The Chesapeake Point of View

How Do Hotel Owners/Investors Maximize Asset Value?

How Do Hotel Owners/Investors Maximize Asset Value?

April 15, 2016

In this EXCLUSIVE Q&A with Chesapeake Hospitality’s COO, we learn some concrete financial tips that investors and owners should know as they enjoy the market and its positive outlook today and as they prepare for the future.

Chesapeake Hospitality is ranked in the top 40 largest independent hotel management companies in the industry–and works with a range of familiar names like Hilton, IHG, Starwood, as well as a number of independent and boutique properties. One thing that’s consistent across all brands and all segments is the need to increase asset value. That is according to Chris Green, COO of the firm. We recently chatted Green on ways to maximize value, and what big picture priorities should be top of mind. What are some of the ways that owners and investors can look to maximize value?

Chris Green: It starts with senior management developing a clear understanding of client objectives, then executing a strategic plan to achieve desired results.

An entrepreneurial property management team that is focused and nimble has a competitive advantage to quickly adjust to changing market conditions creating cash flow and asset value for owners. The key is to utilize the many tools and technologies that are available in a tactical and consistent way, concentrating on metrics that help with accountability and reinforce a results-driven approach. National purchasing and cost management programs, as well as revenue management, e-commerce, and sales and marketing–both regionally and nationally–are all critically important. Innovative food and beverage strategies can also be a difference-maker—all of which will create a solid framework of information gathering controls leading to better overall management of fixed and operating costs. If you don’t mind, talk a little more about what distinguishes high performers in those areas.

Green: Sophisticated sales and marketing tactics begin by digging deep into rate and revenue data to yield meaningful insights about channel performance. Sales by segment is important, but it’s the ability to translate that data into effective strategies that can help maximize revenue from the most cost effective distribution channels. A comprehensive and granular e-commerce strategy enhances top line revenue through social networking, reputation management and online marketing. The right systems and analytical tools can take most of the guesswork out of rate setting, and make it possible to accurately project revenue results. Overlaying all of this of course is the need to engage in hedge management–preparing for change and maximizing RevPar in ways that will translate no matter what the state of the market.  What are some of the concrete tips you can share with our readers that can help maximize their investment today from a financial perspective?

Green: One of the biggest things I’d be looking to now is working to complete Performance Improvement Plan items in the near future. You want to take care of those priorities while cash flow is strong–deterioration tends to accelerate in a softer period as operating expenses are trimmed. This is an inherently cyclical industry, and part of controlling your destiny is to get out in front before the next challenging period in that cycle comes around. So in other words, proactive hoteliers will be better poised for the next recessionary cycle?

Green: Absolutely. Another smart step that owners and operators can do is to communicate with vendors/contractors and establish an understanding that in the event that down-cycling becomes necessary in the future, they will need to come with you. Remember that vendors have experienced a run-up as well over the past few years. The smart ones know that softness is coming and should (hopefully) be open to renegotiating now. If they are resistant, it’s worth taking the time to educate them. That is sound advice, particularly with respect to thinking ahead and preparing for the mid- to long-term. With those bigger picture priorities in mind, what are some nearer term issues that hotel investors should be focusing on in 2016?

Green: Definitely identifying value adds in management and e-commerce. The run-up over the last several years has been so good that it has been all too easy for some to have simply risen along with the tide–while failing to fully exploit the opportunities that this period of robust growth and relative market strength has afforded. As a result, there are plenty of “performing” assets that are actually underperforming relative to their potential. Vigilance and diligence in finding ways to become more efficient and maximize revenue is almost more important in that context, because rate growth has actually contributed to some operational inefficiencies and less-than-stellar expense management. With that in mind, are there any other things owners may not be doing–that they should be–to prepare for the next downturn?

Green: Focus on your team. Train your people and cross-train your people (so that they are not only capable, but flexible). Development and retention of personnel assets is a tremendous bulwark against the stresses of a downturn. Good employees are capable of doing 130% of what weak ones can do. By helping those talented and motivated employees become even better, you are ensuring that any future consolidating that becomes necessary will not unduly stress operations. Along those same lines, owners and operators should be keenly focused on steadily improving their overall level of service. Tripadvisor is king: own it. That’s something that can pay immediate dividends, but it becomes even more valuable in leaner times. You will need word of mouth when you have to trim your advertising spending.

See the exclusive Q&A here

Thank You