3 C’s are key to create future concepts in hotel asset management.

 Community
 Customization
 Connectivity
+ collaboration & creativity

Test (18/10): Topic 1

Know the brands model and scale

LO1 Critically evaluate the growth strategies of key branded players in the hospitality industry in
relation to owners’ and investors’ requirements. (week 1)

LO2Critically analyse hotel revenue and profit trends using best practice of key
performance indicators. (week 3- KPIs)

LO3 Conduct a feasibility study for hotels by undertaking market benchmarking analysis using
best practice secondary research supply, demand and performance metrics. (week 2; 4; 5)

LO4 Apply negotiation theory to create best-in-class hotel management agreements.

LO5 Apply best practice valuation techniques to a hotel asset. (week 7)

LO6 Determine the key product combination, trends, and financial drivers which make a
successful sustainable resort project. (last 3 weeks after field trip)

LO7 Critically appraise hotel operating models and concepts based upon hotel product, service
and market trends.
 Hotel Asset Management: HAM
1) definition:

HAM: individual hotel asset in the perspective of real estate but not portfolio stocks.

Owners and investors drive the business models (types of products, brands): if they have a
conservative approach they will want fixed returns they will sign more leases.
If they have a modern approach, they accept more variable rates, like franchises.

Operations should be profitable sustainably on the long term.

HAM:
1- To manage the hotel as a real estate asset, from an owner, investment, value, ROI, or
profitability perspective
2- To build and maintain relationships between owner + all the hotel’s parties, whilst
communicating consistently and clearly.
3- To manage all the hotel assets – Building, CAPEX, management company, brand, people.

Asset: resource with economic value that an individual, corporation, or country owns or
controls with the expectation that it will provide a future benefit.

HA Managers:
28% HAMg work for private ownerships (private equity investors, opportunity funds, sovereign
funds, wealthy individuals, property development firms)
47% for institutional owners (pension firms, life ensures, banks and publicly traded companies)
22% independent advisors (3rd party HAM hired by private investors or institutional owners)
2) HAM types of companies:

1- in House HAM (HOST, Starwood Capital, Marriott international, Deutsche Bank)

2- 3rd parties (HVS, Hamilton hotel partners): consulting firms, advisors of investors.

3- blended (Hetherly Capital Partners)

3) Role of Asset manager:

Hotel asset management is the service of assisting hotel owners in realizing their investment
goals. Asset managers = owner’s agent/representative to ensure that a hotel is acquired for a
reasonable price; is then operated properly during the period
of ownership, and ultimately disposed of at an appropriate time and price.

Roles (from the articles)

 Competitors
 Past data
 Benchmarks
 Trends
 Shareholders’ perspectives
 Experience (design and concept)
 Business Models

Test: brands ppt presentation in class

I) Types

Owner company: A company which primarily owns rather than franchises or manages lodging
properties. To be coded as “the” owner in the STR database a company must have majority
(51% or more) ownership in the property.

1) Hotel ownership model

Hotel is owned by an owner (receives the profit):

1. Managed by owner or third-party management company and may have a franchise contract
or consortium relationship
2. Leased

2) Management contract

Management: A commitment to manage a hotel on a contractual basis, in exchange for a fee.

Fees: revenues (base fee %), on profit share or GOP (incentive fees)

Management company: A company that manages hotels for owners typically in return for fees
and/or a share of revenues. A management company may or may not have any of its own funds
invested in a
hotel that it manages

3) Franchise contract

The right to use the brand and sales/reservations /loyalty programs in exchange for a fee.
Fees: revenue based.
Franchisor (IHG, Marriott): The company that allows the franchisee to run a location of their
business. The franchisor owns the brand, trademarks, and products, but gives the right to the
franchisee to use the brand, in return for an agreed-upon fee.

Franchisee (hotels owners): A company which has been issued a contract to use a specific name
and logo, purchased for an annual fee plus “royalties” usually based on a percentage of sales.
Members share such benefits as brand-name identity, corporate image advertising, centralized
reservation systems, corporate training programs, and volume purchasing

4) Consortium agreement

An agreement to receive hotel bookings/customers for a fee/commission, in recognition for a

brand promise, in return for a fee. Also called license agreement, affiliation or referral system.
Fees: per booking
5) Lease agreement

The right to use a hotel, building, or real estate area for an agreed period of time in exchange
for a payment.
Fees: Fixed monthly; variable tied to revenue; blended (including profit); index linked
Lessor (hotel owner) vs lessee (people). Least risky investment.
Less popular because on the balance sheet there is a lot of liability thus affecting stockholders’
sentiments to invest in the company (especially for public listed companies).

Business model description:

- Type of company (REIT, Publicly-listed stock, PE)
- Types of holdings/real estate (full ownership, leases, management contracts,
franchises...)

Grid of types of business model:

Owner goes to Marriot to use the brand for its property for them with a franchise contract but
the owner sign a management contract with Interstate (white label management company) to
take care of operations management (understand owner’s expectation better bc franchisor
focus on their brand development).

