Hotel owners take risks when investing in properties that can pressure asset managers to deliver EBITDA growth; finding the right balance requires cooperation.
Hotel owners take a big risk when they invest millions of dollars into their properties, expecting growth in their investments at the top line, and improved cash flow as well. At the same time, asset managers are under extreme pressure to deliver improved results and grow earnings before interest, tax, depreciation and amortization.
Industry publications and reports indicate that more travelers have stayed in hotels this year than ever before. Occupancy has grown in 115 markets in 2016 and revenue has continued to increase. Therefore, owners expect to see cash flow increases.
Data behind it
The data tells us that EBITDA is flat, at best. In fact, when looking at the 2017 STR Almanac data for full-service hotels, the EBITDA ratio to sales was slightly behind last year’s results, which was 28.4%; this is a 0.4% decline when compared to prior year’s results of 28.8%. (STR is the parent company of Hotel News Now.)
The only negative metric not widely talked about? Occupancy, average daily rate, revenue per available room and even food-and-beverage revenues experience positive, year-over-year growth.
It costs more to operate a full-service hotel today than ever before. Coupled with increased ADR and growing brand promises, the traveler’s expectations are higher than ever, too. In the most competitive markets, top line and EBITDA growth is either flat or have demonstrated few improvements.
- Guests want more services and an improved experience, and brands are demanding more from the owner and operator such as higher quality amenities, service levels and finishes;
- lower unemployment and the need to attract and retain better talent is causing operators to increase wages;
- the rising cost of health insurance is causing employee benefit costs to increase;
- federal, state and local governments are increasing regulations and changing employment practices, thereby driving increased labor costs;
- the vendors and suppliers are increasing the costs for goods and services;
- and changing employee expectations and productivity standards are dropping, as with most other major industries, causing an increase in cost-per-occupied room and cost per cover.
Asset managers should work with the operator to cultivate a cohesive team of strong leaders that will have a balanced approach to improving the guest experience, while taking care of the employees and ensuring an efficient and effective operation. This will flow more of the top line dollar to EBITDA to help solve these issues. The best-in-class asset managers are doing some or all of the following.
- Select the very best team members who have a passion for driving results for all the stake holders, including the owner. Those organizations that invest in selecting, developing and retaining the very best people yield the greatest results;
- have a “people first” culture and developing talent long before they are called upon to lead a team;
- proper selection and oversight of the right management company and implementing collaborative styles of asset management with the operator to provide better teamwork;
- develop the sales, marketing and revenue management strategies that will attract the right business, such as key accounts—higher rated, less discounted, loyal guests; less opaque; fewer reservations from OTAs and increased focus on strategic clients;
- be innovative by utilizing unused spaces, such as turning cost centers/and or non-revenue generating areas of the hotel into profit producing spaces;
- switch from F&B to B&F, which will drive highly profitable beverage programs. Also consider local chef programs to reduce labor and food costs;
- explore food concepts and retail that mix with grab-and-go options and puts an emphasis on more profitable beverages. Even think about providing more creative vending machines, partnering with professional services;
- expand revenue centers, such as in-room, on-demand guest request programs and room amenities (spa services and technology support in business hotels); and
- consider new use of technology in the guest room to enhance guest experiences and/or replace high costs of labor;
- and invoke sustainability efforts that create green buildings, exciting work places, energy savings and strategic procurement that will reduce waste before it even comes in the building.
In summary, the need for strong leadership with a passion for results that drive innovation are keys to being an effective asset manager in today’s busy and highly charged political environment.
Paul Breslin is managing director of Horwath HTL, with offices in Atlanta Georgia. He is a 35-¬year veteran of the hospitality industry, with extensive experience in hotel operations, development, consulting and asset management with major branded hotels as well as independent and smaller luxury hotels. He is a member of the International Society of Hospitality Consultants (ISHC) and the Hotel Asset Managers Association (HAMA). He is a Certified Hotel Administrator (CHA) by the Educational Institute of AHLA. He is a founding member and past president of the Atlanta Hospitality Alliance, and currently serves on its board. He also serves on the Governmental Affairs Committee of GHLA. Additionally, Paul is a Certified Hospitality Educator (CHE), adjunct professor and is the Executive-¬in-Residence in Lodging for the J. Mack Robinson College of Business, Cecil B. Day School of Hospitality at Georgia State University.
The opinions expressed in this column do not necessarily reflect the opinions of Hotel News Now or its parent company, STR and its affiliated companies. Columnists published on this site are given the freedom to express views that might be controversial, but our goal is to provoke thought and constructive discussion within our reader community. Please feel free to comment or contact an editor with any questions or concerns.