Melbourne city skyline at night

Managing Hotel Management Contract Renewals: A Strategic Guide

Embarking on a strategic journey through the intricate landscape of hotel contract renewals is a crucial endeavour for any savvy hotel business owner. Here, unravel the multifaceted dimensions associated with the end of a contract and what it means for your hotel business.

From cultivating a proactive vision for a successful future to navigating the implications of contract decisions and exploring alternative options like the intriguing Manchise Agreement, our guide aims to equip you with the knowledge to master the complexities of this critical phase.

What the End of a Contract Means for Your Hotel Business

Nearing the end of a contract can be a pivotal moment for a hotel business. It signifies the conclusion of a formal relationship between the hotel owner and the brand. This could mean the cessation of brand support, access to proprietary systems, and the potential loss of brand recognition.

However, it also presents an opportunity for the owner to reassess their business strategy and consider new avenues for growth. It’s important to understand the end of contract and renewal provisions in your agreement, particularly key dates for issuing notices.

Proactive Vision for a Successful Future

The renewal of contracts, particularly in the hotel industry, is a significant process that necessitates careful planning and foresight. It’s not uncommon for hotel owners to underestimate the time and effort required for this process, leading to hasty decisions or missed opportunities.

It’s important to be proactive when dealing with ended contracts and contract renewals. Here are some of our top tips to help you stay on top of things:

Modern hotel seating pods

Act Now, Not Later

Timely decision-making is crucial to minimise operational hiccups. Delays in decision-making can lead to prolonged periods of uncertainty, which can negatively impact staff morale, customer satisfaction, and overall business performance.

Starting the evaluations and planning early allows ample time to assess the current situation, explore options, and negotiate terms with some competitive tension. It’s also important to communicate your decisions effectively to all stakeholders so no one’s in the dark during the in-between contracts phase.

Define Objectives and Do Your Research

Clearly outline what you want from the contract renewal. This could be better terms, lower fees, more support, or even a complete change of brand to leverage alternative market positioning or change of management.

Once you know what you want for the future of the hotel, it’s a good idea to conduct some research to give you a better idea of how to get there. Understanding the current market conditions, competitor strategies, and industry trends will help inform your decisions and strengthen your negotiating position.

Strategic Renewal Planning

Now it’s time for strategy to take centre stage. Strategic renewal planning involves developing a proactive plan and vision well in advance of the end of a contract. It includes assessing the current market conditions, evaluating the performance of the brand, and considering the future goals of the business.

For hotels with a significant Meetings, Incentives, Conferences, and Exhibitions (MICE) business, the lead time for change can be even longer. MICE bookings often occur 1-36 months in advance, so any changes to the brand or operator can significantly impact this segment of the business.

Seek Expert Advice

Finally, consider engaging a consultant or advisor who specialises in hotel contract renewals, like the team at Axsia HTL. We can provide valuable insights, advice, and support throughout the entire process.

Remember, the goal of the renewal process is to secure a contract that aligns with your business goals and sets your hotel up for future success. So, take the time to plan, prepare, and make informed decisions. We promise it’s worth the effort.

Aerial view of workers planning at a desk

Analysing Performance and Alignment

With all of that initial brainstorming, researching, and broad vision planning under your belt, you’ll want to analyse your current hotel performance and how it aligns with your business goals.

The end of a contract is the perfect time to do this, but as we said above, be careful not to wait until then – be proactive and look ahead so you have plenty of time to make changes. Three key areas of franchise performance analysis include:

Considering the Owner’s Objectives

Owners should evaluate the performance of the brand or operator against their business goals. This includes assessing whether the brand aligns with the owner’s vision, whether the operator has met the owner’s expectations, and whether the hotel is competitive in its market.

Employing the Right Assessment Metrics

Several metrics can be used to evaluate the performance of your agreement. These include revenue growth, brand reputation, and customer satisfaction. These metrics can provide valuable insights into the performance of the brand and can inform the owner’s decision about whether to renew the agreement.