White label management company: no brand for the customer.

MANCHISE

Owner of the hotel leese the building to SV group who is liable for the business. SV group has a
franchise contract with another hotel company to use their brand/sales...
Other scenario:
SBB owns land and mobimo owns the building on the land, thus mobimo pays a rent to SBB
because they lease the land.
SVGP leeses the building to mobimo and has a franchise contract with moxy and staykook, has a
lease contract with Coop.

REIT: Real Estate Investment Trust (Summit Hotel Properties, Hospitalities Properties Trust,
Ryman Hospitality Properties)

II) Country business models

UAE increases the number of franchise models because there is a huge pool of talent to recruit
and lead a good management (unlike Nigeria)
Turkey has a long history with hotel owners because they are family business but they
eventually has to switch to management contracts.

Role of asset manager:

Characteristics a hotel owner looks at to find the ownership solution:

a- owner’s risk (low, medium, high)

b- type of business model
c- brand (brands specialized in xx)
d- country (based on the country business model preference)
e- role of the HAM (low, medium, high)
 Product types and brands

I) Hotel types:

Destination Resorts: Hotels that appeal to leisure and family vacation travelers, typically located
in resort markets, and are considered a destination in and of themselves.
Destination resorts provide guests with extensive amenities normally associated and oriented
toward the vacation and/or family experience- such as: pools, golf, tennis, restaurants, spa
facilities, beach, ski, casino, etc.
These more exclusive hotels are typically larger, full-service, Luxury chains, Upper upscale
chains, or higher priced. (ADR) independents.

Gaming/Casino: Lodging hotels that place major focus on casino operations.

Golf: Hotel must have a golf course on the site of the hotel to be considered. It is not sufficient if
the hotel only has privileges on the course next door.

Ski: Guests have easy access to ski slopes.

Spa: Hotel must have designated spa facility and offer treatments. Offering a sauna or hot
tub/whirlpool would not qualify .

Waterpark: An indoor or outdoor waterpark resort as a lodging establishment containing an

aquatic facility with a minimum of 10,000 square feet of waterpark space and inclusive of
amenities such as slides, tubes and a variety of water play features.

II) Star ratings limitations

Obsolete, not standardized internationally, corruption, doesn’t reflect guest experience, based
on physical facilities and services.

III) Segments

Chain scale segments: are a method by which branded hotels are grouped based on the actual
average room rates. Independent hotels, regardless of their average room rates, are included as
a separate chain scale category.
(Test: know brands scales)* test result from Socrative.

(L) Luxury chains

(UU) Upper upscale chains
(U) Upscale chains
(UMS) Upper midscale chains
(MS) Midscale chains
(E) Economy chains
(I**) Independents
(ES) Extended stay – Hotels focusing on attracting hotel guests for extended periods of time.
These hotels also quote weekly / monthly rates.

ADR intervals is based on the category which positions it.

Segments based on the business model:

Franchise is better for these mid-segments because it’s easier to control & standardize these
segments.

Management is better for upscale because they get a percentage from profit or revenue.

Overview of company:
 type, location,
 business models by types of segments and by brands
 expansion and development strategies.

(power point presentations in class- Accor)

 Pros & cons of brands from owner’s perspective:

Pros Cons
 Increase value of the asset  Loss of control, dependence
 Profit & returns from it  Asset value decrease*
 Design and construction guidelines  Brand restrictions (min & max
 More secure for investors & banks requirements from the brand, esp.
 Purchasing through supply chain cheaper franchise)
(OTAs)  Continuous fees & Profit-sharing decision
 Competition between owner and brand
 SOPs (standard operating procedures)  Brand damage
 Distribution channels  Legal (trademarks) and regulatory
 Brand recognition (staff training, challenges (products: ex- Marriott
customers) and reputation exclusive contract w coca cola, no Pepsi)
 Loyalty program  Renovations & investments
 More exposure  May not be able to source locally

*if owners want to sell asset with a brand that a buyer wants to implement another brand:
proceed to terminate contract on sales. It is better to have an asset without a brand associated
with it to attract investors to have a choice.

Consider these for choosing the right brand:

 location
 source market
 competition
 distribution system
 positioning
 flexibility required
 cost of investment
 ROI
 Reputation of the company (responsiveness...)
 Support structure
 (Regional teams, dedicated owners' resources, etc.)
 Career opportunities for staff

Ritz Carlton: management contract

 Operating statements

I) Operating statements

Look at 2 parts: A&G and operations

*sales & marketing revenues cannot be allocated to a department specifically thus they are
called “undistributed expenses”.

