This document summarizes a study analyzing the financial performance of over 500 hotels managed by different hotel management companies. The study found that management companies can significantly impact a hotel's profitability, even for hotels within the same brand and with the same revenue levels. The study showed differences in house profit per room of up to $2,600 between top and bottom performing management companies for the same brand and revenue. This level of difference in performance could imply a hotel value difference of around $3 million. Therefore, the choice of management company is an important factor for hotel owners seeking to maximize the value of their property.

1. Hans Detlefsen, MPP, MAI
President
Emiliia Gordiienko
Associate
August 17, 2015
Hotel Appraisers & Advisors
Are Hotel Management Companies All the Same?
2015 Hotel Management Benchmark Study
111 N Wabash Ave, Suite 1717
Chicago, IL 60602
www.hotelappraisers.com

2. HOTEL MANAGEMENT BENCHMARK STUDY
Introduction
Hotel Appraisers & Advisors (HA&A) recently completed our 2015 Hotel Management Company
Benchmark Analysis. The study was designed in response to a series of questions we frequently
hear from our clients in the hotel industry. These developers and investors seek our help
identifying hotel operators and negotiating hotel management contracts. They ask us: Aren’t
most hotel management companies basically the same? How much does it really matter which
operator we select? Is there any quantitative data suggesting that different management
companies produce different profitability results?
In an effort to address these questions, HA&A collected more than 500 proprietary financial
statements from a broad range of hotel management companies that operate hotels in the
United States. We analyzed this financial data to determine whether the participating
management companies achieve roughly the same results, or differing results, in profitability. To
normalize for variables such as hotel age, location, branding, construction quality, and service
level, we looked at each hotel’s profit1 per available room (ProPAR). We also focused on a
selection of highly-standardized hotel brands. This article summarizes some of the key findings
from our proprietary study. Participation in the study is confidential and ongoing. Although the
authors actively solicited participation from 40 top hotel management companies, the study is
open to all hotel management companies and ownership groups operating in the United States.
The basic conclusion of our study is that the management company you choose can significantly
affect your hotel’s profit margin. Different management companies produced significantly
differing levels of profitability, after accounting for factors affecting revenue per available room
(RevPAR). Even within the same brand, properties with virtually identical top-line revenues
produced very different bottom-line profits, indicating substantial variability in the abilities of
different management companies to control expenses. Some management companies appear to
shine within particular geographic regions and others demonstrate an ability to achieve above-
average profit margins when managing certain brands.
The fact that our study was weighted towards a sub-set of highly skilled management companies,
and we still found substantial levels of variability in performance, supports the authors’
conclusion that selecting the right management company is critical for owners who want to
maximize the value of their hotels.
1
For the purpose of this article, we use the term “profit” to mean gross operating profit, which is also sometimes
referred to as house profit.

3. HOTEL MANAGEMENT BENCHMARK STUDY
Can We Predict House Profit if RevPAR and Brand are Known?
To test our hypothesis that management companies matter, the authors assumed the opposite
hypothesis and tested it. If all hotel management companies are pretty much the same, then
RevPAR and branding should be more important than management. When comparing two like-
branded hotels that both achieve the same RevPAR, one might expect them to have similar
profits, at least on a per-available-room basis. Since the most popular U.S. hotel brands each
require strict implementation of operating procedures, brand standards, and staffing protocols,
we might expect profit margins to be very similar once a hotel’s brand and RevPAR level is
determined. Stated differently, we wanted to test the hypothesis that we can predict a hotel’s
house profit if we are given the following two variables:
1. Brand
2. RevPAR
To test this hypothesis, HA&A evaluated detailed financial statements from four popular hotel
brands, with wide distribution in the United States. The following four figures illustrate RevPAR
versus ProPAR for each of these four brands included in our analysis.

4. HOTEL MANAGEMENT BENCHMARK STUDY
Figure 1 – Brand A ProPAR Trend Line
Figure 2 - Brand B ProPAR Trend Line

5. HOTEL MANAGEMENT BENCHMARK STUDY
Figure 3 - Brand C ProPAR Trend Line
Figure 4 - Brand D ProPAR Trend Line
In the preceding graphs, the black trend lines represent the linear regression models that most
closely fit the actual profit data for each brand. These models appear to explain more than 92.0%
of the variability in profits for the hotels in our sample. However, up to 8.0% of the variability is
not explained by our models. (The unexplained portion is even higher for other brands we

