2019 Caribbean

Hospitality
Financing Survey

Travel, Leisure & Tourism

May 2019
Introduction
We are delighted to present KPMG’s 15th Annual Caribbean Hospitality Financing Survey,
highlighting financing trends in the region’s hospitality and tourism industry and the outlook
for the future of the industry.
We eagerly awaited the results of this year’s survey because our The appetite of financiers is primarily directed towards financing
Confidence Barometer, which records the financing community’s existing hotels for expansions, renovation and refinancing.
confidence levels in our region’s tourism industry, had recorded
However, whilst there has been a reduction in appetite for financing
an amazing sequence of nine consecutive years of increased
acquisitions, there has been a surprising “uptick” in appetite to
confidence levels from 2009-2018. We were hopeful that a major
fund new builds, particularly by banks.
milestone of a decade of annual rises in confidence could be
accomplished, however, it was not to be. This year has seen a The more bullish nature of the banks versus non-banks was not
correction in confidence levels of both banks and non-banks, the expected, yet it can be seen throughout the survey results. They
latter category comprising private equity firms, family offices, are more confident, consider the region’s economy to be at a more
developers, etc. positive stage in the economic cycle, they have a greater appetite
for financing and they are more optimistic when presented with a
Furthermore, for the first time since we included non-banks in our
lending opportunity in the region.
survey their confidence levels have dropped below those of banks.
Seaweed made its first appearance in the survey. The sargassum
A correction was inevitable at some point, but why did it happen?
challenges faced by many countries in the region was proactively
You may recall our delight, yet genuine surprise last year, when
raised by respondents as a factor impacting financing activity in the
confidence levels maintained their upward trajectory despite the
region as were labour issues along with the critical factors of airlift,
devastating impacts of hurricanes Irma and Maria. It may be that as
crime, and ability to recover from hurricanes which tend to feature
time progressed the full implications of the hurricanes have been
annually. Governments are cited once again as having a key role in
recognized with a corresponding decline in confidence. Another
mitigating some of these challenges.
factor could be the perception that the economic cycle is moving
through its different phases and whilst most respondents still In conclusion, whilst the dip in confidence levels may have served
believe the region’s economy is either at its peak or approaching it, as a timely reminder of the laws of physics and economics in the
some of our non-bank respondents have opined that the economy sense that what goes up cannot continue on an upward trajectory
may be moving towards recession. indefinitely, at least not for 10 years it seems. It may also be a
reminder that we have a realistic, pragmatic financing community
Certainly, it seems that those respondents lacking confidence
who retain their appetite for financing tourism projects in the region
have particularly strong views which have had a somewhat
but, not unreasonably, require certain fundamentals to be in place
disproportionate impact on confidence levels.
before loosening the purse strings.
All of these factors tell a cautionary tale that should be
acknowledged but must be put in perspective. All financiers
are adamant that the hurricanes have not changed their
appetite for financing tourism projects in the region and some
have an even greater appetite pursuant to the hurricanes.

Lessons have certainly been learnt though; insurance coverage

is increasing, insurance policy wording is being paid more Steve Woodward Mike Penrose Gary Brough
attention to by insurer and insured alike and some insurers Managing Director Senior Manager Head of Travel
have exited the market. KPMG in Bermuda KPMG in Bermuda KPMG Islands Group

KPMG • 3
Industry outlook
Confidence levels correction
Caribbean Financier Confidence Barometer - Banks
Banks - Caribbean Financier Confidence Barometer
Confidence levels for banks had increased for an astonishing 10

nine years including last year despite the disastrous 2017 9

hurricane season. However, there had to be a correction at (1 bearish - 10 bullish) 8

6.83
7.11
6.50 6.67
some point and it happened this year. Consequently, a potential 7 6.33
Confidence level

5.89 6.00
historic milestone of a decade of steadily increasing confidence 6 5.15 5.17 5.18
levels was not quite met. 5
4 3.5
3.50
Furthermore, the confidence levels of non-banks were lower than 3
the confidence levels of banks for the first time since we started to 2
include private equity, family offices and developers in this survey. 1