Legend:
 Income revenues
 Cost and expenses

Operating revenue
Rooms
F&B
Other operated departments
Miscellaneous income
Total operating revenue

Departmental expenses
Rooms
F&B
Other operated departments
Total departmental expenses
Total departmental profit

USALI is used as a benchmark because it is the language used to understand and compare
revenues and expenses in time and departments.
For the OPERATOR:
 Asset (bc cash)

*for FF&E

Summary operating statement for OWNER:

USALI BALANCE SHEET:

Depending where you allocate your fee, it can change your income as an owner.

Franchise fees are in Sales & Marketing (before profit)

Management fees are after the GOP (because based on profit & revenue)

*to compare franchise vs mgt fees, franchise fees should be placed after GOP/profit line) to be
on the same level than mgt fee line. *
Credit card commissions: administrative and general (every payment done has to be paid;
AMEX=5%)

Parking revenue: Other operating department (revenues if operated by the hotel),

Miscellaneous income (if parking leased by the hotel).

 If I’m an owner, and have a parking that brings 1million a year. All the income goes to the
management company. Instead make it a lease to make 100% profit for the owner and
have it managed by another company.

ICT: Internet & telephone

PR: sales & marketing

II) Planning & benchmarking

Purpose: decision making; improvement

Budget: the annual target performance for the hotel that is agreed upon prior to the start of the
year.

Process: usually in Q3-Q4 of the prior year, it takes several weeks or months and is a
collaborative process.

Risks of two types of budget:

 Aggressive budget: unrealistic, unattainable, demotivating, fall short of goals. (OWNERS)

 Conservative budget: go over easily, limit to company’s potential, lack of innovation
(BRAND because they have fees based on their performance)

Solutions between these budgets: Find a balance and agreement between the two.

Main KPIs:
 RGI (revenue generating index), MPI (market penetration index),
 Rooms available
 Rooms sold (Occupied rooms)
 Occupancy
 ADR (Average Daily Rate)
 Rooms RevPAR (Revenue Per Available Room)
  Total RevPAR (TrevPAR)
 POR (Per Occupied Room) (Per Room Sold)
 PAR (Per Available Room)
 GOP (Gross Operating Profit) %
 GOP (Gross Operating Profit) PAR
 GOP (Gross Operating Profit) Flow Through = (Actual GOP – Budgeted GOP) / (Actual
revenue – Budgeted Revenue)  ex : if I increase the price of something (no extra cost),
this increase goes directly to the GOP but if I want to increase occupancy, my GOP is
negatively impacted because there is operation cost. Then the priority should always be
pricing. The tactic you should use is to always increase the GOP Flow Through.
 Online review index (3rd party feedback service)
 CPOR Costs per occupied room
 Room type index (which room type is most profitable)
 GOP PSM (gross operating profit per square meter)
 TrevPar/Por (Total revenue per available room and per occupied room)

KPIs sources:
 Hotstats (Operating statements)
 PKF (Operating statements and trends)
 STR global (Occupancy and ADR)
 Travel Click (Consolidated PMS)
 Hotstats (Revenue management)

% of revenue= (total monetary amount of line item * 100 ) / total revenue or total department
revenue

Amount Per Available Room (PAR)= 𝑇𝑜𝑡𝑎𝑙 𝑀𝑜𝑛𝑒𝑡𝑎𝑟𝑦 𝐴𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝐿𝑖𝑛𝑒 𝐼𝑡𝑒𝑚 / 𝑇𝑜𝑡𝑎𝑙 𝐷𝑎𝑖𝑙𝑦
𝐴𝑣𝑎𝑖𝑙𝑎𝑏𝑙𝑒 𝑅𝑜𝑜𝑚𝑠 𝑎𝑡 𝑡h𝑒 𝐻𝑜𝑡𝑒𝑙

Amount Per Occupied Room (POR)= 𝑇𝑜𝑡𝑎𝑙 𝑀𝑜𝑛𝑒𝑡𝑎𝑟𝑦 𝐴𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝐿𝑖𝑛𝑒 𝐼𝑡𝑒𝑚/𝑇𝑜𝑡𝑎𝑙
𝑂𝑐𝑐𝑢𝑝𝑖𝑒𝑑 𝑅𝑜𝑜𝑚𝑠 𝑎𝑡 𝑡h𝑒 𝐻𝑜𝑡𝑒𝑙

Advised template for the operating statement benchmark table

Case Study: Alex Lake Zurich (Europe first luxury apart hotel)

Long term planning: 5-7 years

Concept needs to be top notch before selling it to

Can combine different business models together:

- Management agreement for operations of the hotel
- Lease F&B outlets
- Consortia with SHOTW
- Hyatt redemption program
Hilton Hotels Corporation belongs to Blackstone Group (private equity, investment banking,
alternate asset management and financial services corporation).
Location: USA
Business model: franchising

Marriott International belongs to Starwood Hotels & Resorts

Location: USA
Business model: Management, franchising, and licensing, we own or lease very few of our
lodging properties (less than one percent of our system).

Intercontinental hotel Group IHG

Location: UK
Business model: franchising; management; owned, leased and managed leased