Updating the Investment Plan

The end of a contract is an excellent time for owners to update their investment plans. This process should involve thoughtful consideration of all the above issues and potential strategies for moving forward.

Given the complexities involved, this process could take up to a year, especially if it involves transitioning to a new brand or operator. Take your time with this step and invest some time into researching and planning any updates to the investment plan, including elements like risks vs rewards.

Evaluating the Investment Horizon: Sell vs Hold

So, let’s say you’ve done some excellent research and planning well in advance of your hotel’s ended contract and you’ve hit a snag: things aren’t looking feasible to hold onto. The first step is not to panic, and the second is to consider whether selling is actually in your best interests.

When deciding to sell a hotel, it’s essential to consider the current market value of the property, potential buyers, and the implications of the sale on your overall investment portfolio. Can the proceeds of the sale be invested into higher-return assets?

On the other hand, if you decide to hold, you must consider the costs of maintaining the property, the potential for revenue growth, and the benefits of continuing to operate under the existing brand or exploring new affiliations.

Often, knowing whether to sell or hold (and even making that final decision) can be tough to do alone. This is where an experienced asset manager can make the process much more streamlined while offering that much-needed external voice of reason.

View from a hotel balcony

Alternative Options in Management Structures: The Manchise Agreement

As the end of a hotel management agreement or franchise approaches, hotel owners are presented with many alternatives. These can range from exploring other brands that may offer different benefits such as stronger brand recognition, superior reservation systems, or more extensive support services, to considering different management structures like direct management, leasing, or entering a new manchise or franchise agreement.

One such innovative alternative to traditional franchises is the ‘Manchise Agreement’, a unique business model that combines the benefits of a management contract and a franchise agreement.

Understanding the Manchise Agreement

The term ‘manchise’ describes a brand management contract that can be converted into a franchise agreement, offering benefits to both the brand and the owner. A manchise is structured as a two-phase collaboration between the hotel owner and the hotel brand.

During the first phase, the hotel brand typically operates the property under a short-term management agreement, say three to five years. This allows the brand to establish its presence and standards at the property.

In the second phase, the investor has the option to flip to a franchise, providing the owner with more control over their investment, while still benefiting from the use of a well-established brand.

Manchise agreements offer several benefits to hotel owners. They often provide lower fees, and the optionality owners are seeking. Owners can leverage brand resources and distribution channels more effectively. Plus, if a brand-managed contract is terminated, the owner retains the rights to the brand, avoiding an expensive process to find an alternative affiliation.

Navigating the Implications of Contract Decisions: How to Deal With Change

If you decide to make changes, large or small, to your hotel investment’s structure or operations, it’s helpful to know how to roll these changes out and navigate them with your wider team. Here’s what you should understand:

Legal and Financial Impacts

The legal and financial implications of a franchise or manchise contract decision includes understanding the terms of the contract, the costs associated with renewing or terminating the agreement, and the potential impact on the hotel’s financial performance, staff recruitment and retention.

Business Disruptions

Changing operators or brands can cause significant disruption to a hotel’s operations. This can include changes in operational procedures, marketing strategies, and brand standards. Owners must consider these potential disruptions and plan for them accordingly.

Managing Staff During Change

Staffing is one of the most critical aspects affected by change. Employees may feel uncertain and anxious about their future, leading to increased turnover and difficulty attracting new staff. Clear communication is essential during this period to reassure staff and maintain morale.

A clear strategy should be established on how to retain your team. This could involve monetary rewards, opportunities for career growth, or involving them in the change process. Whichever strategies you employ, they should be communicated early on, so that the team knows you are including them in the change process. This not only helps to alleviate their concerns but also fosters a sense of belonging and commitment to the organisation.