The reasons for the dip in confidence are not entirely clear although 0

a correction was inevitable at some point. However, we do recall

being shocked last year that confidence levels increased after the
Source: KPMG International, KPMG's 2019 Caribbean Hospitality Financing Survey
devastating impact of hurricanes Irma and Maria. It may well be
that with the passage of time the full impact of the hurricanes has Banks vs Non-banks - Caribbean Financier
deflated confidence somewhat although, as we will see elsewhere Confidence Caribbean Barometer
Financier Confidence Barometer
in this report, financiers do still overwhelming state that their
10
appetite for financing tourism projects in the region has not been 9
Bank Non-Bank
(1 bearish - 10 bullish)

negatively impacted by the hurricanes. 8

Confidence level

7
It does appear that those respondents who indicated a decline 6
in confidence tended to have stronger views than those with 5
higher levels of confidence. Some of the non-equity respondents, 4
for example, raised the dreaded prospect of a possible move 3
2
towards recession. 1
0
On balance, however, we feel that whilst the correction in
2015 2016 2017 2018 2019
confidence levels should strike a cautionary note and should not be
ignored, they should nonetheless still be put in perspective. There
are enough positive comments and indications of a stable financing Source: KPMG International, KPMG's 2019 Caribbean Hospitality Financing Survey
environment to mitigate somewhat the apparent dip in confidence.

4 • 2019 Caribbean Hospitality Financing Survey

 State of economic cycle So who else is financing tourism projects in the region?
Two years ago the overwhelming majority of banks (66%) and We received lots of different responses to this question,
non-banks (86%) believed that the Caribbean was still in the many referring to local and regional banks and several
recovery stage of the economic cycle. Last year, half of the banks other financing sources.
and 57% of non-banks thought the economy was approaching its
“Family offices, high net worth investors and strategic
peak. This year 57% of banks and 50% of non-banks indicated the
corporate players.”
economy is approaching the peak with less respondents indicating
a recovery phase and as stated previously, we received the first “Seeing some interest from U.S. hedge funds.”
opinions that the economy may be moving towards recession.
“Debt/Real Estate funds.”
Although not a dramatic shift there appears to be a distinct
movement in the economic cycle, specifically from left to right Availability of capital
in the bar charts below.
Respondents were asked whether they agreed that positive data
Banks' view on economic cycle such as the Caribbean Tourism Organisation’s forecast of 6-7%
Banks' view on economic cycle
growth in 2019 was still not translating into greater availability of
60%
capital. They agreed strongly with the statement.
50%
40% “There is general institution hesitation to release capital due to
30% the economic uncertainty.”
20%
10% “Availability of capital is still targeting expansions and refinancing
0% of existing cash flowing assets: New development outside of the
all-inclusive sector remains challenging.”

However respondents seemed to think there is finance available

for strong projects with the right metrics and stakeholders.

“There is capital available for deals in certain locations to strong

Non-Banks' view on economic cycle borrowers with track records.”
Non-banks'
Source: view on economic
KPMG International, cycle Hospitality Financing Survey
KPMG's 2019 Caribbean
“Capital still available for well structured/managed assets.”
60%
50% When asked whether lending positions had changed given the
40% stronger operating key performance indicators and generally
30% favourable outlook, the majority of banks and non-banks
20% stated that their lending position had not changed.
10%
“KPI/risk metric remain fundamental lending principles.
0%
Position remains highly selective and cautious.”

“We finance typically on more modest indicators in projections

to assess projects.”

“We have been positive for a while.”

Minimum Investment
New landscape
Source: KPMG International, KPMG's 2019 Caribbean Hospitality Financing Survey Non-banks were asked whether insufficient scale was an issue
In recent years there has been a unanimity of opinion that the when investing in the Caribbean and whether they had a minimum
financing landscape has changed. In that regard the traditional investment amount. Some respondents said they had a minimum,
lenders such as the Canadian banks are not as dominant regionally when on the other hand, most quoted a range of US$10m—
as they once were, nevertheless, they still remain very much part US$100m with the majority, in the US$10-US$50m range.
of the new landscape. The industry’s opinion regarding the current
“Minimum US$10m. Sweet spot between US$25—US$50m.”
position of the Canadian banks is very clear.
“Minimum would be US$20m.”
83% (2018:77%) of bank respondents consider the best
description of the new role of Canadian banks to be that they “US$15m.”
are “back in the market but more selective than before” with
“US$30m.”
the balance (23%) seeing little activity from the Canadian banks.
“US$100m but the condo business model is a bit different.”
The views of non-banks were broadly split equally, between those
who saw little activity from the Canadian banks and those who saw
them back in the market in a more selective role.

