The Asset Management Guide – Hotel planning and budgeting

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27/11/2016 - Hospitality

Year end is one of the busiest times for the hotel operators as they must submit their hotel budget plan for the following year to the hotel asset manager and the hotel owner. As an hotel asset manager, what exactly do we look for in a budget? Do we always expect a more robust financial performance compare to the previous year? Do we solely benchmark against the competitor?

We don’t always look solely at RevPAR – There are two reasons for this. Firstly, RevPAR is an indicator of revenue generated per available room, it does not show how well the hotel is at managing their expense, and how much profits we earn. In fact, GOPPAR (Gross Operating Profit Per Available Room) is a more accurate indicator of the hotel’s top-line and bottom-line performances.
Secondly, sometimes hoteliers try to obtain RevPAR by lowering the rate as low as possible to achieve maximum occupancy. This strategy affects the positioning of the hotel, and might create a long-term problem with the asset value. Hoteliers who focus only on occupancy will struggle to differentiate their hotel from the competitors. The job of the appointed hotel asset manager is to analyse the best strategy for the hotel.

We don’t always compare to the previous year’s performance – A professional hotel asset management firm understands that benchmarking against the competitive set is a more precise indicator of how the property is performing rather than comparing to the previous year. Asset manager should not expect constant improvement compared to the previous years. This is merely impossible, especially for an ageing property surviving through several economic cycles. For example, a hotel may indicate consistent improvements during three consecutive years. In the fourth year, the hotel may underperform due to the unfavorable market condition. In this case, would it be relevant to compare the performance with the previous years?
Comparing against the previous years might be a good exercise, however, it is more precise to benchmark against the market and competitor set. The hotel asset manager should analyse the property positioning in the market and consider the strategy to cope with the market environment

We do look at your segmentations, so presenting a good revenue forecast is not enough –Hotel Asset Manager needs to understand the logic behind the forecast. This is done by analysing different market segments which determines the hotel’s yearlong strategy. For example a hotel where 40% of expected guests come from the online portals suggests good, consistent revenue but profit could be lower due to higher commissions. FIT segment will deliver higher net rates hence obtain high revenue. The hotel Asset manager shall constantly review all pricing decisions and advise the best segmentation mix that will drive a higher ADR, according to the hotel’s strategy.

We manage costs –. Hotel Asset manager will absolutely raise questions if they detect any major discrepancy in any of the expense items. A professional hotel asset manager shall differentiate between managing costs and reducing costs. If the hotel operator provides a reasonable justification for an appropriate expense, then the hotel asset manager should understand and analyse the benefits from a short and long term perspective.
Reducing costs is always important, but a good hotel asset manager might also initiate programs which will require large investments if it creates long-term value for the hotel. For example: the hotel asset manager might advise the hotel owner to refurbish the hotel property, believing that in the long run, the new look and appeal will improve the pricing within the different target segments. It will also help positioning the property and appreciate its value.