Team shaking hands silhouetted against building skyline

Navigate Contract Renewals With Axsia HTL

The end of a contract can be a time of uncertainty for hotel owners and investors, but with careful planning and evaluation, it can also be a time of great opportunity. By understanding what the end of a contract means for your business and evaluating your investment horizon, you can make informed renewal or change decisions that align with your long-term business goals.

Get the edge over your own business this year with our professional advice here at Axsia HTL. Our team can help you research, plan, analyse, and initiate changes in line with your goals and objectives. Remember, it’s never too early to start planning. Act now and speak to us today!

Resort pool at dusk

Franchise Agreements Ascend as HMAs Fade

As we near the end of 2023, you might have noticed some big ripples of change spanning the Australian hotel market. Big brands are of course still powerful, but many are starting to feel strain – simply put, their speed of growth is exceeding their ability to succeed with the necessary support for all of their booming properties.

Ask any of us here at Axsia HTL whether traditional hotel management agreements (HMAs) are still appropriate to cater to the current hospitality climate, and you’ll get a quick and resounding ‘no’. So, what’s outweighing these structures? You guessed it – franchise agreements, which we believe are poised to surpass HMAs next year and beyond.

In this article, we explore the emerging trends and challenges in HMAs as big brands start to feel the pressure of performance. We shed light on the advantages of franchise agreements and offer key insights into the market outlook for 2024.

Hotel Management Agreements (HMAs)

HMAs have long been the conventional framework for hotel ownership and operation. Traditionally, big brands wielded considerable influence in the Australian market through these agreements, and of course many still do.

While these agreements have served as a cornerstone for hoteliers, however, the rapid growth of big brands has resulted in a stretched operational landscape, where the challenge lies in providing the necessary support to optimise each hotel’s potential.

The landscape is evolving, and hotel owners are reassessing the efficacy of traditional HMAs in the contemporary environment. Axsia HTL, with our pulse on industry dynamics, echoes the sentiment that the traditional HMA model may no longer be universally fit for purpose.

As the market seeks more flexibility and autonomy, hoteliers are exploring alternative arrangements that can better align with their strategic goals. Stepping up to the plate here are franchise agreement contracts.

Franchise Agreements

As the hospitality industry charts a new course, hotel franchising emerges as a beacon of strategic advantage. What sets franchise agreements apart is their unique combination of brand and distribution strength coupled with operational autonomy.

This dynamic equilibrium allows hotel owners to leverage the global recognition of a brand while retaining the flexibility to shape and execute their own strategic vision.

At Axsia HTL, we view franchise agreements not just as contractual arrangements but as catalysts for unlocking better financial yield. The landscape of the hospitality industry is evolving, and franchise agreements offer a refreshing paradigm that aligns with the changing expectations of both hotel owners and modern travellers.

Hotelier meeting with an asset manager

How Does a Franchise Agreement Work?

A franchise agreement is a contractual arrangement between a franchisor (the brand owner) and a franchisee (the individual or entity operating the business) that outlines the terms and conditions under which the franchisee can operate a business using the franchisor’s brand, products, and business model.

Here’s a breakdown of how franchise agreements typically work:

  • Brand Licensing: The franchisor grants the franchisee the right to use its established brand, trademarks, and business model. This includes the use of logos, trade dress, and other intellectual property.
  • Financial Arrangements: The franchisee usually pays initial fees for the right to use the brand and receives training and ongoing support. Additionally, ongoing royalties or a percentage of sales may be required.
  • Training and Support: The franchisor provides training to the franchisee on how to operate the business successfully. Ongoing support, including marketing, operational guidance, and assistance, is often part of the agreement.
  • Operating Standards: The franchise agreement establishes specific standards and guidelines for the operation of the business. This ensures consistency in branding, products, and services across all franchise locations.
  • Duration and Renewal: The agreement specifies the duration of the franchise relationship. Franchisees may have the option to renew the agreement at the end of the term, subject to certain conditions.
  • Territorial Rights: The agreement may define the geographic territory within which the franchisee can operate. This helps prevent conflicts between franchisees in nearby locations.
  • Exit Clauses: In some cases, the agreement includes provisions for terminating the franchise relationship, either by the franchisor or the franchisee, under certain conditions.
  • Updates and Changes: Franchise agreements often include clauses allowing the franchisor to update systems, products, and operating standards to keep the business model current.