KPMG • 5
 Hurricanes
The 2017 hurricane season had a devastating impact on the region’s Impact hurricanes have had on your financing appetite
tourism industry with several destinations experiencing direct hits Impact hurricanes
for tourism has had on your financing appetite for tourism projects
projects
from two major hurricanes; Irma and Maria. 100%
90%
Accordingly, it is reassuring that all banks and non-banks retained 80%
their appetite for financing tourism projects in the region with 70%
Banks Non-Banks
60%
17% of banks and 14% of non-banks even expressing an 50%
increased appetite. 40%
30%
However, clearly some important lessons have been learnt, 20%
pursuant to the hurricanes. 10%
0%
More Unchanged Less
Bank's opinions - Changes seen in industry as a result
Banks' Opinions - Changes seen in industry as a result of 2017 hurricanes
of 2017 hurricanes
Insurance coverage
100%
All banks and 71% of non-banks are seeing an increased level of
90% Source: KPMG International, KPMG's 2019 Caribbean Hospitality Financing Survey
80%
insurance coverage following the hurricane.
70%
60%
Policy wording
50% The majority of financiers are seeing both the insurer and insured
40%
pay more attention to policy wording.
30%
20%
Renovation
10%
0% Two thirds of banks are seeing resorts take the opportunity
to renovate and improve.
Increased Level of Enhanced Building Additional Fewer Insurers in Insurer and Opportunity Taken
Insurance Regulations Investment in the region Insured Paying to Renovate &
Coverage Infrastructure, More Attention to Improve
Generators, etc. Policy Wording
Exit of insurers
Source: KPMG International, KPMG's 2019 Caribbean Hospitality Financing Survey

Non-bank's
Non-Banks' opinions
Opinions - Changes seen in-industry
Changes seen
as a result in industry
of 2017 hurricanes as Interestingly, the majority of non-banks are seeing some insurers
a result of 2017 hurricanes exit the region.
100%
New investment
90%
The majority of non-banks are also seeing an increase in
80%
investment in infrastructure, generators, etc.
70%

60% Enhanced building regulations

50%
Somewhat surprisingly, few financiers are seeing enhanced
40%
building regulations.
30%

20%

10%

0%
Increased Level Enhanced Additional Fewer Insurers in Insurer and Opportunity
of Insurance Building Investment in the region Insured Paying Taken to
Coverage Regulations Infrastructure, More Attention to Renovate &
Generators, etc. Policy Wording Improve

Source: KPMG International, KPMG's 2019 Caribbean Hospitality Financing Survey

6 • 2019 Caribbean Hospitality Financing Survey

Appetite for issuing senior debt
One of the most positive set of results we received was in Appetite for Issuing Senior Debt—Banks
Banks' appetite for issuing senior debt
response to a question as to what appetite financiers had for
issuing senior debt to existing hotels. 90% Positive Neutral Weak
80%
Nearly all banks (86%) and non-bank respondents (88%) said they
70%
had a positive appetite for issuing senior debt to existing hotels for
60%
refinancing, expansion and renovation.
50%
Compared to last year, the positive appetite for financing 40%
acquisitions declined for both banks, 71% versus 86% in
30%
2018, and non-banks, 43% versus 67% in 2018.
20%
Not surprisingly, new builds were the most difficult category to 10%
register a positive attitude, yet an unexpectedly high 57% of banks 0%
had a positive appetite for new builds, up from 33% last year. Existing Hotels Acquisitions New Builds
However, the positive attitude of non-banks declined from 43%
last year to 29% this year. Source: KPMG International, KPMG's 2019 Caribbean Hospitality Financing Survey
Appetite for Issuing Senior Debt—Non-banks
These are generally high percentages, particularly for financing Non-Banks' appetite for issuing senior debt
existing hotels. The generally more bullish attitude of banks versus 100%
Positive Neutral Weak
non-banks is illustrated by the banks' surprisingly high positive 90%
appetite for new builds although both banks and non-banks 80%
exhibited a reduced appetite for financing acquisitions. 70%
60%
These results regarding the appetite for issuing senior debt are
50%
illustrated by quotes from several of our survey respondents.
40%
When asked what types of hospitality projects they have
30%
financed over the past year and where their focus will be over
20%
the next 12 months, their interest covered the entire spectrum.
10%
“Resort re-development and Villa re-development.” 0%
Existing Hotels Acquisitions New Builds
“Refinancing one major hotel project and one major resort.”

