Strategic Practice for Luxury Hospitality Management

1. Ownership and
asset management
Strategic Practice for Luxury Hospitality Management
By Ashley Garlick

2. Welcome to Strategic Practice for Luxury
Hospitality Management
First, we explore some of
the technical concepts of
hotel strategy, revenue and
asset management. This
takes us to the first
assessment.
Next, we move to the ‘soft’
side of strategy, thinking
about strategy as
something people do, not
something companies have
(a.k.a. Strategy As Practice).

3. Learning
outcomes
• Understand the various ownership
structures
• Analyse the advantages and
disadvantages of different ownership
models
• Evaluate the role of asset management
in the luxury hospitality landscape

4. Ownership models These are different from
structures…

5. Ownership
and
management
models
Source: Johnson, G. Whittington, R. Scholes, K.
Angwin, D. and Regner, P. (2017). Exploring
Strategy. 11th edition. Harlow: Pearson.
Competitive
advantage
Profit-focus
Professional
Exclusive
Mixed
Personal

6. Other models:
• Not-for-profit / charitable foundation
• Partnership model
• Employee-owned firms

7. Common
models of
hotel
ownership
• Property owned and operated by the owner
• Property fully owned and operated by the hotel brand
• Property leased by a hotel brand, which pays rent for the
“walls” - the lessee is responsible for all the finances of the
hotel
• Property owned by a third party and managed by a hotel
chain - the owner has the financial obligations of day-to-
day operations such as salaries and maintenance, but the
management company takes over the responsibility of
making management decisions
• Property owned by a third party and managed by a “non-
branded” specialist management company
• Property owned by a third party, with a franchise
agreement with a hotel chain

8. Who owns hotels?

9. Source: Collins, S. and Perret, S. (2015). Decisions, Decisions… Which hotel operating model is best for you? London: HVS.

10. Franchise
Managed

11. Advantages and Disadvantages of the
models - lease
Source: Collins, S. and Perret, S. (2015). Decisions, Decisions… Which hotel operating model is best for you? London: HVS.

12. Advantages and Disadvantages of the
models - managed
Source: Collins, S. and Perret, S. (2015). Decisions, Decisions… Which hotel operating model is best for you? London: HVS.

13. Advantages and Disadvantages of the
models - franchise
Source: Collins, S. and Perret, S. (2015). Decisions, Decisions… Which hotel operating model is best for you? London: HVS.

14. Source: Collins, S. and Perret, S. (2015). Decisions, Decisions… Which hotel operating model is best for you? London: HVS.

15. The move from
owned to asset light
• Began in the 1990s as ‘traditional’ hotel companies looked
to dispose of their asset intensive portfolios
• Recognition of hotels as an asset class for property
investors.
• Increasingly high prices paid due to cheap debt and a large
surplus of oversupply for more traditional commercial
property investments.
• Shareholder demands for owner/operators (especially
listed companies such as IHG, Hilton and Accor) to release
capital from their balance sheets to return to shareholders
and improve return on capital employed.

16. Sale and
leaseback
The seller of a hotel becomes a lessee to a new
owner, maintaining a brand flag and management
agreement but avoiding certain economic risks and
alleviating concerns over potential oversupply in top
markets

17. Sale and leaseback
• Higher capital turnover as a result of lower capital invested
means that the return of invested capital is greater.
• It helps to ease system growth and expansion of brands,
and the brand awareness among customers, as it requires
less capital.
• Financial risks for hotel operators are normally lower in
hotels under management and franchise contracts without
guarantees, compared with hotel ownership.
• Separation of hotel operations and property ownership
implies less financial leverage and increased focus on hotel
operations instead of property asset management.

18. Source: Colliers International (2014) Hotel Asset Management. Managing the Asset Lifecycle. Dubai Colliers International Hotels.
So should you
own your
hotel assets?

19. Benchmarks of asset
management performance
• What factors within the physical building
influence the revenue a hotel can make?
• What is the relationship between the
intangible elements of the hotel brand and
the tangible building infrastructure?
• Over what time period do you think it
reasonable to expect a return on any
refurbishment investment?
Source: Colliers International (2014) Hotel Asset Management.
Managing the Asset Lifecycle. Dubai Colliers International Hotels.

20. Asset Strategy
Source: Colliers International (2014) Hotel
Asset Management. Managing the Asset
Lifecycle. Dubai Colliers International Hotels.

21. Role of the Asset
Manager
Year 1 to 3: Short term Strategy
• Lead monthly operational
review and operator oversight
• Focus on FF&E expense
management;
• KPI Analysis and
benchmarking; financial
assessment (GOP, EBITDA)
• Property review visits
• Performance & Future
Reservation Outlook
•Year 3 to 5: Refurbishment
Planning
• Analyse Micro and Macro
Economic Trend Analysis
• Consumer behaviour trends
• Competition and market –
hotel pipeline
• Build Refurbishment Strategy;
Capex requirements
• Operator Search
Source: Colliers International (2014) Hotel Asset Management. Managing the Asset
Lifecycle. Dubai Colliers International Hotels.

22. Role of the Asset
Manager
Year 5 to 7: Refurbishment
Execution
• Work closely with operator
to kick-off refurbishment
plan
• Lead the bidding process to
manage the supply chain
• Act as a program manager;
focus on budget and
timelines
• Ensure smooth execution
Year 7 to 9: Final
Refurbishment Phase
• Refurbishment of public
areas and back office
• Asses refurbishment impact
on asset value
• Management of marketing
and sale of asset
Source: Colliers International (2014) Hotel Asset Management. Managing the Asset
Lifecycle. Dubai Colliers International Hotels.

23. The Role of the Asset
Manager
• Maximise hotel value for owners
• Be able to link strategic direction with
operational decisions
• Must be highly educated and skilled as
financial management
• Background in hotel operations and
hotel development advantageous
Source: Singh, A.J., Kline, R.D., Ma, Q., and Beals, P. (2012). Evolution of
Hotel Asset Management: The historical context and current profile of
the profession. Cornell Hospitality Quarterly, 53(4), pp.326-338.

24. Mergers and Acquisitions
• A merger is a combination of two or more
companies into one, wherein the merging
entity loses its identity and no fresh
investment is made within the process.
• Acquisition is an attempt made by one firm
to gain a majority interest in another firm.
WHY?
• Financial capital for fixed assets and human capital
• Brand awareness
• Growth patterns of the leisure industry are correlated closely
with the growth of hotel companies
• Real estate investment
• Competition and low entry and high exit barriers
• Distinction of hotel owners and hotel operators
Source: Zhang, F., Xiaoa Q., Lawa, R. and Leeb, S. (2020).
Mergers and acquisitions in the hotel industry: A
comprehensive review. International Journal of Hospitality
Management, 91, pp.1-12.

25. Summary
• There is a difference between ownership
and structure – you need to understand
different ownership models
• Increasingly, international hotel groups are
adopting asset light strategies
• Where property is still owned, companies
need to extract maximum value – can be
achieved using an Asset Manager
• One way to expand is through mergers and
acquisitions, but this can be for different
reasons

26. What do you
need to do
before the
seminar?
• Read and familiarise yourself with the A1
assessment brief. Note down and questions you
have.
• We will be forming assessment groups in the
seminar – so turn up!
• If you have struggled with some of the content
today, you may find it beneficial to read: van Ginneken,
R., Ko Koens, K., & Fricke, J. (2019) Ownership perceptions in
European hotel management agreements, International Journal
of Hospitality & Tourism Administration, 20:4, 449-467, DOI:
10.1080/15256480.2017.1397586