Can You Get Out of a Franchise Agreement?

The ability to terminate a franchise agreement in Australia typically hinges on the specific terms outlined in the contractual agreement. It’s important to have a thorough understanding of these terms, which may include exit clauses, notice periods, and potential financial implications.

Legal considerations also play a crucial role, and hotel owners are advised to seek professional legal counsel. This helps to navigate the complexities of franchise agreement termination within the Australian legal context.

Axsia HTL empowers hoteliers with the knowledge and insights necessary to make informed decisions, ensuring that any decision to exit a franchise agreement aligns seamlessly with both the legal requirements and the broader strategic goals of the hotel owner in the dynamic Australian hospitality market.

Hotel lobby with green chairs

Emerging Management Trends

As we’ve outlined above, the realm of hotel management agreements has long been dominated by big brands, wielding significant influence within the Australian hospitality market. These prominent brands have played a pivotal role in shaping the industry, offering recognisable names and established standards.

We’ve identified an interesting trend here—these big brands are experiencing rapid growth that, counterintuitively, pose challenges in delivering the requisite support to unlock the full potential of each hotel under their umbrella.

Another key trend we’re seeing is the availability of more flexible franchising options. This includes leveraging experienced operating teams or hotel asset management companies for property management, allowing hoteliers to both do things their own way and to gain valuable time and resources back thanks to this expert outsourcing.

Additionally, the emergence of manchise agreements allows the conversion of a brand management contract to a franchise agreement post-stabilisation. Manchise agreements offer a great strategic middle ground for hotel owners, providing the initial support and expertise of a management company and the long-term benefits of a franchise relationship.

Utilising the manchise agreement approach allows for a smoother evolution as the property matures and aligns with the owner’s broader business goals, something the traditional HMA system now seems to lack.

Challenges for Big Brands

The accelerated expansion of major brands, while a testament to their success, has resulted in a stretched operational capacity. The sheer scale of their growth has made it increasingly difficult for these brands to provide the necessary support and attention required by individual hotels.

Simply put, as the expansive portfolio demands a considerable allocation of resources, it’s becoming increasingly difficult to ensure that each property performs to expectations – and many are already falling short.

This scenario underscores a critical observation made by Axsia HTL Managing Director David Simpson: the traditional approach embodied by HMAs, wherein big brands centrally manage numerous properties, is encountering limitations that are not going to simply resolve themselves.

The rapid growth has necessitated a reevaluation of the effectiveness of this model, especially concerning personalised support and strategic guidance for individual hotels. As the industry dynamics evolve and hotels seek tailored approaches to cater to diverse markets and consumer preferences, the rigid structure of HMAs is proving to be less conducive to the nuanced demands of each establishment.

In essence, the conventional HMA framework, while successful on a grand scale, is encountering complexities as the industry diversifies. This is prompting a paradigm shift towards more adaptable and tailored management arrangements.

The Franchise Advantage

Franchise agreements today extend beyond a mere shift in management dynamics; they represent a strategic evolution in the hospitality landscape. Thanks to our forward-thinking approach, we recognise the intrinsic benefits that franchise agreements bring to the table, and our clients agree with us.

These agreements blend the robust brand recognition and expansive distribution networks of established brands with a crucial element—operational autonomy. This combination offers owners the dual advantage of leveraging a well-established brand identity while retaining the flexibility to conceive and execute their unique operational strategies.

According to David, franchise agreements emerge as a potent catalyst for elevating financial performance. The symbiotic relationship between brand strength and operational independence cultivates an environment conducive to maximising financial yield.