“Construction loan for a new luxury resort.” Source: KPMG International, KPMG's 2019 Caribbean Hospitality Financing Survey

“New hotel resort build.”

“Some hotel purchases and a few restaurants.”

KPMG • 7
 Financing trends
When we looked at which destination in the Caribbean financiers All financiers agree that either financing is more readily available
are most bullish about, there were 13 different destinations put this year or there has been no material difference when compared
forward of which only six were nominated by both bank and to last year. Half of non-banks believe it has become more difficult
non-banks and which are highlighted in orange. This further to conduct business in the Caribbean, although only approximately
corroborates the position seen in recent years that the one third of banks share this view.
financing landscape has changed and that the new landscape
Banks' view on financing Non-banks' view on
involves financiers favoring a small number of jurisdictions
environment this year financing environment this
for whatever reason, rather than financing projects across the
compared to last year year compared to last year
entire region.
Countries Banks' most bullish about
FinancingEnvironment
Banks' view on Financing more Non- Banks'
this Financing less
view on Financing
year compared to last No material this
Environment
year difference
year compare
Banks’
30%
top countries for new financing readily available year readily available

25%

20%

15%

10%

5%

0%

Nominated
Source: by bothKPMG's
KPMG International, bank 2019 CaribbeanNominated by either
Hospitality Financing a bank
Survey
and non-bank or non-bank but not both
Banks' view on level Non-banks view of level
of difficulty to conduct of difficulty to conduct
business in the Caribbean business in the Caribbean
Non-banks’ top countries for new financing
Countries Non-Banks' most bullish about Banks' view on Level of Difficulty to conduct
Non- Business
Banks' view onin the Caribbean
Financing Environment this year compared
More Less Just the same
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
Antigua & Aruba Bahamas Belize Cayman Puerto St. Lucia Turks &
Barbuda Islands Rico Caicos

Source: KPMG International, KPMG's 2019 Caribbean Hospitality Financing Survey

8 • 2019 Caribbean Hospitality Financing Survey

Regarding the terms of financing, there
Debt service coverage ratio
have been no significant changes since last
2.5
year although any changes have tended to
be positive from a borrower’s perspective.
2
For example, the average loan to value ratio
has ratio has risen to 58% and the average
1.5
interest rate margin has fallen slightly to
464 basis points.
1
However, once again the big issue is not
the terms but whether or not the financing 0.5
is available.
0
It is highly unlikely that there is anything
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
in the average loan terms that will prevent
an investor moving forward should they Range
Range Average Average
be fortunate. Source: KPMG International, KPMG's 2018 Caribbean Hospitality Financing Survey

Loan to value

100%

90%

80%

70%

60%

50%

40%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Range
Range Average
Average
Source: KPMG International, KPMG's 2018 Caribbean Hospitality Financing Survey

Interest rate margin (bps)

1,600

1,400

1,200

1,000

800

600

400

200

0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Range Average
Average
Source: KPMG International, KPMG's 2018 Caribbean Hospitality Financing Survey

KPMG • 9
Other trends
Banks Non-banks

Impact of social media

The critical issues impacting financing activity in the region are
once again very clear.

Airlift was yet again identified as the most critical issue for both Impact of health related
issues (e.g., Zika virus)
banks (100%) and non-banks (100%).

For banks the second most important issues were the ability to
recover from hurricanes (72%) and crime (72%). Non-banks also Cross border issues/
trade wars, tarrifs, etc.
attributed great importance to the ability to recover from hurricanes
(88%). However, other issues volunteered by respondents
included labour availability concerns, seaweed (sargussum) and
the prospect of a U.S. recession—that word again! Abscene of a clear
exit strategy

Very important Moderately important Not important

Banks Non-banks Impact of Brexit

Airlift
Immigration issues

Utility costs
Impact of
cruise industry

Government incentives Respondents had some ideas on how these critical issues
could be mitigated, which typically involved a role for
governments in the region.

Hurricane preparedness “By a comprehensive long-term tourism strategy by each

jurisdiction that aligns other policy areas.”

“Investment in regional infrastructure and planning.”

Ability to recover
from hurricanes
“More cooperation between governments.”

“Local governments need to be educated to understand the

impacts of their decision on the most important resource many
Crime islands have, tourism.”

One respondent, who could be called a pessimist or realist

depending on your viewpoint, stated:

New taxes e.g., VAT “These are a part of the regional landscape and unlikely to change.”

