The COVID-19 pandemic will hit the condo-hotel market and large hotel chains in particular. However, it should not cause a permanent drop in housing prices. Strong growth of the e-commerce market has been visible for years and the current situation will only increase the investments of companies in this area. Rafał Irzyński from the Strefa Inwestorów talked about Rafał Jerzy and Sławomir Winiecki about the impact of the coronavirus on the real estate market, the hotel industry and how companies operate in the current situation.
Rafał Irzyński: The strongest blow the COVID-19 epidemic will bring to the hospitality industry. What is the further perspective of this activity at GK Immobile?
Sławomir Winiecki: We are a small hotel chain, that’s why attention to costs differs us from other facilities. Possible reduction will not be dramatic for us. However, other hotels may be at a crossroads, because no one can estimate how long the current situation will last. We analyzed market behavior after the end of the Ebola and SARS epidemics. Both examples show that the market is coming back quite quickly.
Our facilities may benefit from announcements from banks to postpone repayment of principal installments for 3 months. In our case, all hotel owners we rent have already received confirmation of suspension of installments. In addition, we will use the deferred loans on our own facilities. Compared to the industry, our facilities are low in debt.
To sum up, of course, the result will be affected by the hotel segment, but in cash we should not feel it so strongly.
The coronavirus crisis will have a negative impact on the entire condo-hotel industry. How will this affect the hotel market?
S.W.: The situation in condo-hotels is quite different than in hotels. This is due to the fact that within 5 days we received information about the postponement of capital installments by our landlords. In the case of a condo, there are companies with 5,000 or 6,000 each. the so-called. apartments. The method of contacting all owners is difficult, and most of these companies guaranteed returns. In principle, the operator companies ceased to exist when the epidemic was declared – that is, they would have to be topped up with cash by the owner of the company, allowing them to meet several thousand contracts. There are facilities that have 200-300 condo-rooms, mainly on our coast. After the collapse of such a company, the facilities will have to take independent action. It is possible that they will massively agree not to collect rent. However, after the collapse of such a company, no one will benefit, because 200 people will have to form a community. This is a very difficult thing. Condo-hotels are mainly tourist traffic, and it seems that he will come back later than business.
What is the situation from the company’s employees?
Rafał Jerzy.: In hotels, at the end of January 2020, we purchased such items as masks and disinfectants, seeing what is happening in China. In the case of hotels, our guests are isolated, e.g. from the reception desk. Customers also fill out documents answering questions whether they have been abroad recently. We have implemented hygiene procedures in all companies, and we control employees’ temperature on a daily basis in factories. Within a dozen or so days of measurements, there were only two cases of people with elevated temperature. At the production plant, we split work into 3 shifts to reduce squad on each shift. We are also prepared for the possible disinfection of factories if such a decision were issued by the sanitary department. The construction works still without any changes.
What is the current situation of GK Immobile? Do all segments operate?
R.J.: All our segments are working at the moment, also the supply chains are working properly. We have not noticed any slowdown so far. As for the bridges (segment of transhipment systems – editor’s note), so far we do not see any significant difficulties, even in orders.
Unfortunately, we see a strong slowdown in hotels, but at the moment none of our facilities has been permanently closed. Of course, the market trend indicates their closing, but we intend to continue operating.
On the one hand, e-commerce is the segment that can benefit from the COVID-19 pandemic. How can the margin and production capacity develop with the increase of orders?
R.J.: We have been preparing to increase orders for over two years by expanding the factory. The expansion will be completed in mid-year. Assuming that the number of orders increases, we are ready to double our production capacity at the plant. The situation related to the coronavirus epidemic should accelerate the expansion of logistics centers.
How, in the long-term, can prices of building materials behave and how can this affect the development segment of the company?
S.W.: This year, we are planning to hand over 300 apartments in two investments. We only have 20% of apartments to sell.
We believe that inflation, caused by the ubiquitous print of money, will lead people to try to transfer money to the housing market. We do not think that there will be a long-lasting fall in housing prices, but the client structure will change.
What is the current liquidity status of the capital group?
R.J.: We have been talking about coronavirus since the outbreak of the epidemic in China. This led to a number of actions aimed at the largest possible accumulation of cash, e.g. the sale of our commercial facility below book value. We were guided by a potentially impending crisis, and the cash from the transaction is already in our account.
In development, we have two large flows of cash ahead of us from completed projects of the first stage of the university housing estate and the second stage of the plane park. At this point, I would like to remind you that the sale of apartments is carried out through escrow accounts, which cash from buyers systematically affects, i.e. in proportion to the stages of construction. The first of these projects is almost completed, and the second is about 70% advanced. We are in industrial construction just after completing several projects. The current order portfolio allows us to look optimistically into the future. As for Atrem, we can see the cost reduction effect we have carried out, and the increase in the amount of cash and reversal of the negative relationship between receivables and liabilities.
In what area do you expect investment opportunities?
R.J.: We are looking at several listed companies, but the real crisis is not yet visible. This is the first crisis in the hotel industry, where hotels are in debt and companies have no capital. In this case, we assume that the majority of companies after April 10 will have problems. We are watching this carefully.
How can the world change in the face of a coronavirus pandemic?
R.J.: I think the world is expecting a return to the pre-epidemic state. Ebola or SARS epidemics show that, in principle, society has a short memory. These are not quantities that can leave a deep impact on industries such as hospitality.
Finally, I would like to wish everyone health and good luck coming out of this difficult business situation.
Thank you for the conversation.