Franchising offers owners a pathway to strike a harmonious balance between two core elements: the credibility and market presence of a recognised brand, and the nimbleness required to adapt to evolving market trends and consumer preferences.

The autonomy embedded in franchise agreements empowers owners to curate distinctive guest experiences. This is a pivotal factor in attracting and retaining the modern traveller who seeks authenticity and connection, and who is more willing to spend money on experiences rather than solely hotel rooms.

Millennial travellers arriving at a hotel

Appealing to Modern Travellers

It’s no secret that Gen Z and millennials are significantly influencing market dynamics. Unlike previous generations, these travellers prioritise experiences over traditional notions of property ownership.

To stay relevant and competitive, hotels must adapt to meet the distinctive needs and expectations of Gen Z and millennial demographics. This involves a level of flexibility and priority shift that HMAs just aren’t designed to facilitate.

Experiences now dominate the younger traveller’s itinerary. The focus extends beyond providing merely a place to stay; it involves crafting immersive and memorable moments that contribute to the overall journey.

To capitalise on this trend, we recommend utilising the more flexible franchise agreement to create and deliver exceptional customer experiences that resonate with the values and interests of these modern travellers. This approach aligns with the broader trend in the industry where the emphasis is shifting from tangible assets to intangible experiences.

Market Outlook for 2024

David and the Axsia team predict a robust year for the Australian hospitality landscape in 2024, with strong Revenue per Available Room (RevPAR) figures and room rates expected to rise. Factors contributing to this optimistic outlook include:

  • The return of international business and corporate travellers;
  • The resurgence of traditional peak and off-peak seasons;
  • Consumer willingness to invest in enhanced accommodation experiences, and
  • A boom in the emerging franchise agreement contract trend.

Finally, the need for a nuanced, agile, and supportive approach to hotel management will become paramount in 2024 and beyond. Thinking proactively and collaboratively will help steer the industry towards models that can better harness the unique potential of each property within a brand’s portfolio.

Asset management team meeting

Elevate Your Business With Axsia HTL

We anticipate a transformative year in the Australian hospitality sector, with franchise agreements becoming the preferred model. At Axsia, we encourage owners and developers to align with the evolving needs of modern travellers, emphasising lifestyle brands as the key to success.

As interest rates, building costs, and loan-to-value ratios continue to influence the market, strategic partnerships and flexibility in management agreements will be instrumental in navigating the opportunities and challenges that lie ahead.

Looking to elevate your hotel management model next year? Speak to us about how our asset management services can transform your business and position it at the forefront of the Australian market.

Men discussing hotel asset management

Unlocking Hotel Investment Success: Axsia HTL’s Expertise in Asset Management

Hotel investment requires a unique set of skills and insights, given its dynamic nature and complex operations. At Axsia HTL, we bring over 150 years of collective experience to the table, helping investors bridge the knowledge gap and maximise their return on investment.

Our Managing Director, David Simpson, offers valuable insights into the asset management landscape, outlining how our expertise sets us apart in this competitive industry. Let’s take a look at how we can help you unlock your own hotel investment success with our tried and true asset management strategies.

Key Benefits of Asset Management

Hotel asset management plays a pivotal role in driving business results for property owners. While operators are essential, owners must also actively engage in setting and monitoring the business strategy to ensure optimal performance.

This alignment with the owner’s vision and investment objectives fills a crucial void, leading to better returns and more successful outcomes.

Several key benefits of approaching asset management in this way include:

  • Strategic Alignment: Asset management aligns owner and operator strategies, ensuring every decision advances the owner’s vision and investment goals.
  • Optimal Performance: It optimises operations, enhancing service quality, cost control, and overall performance.
  • Risk Mitigation: Asset management mitigates uncertainty by proactively addressing challenges, and maintaining the course toward success.
  • Enhanced Returns: The process maximises financial performance, resulting in higher returns for owners and investors.
  • Operational Efficiency: It aligns operations with the owner’s vision, enhancing efficiency and profitability.
  • Customised Strategies: Tailored approaches, from marketing to pricing, ensure the property reaches its unique potential.