6. HOTEL MANAGEMENT BENCHMARK STUDY
analyzed.) While some readers may conclude these data fit our models very well, many
sophisticated investors make a living exploiting much smaller arbitrage opportunities than these.
Hotel management companies’ skill levels in controlling operating expenses is likely a primary
factor in explaining the remaining variability in house profits. By using well-honed operating
procedures, taking advantage of scale, building a sustainable training and recruitment process,
and by spreading the costs of asset management and other administrative tasks across a portfolio
of multiple hotels, some hotel management companies are able to produce superior profits for
a given revenue level.
What about a property’s condition, age, or location? Don’t these factors affect a hotel’s
profitability? Yes. However, these factors are already accounted for in our models because we
account for RevPAR.2 That is, if one property is in a better location than another, then this should
already be reflected in its RevPAR. Similarly, if one property is in better condition or newer than
another, then RevPAR should also reflect this difference. As such, normalizing for RevPAR allows
us to account for all of these potential differences between hotels with a single variable.
So, are we able to predict house profit if we know only the RevPAR and brand of a hotel? Not
very well. Even the most standardized U.S. hotel brands produce significant variability in profits
when compared to the trend lines shown. The management company’s skill is an additional
critical variable that can affect how well a hotel’s expenses are controlled, thereby affecting profit
margins. There may also be additional omitted variables not discussed in this article.
Do Management Companies Matter?
As we have seen, there can be substantial differences in profits between hotels, even when they
share the same brand and achieve identical RevPAR levels. We interpret this as evidence to
suggest that the selection of your hotel’s management company can matter a great deal. We
provide the following illustration to highlight this conclusion.
Let’s assume you’re building a 125-room hotel and it will be branded as “Brand A” from the
preceding Figure 1. After completing your feasibility study, let’s say you determine your hotel’s
stabilized RevPAR is expected to be $84.00 in current dollars. Figure 1 indicates that the highest
and lowest performers within this brand, at the projected RevPAR level, achieved house profit
levels of approximately $15,000 and $12,400, respectively. The following figure illustrates what
this discrepancy could imply for the value of your hotel.
2
RevPAR may not perfectly accounts for all of these factors; however, it is a useful and simple proxy.

7. HOTEL MANAGEMENT BENCHMARK STUDY
Figure 5 - Illustration of Management Impact on Hotel Value
In this example, achieving a ProPAR similar to the top performer (Scenario #1) implies a market
value of approximately $17.6 million. By contrast, achieving a ProPAR similar to the bottom
performer (Scenario #2) implies a market value of approximately $14.6 million. With the same
brand and same RevPAR levels, therefore, factors such as management skill (and other possible
factors) could imply approximately $3.0 million in value for the owner. Even if management skill
only explains a portion of this difference, it is still likely to be one of the biggest factors within the
owner’s control that significantly affects the hotel’s market value.
Concluding Thoughts
This article is intended to invite further discussion among industry professionals about the factors
that affect hotel profit margins and values. The authors hope the findings shared in this article
represent some small contribution to a broader discussion in the industry about how
management company selection and other factors can affect hotel profitability.
With respect to the importance of selecting a top management company, owners should
evaluate a management company both on its ability to control operating expenses and its ability
to maximize top-line revenues. This article has focused primarily on how a management
company’s skills pertaining to expense-controls can affect hotel values and profitability.
The selection of top management companies can also significantly affect hotel value through
management’s ability to maximize revenues. Although it is not the focus of this article, some data
in our analysis suggests that management skill may have a significant impact on a hotel’s ability
to achieve its top-line RevPAR potential. For the four brands shown in this article, the properties
included in our sample produced RevPAR levels approximately 4.0% higher than the U.S. averages
Scenario #1 Scenario #2
RevPAR 84.00$ 84.00$
Guestrooms 125 125
ProPAR 15,000$ 12,400$
House Profit 1,875,000$ 1,550,000$
Fixed Expenses 20.0% 20.0%
EBITDA 1,500,000$ 1,240,000$
Capitalization Rate 8.5% 8.5%
Market Value 17,647,059$ 14,588,235$
Market Value (Rounded) 17,600,000$ 14,600,000$

8. HOTEL MANAGEMENT BENCHMARK STUDY
for those brands. This may imply that participants in our study were more skilled at maximizing
top-line revenues than the average hotel management company. The authors welcome
participation from additional management companies and ownership groups who are interested
in receiving confidential benchmarking feedback.3
About the Authors
Hans Detlefsen, MPP, MAI is President of Hotel Appraisers & Advisors, a national hotel consulting
company based in Chicago. He holds a Master’s Degree in Public Policy from the University of
Chicago, where he was a recipient of the Harris Fellowship. He graduated magna cum laude from
the University of Notre Dame with a Bachelor of Arts degree in Government and Economics. Mr.
Detlefsen is a licensed and certified general appraiser. He is a designated member (MAI) of the
Appraisal Institute. Hans can be reached at (312) 526-3885 or by e-mail at
hdetlefsen@hotelappraisers.com
Emiliia Gordiienko is an Associate at Hotel Appraisers & Advisors. She recently earned her
Bachelor’s Degree in Hospitality Management at Kendall College, based in Chicago, concentrating
in Asset Management and Hotel Management. She participated in HA&A’s internship program
during her senior year. Emiliia has also gained diverse work experience as a Housekeeping Intern
at The Public Chicago and as Social Media Coordinator at the Bursar’s Office at Kendall College.
She can be reached at (773) 747-1673 or by e-mail at egordiienko@hotelappraisers.com
3
Please contact Hans Detlefsen at (312) 526-3885 or hdetlefsen@hotelappraisers.com if you represent a hotel
management company or ownership group and would like to be included in this benchmarking analysis. All
participating companies remain anonymous and receive a confidential copy of their hotel portfolio’s ProPAR trend
lines versus the national average trend lines for each brand in their portfolio.