath HTL, the global leader in hotel, tourism and leisureconsulting.

Contact:Ron de Wit – Ron@ahsadvisory.com

Jennifer Davey – Jennifer@ahsadvisory.comDamien Little – Damien@ahsadvisory.comDavid Brown – David@ahsadvisory.com