We might be biased, but the truth remains: asset management is more than a tool for owners; it’s the driving force behind business success for hotel development. It forges an unbreakable connection between ownership vision and operational execution, harmonising all efforts to deliver enhanced returns, optimised performance, and a shield against uncertainty.

In an ever-evolving industry, asset management is the compass that guides the hotel towards its owner’s vision of prosperity.

Top Trends in Hotel Development

The resurgence of travel, both for business and leisure, has sparked a demand for new, personalised, and experiential offerings. This trend has given rise to innovative lifestyle brands, such as Ace Hotels, 1Hotel, Treehouse, The Standard, and Ennismore.

Additionally, there is a growing interest in franchising and white-label management, giving investors greater control over their business ventures.

Engaging with Axsia HTL

When clients approach us for a hotel project, we emphasise the importance of careful due diligence to determine project viability. We focus on aligning the developer’s vision with realism and optimisation, ensuring a bankable and market-valued project.

For mixed-use developments, we explore how the hotel component can enhance the broader project for maximum investment benefits.

David Simpson, Daniella Tonetto, and David Fraser from Axsia HTL

Meet the Axsia HTL Team

Our team comprises seasoned experts who have worked with international hotel chains across the Asia Pacific. They bring a wealth of experience in various facets of hotel operations. At Axsia, we adopt a multidisciplinary approach, providing invaluable insights to property teams and ensuring a strategic approach across all aspects of the business.

Axsia HTL was founded back in 2019 by a dedicated team of professionals, including Ian Knight (Executive Chairman), Bill Edwards (Executive Director), and David Simpson (Managing Director). We later welcomed David Fraser (Executive Director) as a valued shareholder.

At the heart of our team, Bill and David excel in operations and work closely with our asset management portfolio to ensure optimal performance across all our assets. Together, they bring a wealth of expertise to our projects, which encompass new hotel development, feasibility studies, market research, and operator selection, all culminating in comprehensive asset management strategies.

Our team has recently expanded to include several exceptional individuals who further enhance our capabilities:

  • Daniella Tonetto, an expert in sales and marketing, specialises in driving revenue optimisation.
  • Robert Scullin offers valuable insights and consultation across all aspects of our business.
  • Nicole Grainger serves as our Research Analyst, ensuring we remain up-to-date with the latest market trends and information for our projects.

Additionally, we collaborate with a select group of specialist consultants, covering areas such as regional tourism, technical services reviews, and non-HTL property matters, to offer a comprehensive and diverse range of services.

What Sets Axsia Apart

What sets Axsia HTL apart from competitors is our focus on revenue growth, backed by a strategic approach, to achieve above and beyond client expectations in the asset management and hotel development sector.

We take a comprehensive view of the business, emphasising vision, and strategy to achieve better returns. While we of course look at the hard numbers, everything we do at Axsia is built on the solid and evidence-based foundations of clear, effective, and well-researched strategies.

Our team’s diverse background, with experience in big brand international chains, also allows us to offer a unique perspective on asset management that we feel isn’t being tapped into by many other companies on the market.

Exciting Hotel Projects in Our Portfolio

In our portfolio, we have several exciting hotel projects that showcase our expertise:

  • 1Hotel Melbourne: This upcoming hotel in Australia is the first of its kind by SH Group, set to launch in late 2024. Axsia HTL assisted in sourcing this cutting-edge brand, adding to Melbourne’s luxury hotel landscape.
  • The Tasman Hobart, A Luxury Collection Hotel: This new build Luxury Collection Hotel in Australia demonstrates our ability to develop concepts and source brands suitable for specific markets, winning numerous awards since its opening.
  • Ace Hotel, Sydney: As the first Ace hotel in Australia, this development successfully integrates an upper upscale brand into a smaller footprint, offering thriving F&B spaces and regular community engagement events.
  • Holiday Inn and Indigo Bourke Street: Currently under construction and expected to be completed in early 2026, this dual-branded property in a prime location takes advantage of shared back-of-house operations for efficiency.
  • Sheraton Grand Mirage Resort, Port Douglas: A long-standing asset management project in our portfolio, we’ve worked closely with the owner and hotel management team to renovate and reposition the property, resulting in numerous awards and enhanced investor returns. Our strategic philosophy has optimised the owner’s value and nurtured the development of a top-tier hotel executive committee.

Work With Axsia HTL

Axsia HTL’s expertise in hotel asset management and development, coupled with our team’s vast experience, allows us to bridge the knowledge gap for investors and property owners. Our focus on revenue growth, aligned with a strategic approach, sets us apart in this competitive industry.

Join us in unlocking the success of your hotel investment ventures today!

hotel developers analysing financial projections on a tablet

Maximising Hotel Valuation Success in Development Projects

Hotel valuation plays a critical role in development projects, as it determines the feasibility and profitability of hotel investments. You may have grand aspirations for a stunning hotel project, but without a proper valuation, you’re like a ship adrift at sea. That’s why being well-prepared and informed are the keys to unlocking your hotel’s full potential.

The hotel valuation process can be complex. It involves various factors and assumptions that are influenced by the purpose, timing, and market conditions of the project. But don’t panic; in this article, we outline key steps for hotel developers to maximise their hotel valuation success and how we can assist you in your ventures as part of our holistic services.

Key Steps for Hotel Developers in Preparation

There are several key points to obtaining a valuation that accurately reflects the value and potential of a hotel project.

You might find that hotel valuation software can best assist you with the process and methodologies. Programs like Preno, Hotel Valuation Software and HVS come equipped with user-friendly software and tools to guide you through your investment valuation process.

Despite these softwares, it’s still important to understand the steps involved to ensure you’re making informed and calculated decisions.

1. Independent Financial Projections

As a developer, it’s important to create your own financial projections based on your own market knowledge and industry experience. Relying solely on brand or operator projections may be misleading, as those projections are often designed to persuade developers to choose a specific brand or operator.

By using your independent projections, you can have a primary source of data for investment feasibility, while using brand or operator projections as a secondary source for validation. This is a much more reliable method to use when casting financial projections and ensures your decisions remain unclouded by third-party influences.

2. Understand the Valuation Methodology

Developers need to understand the various methodologies used to value hotel properties. While there are various methods and approaches to value a hotel property, the income approach is the most commonly accepted. This method essentially values a hotel property based on its ability to generate income or cash flow.

The income approach can be further divided into two sub-methods: the direct capitalisation method and the discounted cash flow (DCF) method:

  • The direct capitalisation method values a hotel property by applying a capitalisation rate (or cap rate) to its net operating income (NOI). The hotel valuation cap rate is the ratio of NOI to property value and reflects the risk and return of the investment.
  • The DCF method values a hotel property by projecting its future cash flows and discounting them to their present value using a discount rate. The discount rate is the required rate of return for the investment and reflects the time value of money and the risk of the cash flows.

Familiarising yourself with these methods and how they can be applied to your potential investment property is essential in accurately calculating the valuation.

3. Consider Timing and Market Conditions

Hotel valuation is not a static process. It evolves with time and market conditions. Developers must consider external factors such as COVID-19 and its impact on the hotel industry, including demand, occupancy, revenue, and costs.

Developers should be aware of how timing and market conditions affect their project and adjust their projections accordingly. Additionally, understanding how the appointed valuer perceives the market and the assumptions they make in their valuations is crucial, as it can lead to different outcomes.