Outdated infrastructure

Ability to secure debt

and equity financing

10 • 2019 Caribbean Hospitality Financing Survey

 A sea of opportunities
We asked financiers to consider the sea of opportunities for lending We asked survey participants what was the most “out of
in the region. the box” innovative opportunity they could think of for the
regional tourism industry in 2019.
Both banks (86%) and non-banks (75%) overwhelmingly voted for
the “cautiously optimistic” option when asked how they would “Private sector financing for convention centres.”
typically react to a lending opportunity in the Caribbean. Banks
“100% environment/sustainable resorts.”
again proved more optimistic than non-banks.
Banks' reaction to “Sea of Opportunities” “Focus on medical tourism campuses attached to high-end
Banks’ reaction to “sea of opportunities”
product development.”
90%
80% “Issuance of work permits applicable with Caribbean for
70%
60% tourism employees.”
50%
40% “More cooperation on regional airline connections.”
30%
20%
10% “A solution to remove the excess seaweed.”
0%
Dead Sea. What Sea of Atlantic Ocean. Gulf of Mexico. Caribbean Sea.
opportunity? Tranquility. Will Cautiously Getting closer! Smooth sailing. When asked, what single new opportunity excites you the
consider optimistic but Full steam most and fills you with optimism about the future of the
investing but it's could get choppy! ahead!
a long way to the tourism industry in the Caribbean, we received the following
moon and back!
responses amongst others.
Source: KPMG International, KPMG's 2019 Caribbean Hospitality Financing Survey
“Many luxury projects, back on the agenda.”
Non-banks’
Non-Banks' reaction
reaction to “Sea ofto “sea of opportunities”
Opportunities” “The move to transparency and accountability by governments.”
80%
“The state of the US economy.”
70%
60% “Infrastructure development.”
50%
40% “Continued prosperity in the Philadelphia/Boston/NY corridor.”
30%
20% When asked what opportunities respondents see for the
10%
0%
region’s tourism industry in 2019 and beyond.
Dead Sea. What Sea of Atlantic Ocean. Gulf of Mexico. Caribbean Sea.
opportunity? Tranquility. Will Cautiously Getting closer! Smooth sailing. “Airport Financing.”
consider investing optimistic but Full steam ahead!
but it's a long way could get choppy!
to the moon and “Rebuilding opportunities in countries with hurricane damage.”
back!
Source: KPMG International, KPMG's 2019 Caribbean Hospitality Financing Survey “Many limited service/select service hotels across the region.”

“Highly selective infill projects.”

“Increase in employment opportunity.”

“Many hotels in the luxury segment have benefitted from

a complete refurbishment due to the local hurricanes.”

KPMG • 11
KPMG’s Caribbean Travel,
Leisure and Tourism Contacts
Please contact the KPMG member firm represented in your country if you have any questions. KPMG member firms are
represented throughout the Caribbean region, and have a specific knowledge and understanding of the business, cultural,
economic and political facets of conducting business in each country.

Bahamas Cayman Islands

Simon Townend Niko Whittaker
+1 242 393 2007 +1 345 914-4369
stownend@kpmg.com.bs nwhittaker@kpmg.ky

Barbados & Eastern Caribbean Jamaica

Christopher Brome Karen Burgess
+1 246 434 3900 +1876 684 9922
cbrome@kpmg.bb karenburgess@kpmg.com.jm

Bermuda Trinidad & Tobago

Steve Woodward Abigail DeFreitas
+1 441 294 2675 +1 868 623 1083
stevewoodward@kpmg.bm adefreitas@kpmg.co.tt

British Virgin Islands Turks & Caicos Islands

Russell Crumpler Gary Brough
+1 284 494 1134 +1 649 946 4613
russellcrumpler@kpmg.vg gbrough@kpmg.tc

www.kpmg.com

The information contained herein is of general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely
information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without
appropriate professional advice after a thorough examination of the particular situation.

Corporate Finance services, including Financing, Debt Advisory and Valuation Services, are not performed by all KPMG member firms and are not offered by member firms in certain jurisdictions due
to legal or regulatory constraints. Forensic advisory and expert witness services may be subject to legal and regulatory restrictions.

© 2019 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority
to obligate or bind any member firm. All rights reserved.

The KPMG name and logo are registered trademarks or trademarks of KPMG International.