A Foothold Amidst COVID-19 Uncertainty

Posted on 4/5/2020

Hospitality

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Overview:

The hotel industry is facing its greatest challenge in living memory, due to the effects of coronavirus (COVID-19). With the resultant widespread shutdown of hospitality establishments, many venue operators have been left counting the costs and wondering what the future holds.

While some businesses have already pivoted their operating model to offer takeaway or online ordering as a temporary solution, the key driver behind this model is more likely to revolve around keeping your people in jobs as opposed to a profit centre for the business. Whilst it is likely to help generate some revenue in an otherwise bleak operating landscape, it is unlikely to provide enough cash to tie you over for any great length of time.

Fortunately, we are in many ways lucky to live in Australia, where we have a government willing and able to step in and lend a hand through these most trying of times. There are several options available to venue operators that you should consider jumping on as soon as possible, to help you get back on both feet once the worst of the virus impacts has passed by.

To help, we’ve set up a Perks COVID-19 Resource Hub, which is being updated throughout the day. You don’t need to be a client of ours or pay to access – the information has been made readily available to support the communities around us. 

 

Get on the front foot with your landlord

One of the first points of call for publicans struggling as a result of COVID-19 should be to open up a dialogue with your landlord about rent relief for the period of the shutdown.

In March, the Prime Minister announced a moratorium on evictions for six months for commercial and residential tenants.

In making the announcement, he also noted that both tenants and landlords should sit down and work together to come up with an arrangement to get through this period.

Ultimately, your interests and those of your landlord are intertwined, and negotiating a deal for the interim may assist you in getting back on your feet sooner, while also ensuring that your landlord is not faced with an empty venue and a longer term loss of income once the worst of the virus has passed.

Ideally, you will want to push for a rent holiday so that you are not faced with a backlog of bills once things return to normal. A rent holiday basically excuses the tenant from paying rent for a specified period, with no increase in payment or late fees incurred. However, in some cases, rent deferment may be the next viable option – this is where the unpaid rent amassed over the agreed period is split up into the remaining term payments for a higher rent bill after the grace period.

For those operating a bottle shop that is still generating revenue, you may encounter some pushback from your landlord. In these circumstances, it is worth noting that in valuations, a hotel valuer applies a benchmark 3% to 5% against the bottle shop turnover to calculate the applicable rent for that section of the hotel. Therefore, a hotel with a bottle shop turnover of say $140,000 per month should be looking at paying $4,200 (3%) in rent per month for that section of the hotel that is continuing to operate.

For those hotels that are also operating a takeaway food operation the base percentage once again is 3%. If the hotel therefore has a takeaway food offering with a monthly turnover of say $50,000 then the rent on this would equate to $1,500 per month for this section of the hotel. So combined, if you operated both the bottle shop and takeaway food in this example you would look to negotiate rent of $5,700 per month during the Hotel shut down. Ultimately, it will come down to what you can reasonably negotiate with your landlord.

We are still awaiting the Federal and State Governments to announce further guidance on a landlord -tenant stimulus package, but they have already advised that there will be state tax concessions and the ability for landlords to defer bank debt repayments for loans up to $10m for a period of 6 months. Landlords should therefore have the flexibility to share the pain with their tenants during these tough times.

 

Get on the front foot with your bank

With the backing of the Federal Government, Australia’s banks have also come to the table to aid small and medium-sized businesses feeling the pinch from COVID-19 by offering eligible applicants access to an unsecured three- year loan of up to $250,000.

The loans operate like a line of credit facility, with money available on an as needed basis and repayments are interest- free for the first six months, interest-only in the following six months, with principal and interest payments over the final two years of the loan.

For those businesses with outstanding loans, the majority of lenders are allowing eligible business to either convert principal and interest (P&I) facilities to interest-only for up to six months or defer P&I repayments on your business, asset finance or equipment loans for up to six months.

Many hospitality venues that would have been considered strong operators prior to the COVID-19 pandemic, are likely to fall within the eligibility criteria for financial assistance. You should speak with your banks or broker as a matter or priority to understand what is on offer and work through the details.

At the time of writing this article, hospitality industry-specific measures by the banks are as yet to be put in place, but we have reason to believe these may be coming down the pipeline.

 

Utilise other government support measures

Among the raft of stimulus measures introduced by the Federal Government to alleviate the COVID-19 impacts are the Job Keeper Payments, which are designed to support businesses to maintain employment of their staff.

For hotels that have seen their turnover reduced by more than 30% relative to a comparable period (of at least one month) in 2019, you may be eligible for a $1500 per- fortnight payment for each eligible employee. Full details and eligibility criteria are available on the Australian Taxation Office website: https://www. ato.gov.au/general/JobKeeper- payment/

No doubt, there are still many challenges ahead for South Australia’s hotel industry and the impacts of the virus will be felt for some time yet. However, as we work through this unprecedented situation, publicans should be buoyed by the fact they aren’t alone. If there is one thing we know about our industry, we’re all in this together and we certainly won’t go down without a fight.

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