4. Conduct a Sensitivity Analysis

A sensitivity analysis is a valuable technique that evaluates the impact of changing variables on project outcomes. As a developer, you should conduct a sensitivity analysis to assess how changes in occupancy rates, average daily rates (ADRs), operating expenses, cap rates, or discount rates affect the value of your hotel property.

This analysis also helps to identify components that add or reduce value to the project and enables you to address these factors beforehand. It also helps to assess risks and uncertainties while developing necessary contingency plans.

5. Present the Project to the Valuer

Last but not least, presentation matters. Developers should effectively present their project to the valuer in a clear and convincing manner. This includes providing comprehensive information on the location, market, demand, supply, competition, brand, operator, contract, design, construction, operation, and performance of the hotel.

It’s key to establish a coherent narrative that links your vision, market research, financial projections, and valuation assumptions. Supporting evidence and documentation should be provided to substantiate claims and validate arguments.

a man conducting hotel valuation preparation on a latpopBenefits of Following the Preparation Process

By following these preparation steps, hotel developers like you can maximise their chances of success in the hotel valuation assessment. There are many benefits to following the process outlined above, including:

  • Accurate and Reliable Valuation: Independent financial projections and a solid understanding of valuation methodologies ensure the valuation more accurately reflects the project’s value and potential.
  • Risk Identification and Mitigation: Conducting a sensitivity analysis helps developers identify potential risks and develop contingency plans. This enables them to pre-emptively address factors that may affect the project’s value.
  • Clear Communication: A well-presented project helps valuers understand the developer’s vision and the process employed to develop that vision. It enhances communication and clarity between the developer and valuer.
  • Securing Funding and Achieving Desired Return on Investment: A thorough and well-prepared valuation report increases the likelihood of securing bank funding. Developers have a robust framework against which they can assess the valuation findings and challenge them if needed, thereby increasing their chances of achieving their desired return on investment.

The Bottom Line: Equip Yourself for Successful Hotel Valuation

Hotel valuation is a critical step in development projects. Hotel developers must be well-prepared and informed to ensure a successful valuation process. By following the key steps outlined above, you can maximise your hotel valuation success, identify risks, and secure bank funding.

Understanding the importance of independent financial projections, valuation methodologies, timing and market conditions, conducting sensitivity analysis, and effective presentation to the valuer are instrumental in achieving accurate valuations that reflect the true value and potential of their hotel projects.

Wondering what the next step is in your investment project valuation journey? At Axsia HTL, our experienced team can assist you with the management, planning, refinancing and support of your asset valuations. Speak to us today to get started.

Hotel Franchising

Hotel franchising is a dynamic and evolving business model that’s gaining momentum in Australia. If you’ve ever asked, “How do hotel franchises work?” then we’re here to clear the air. Alternatively, you may be familiar with the ins and outs, but aren’t sure whether going into the hotel franchise business is a smart move. In this article, we’ll delve into what hotel franchising entails, why it’s becoming increasingly popular, and what the future holds for this innovative approach to hospitality.

What is Hotel Franchising?

Hotel franchising is a strategic partnership between a hotel owner and a franchisor, wherein the hotel owner licences the brand name, logo, and operational standards of a well-established hotel chain. This partnership allows the hotel owner to maintain independence in running the hotel while benefiting from the brand’s recognition and support.

In exchange, the hotel owner pays fees to the franchisor, granting them access to the brand’s marketing, distribution, and loyalty programs. It’s a collaborative approach that fosters growth and success for both parties.

Noteworthy Hotel Franchises in Australia

Australia’s hotel industry has witnessed the emergence of several major hotel franchises, each contributing to the growth and diversification of the hospitality landscape. Among them, some of the biggest hotel franchise groups in the country include well-known names such as AccorHotels, IHG (InterContinental Hotels Group), and Marriott International.

These global giants have made significant inroads into the Australian market, offering a wide range of brands and accommodation options to travellers.

With their vast networks, extensive experience, and commitment to quality, these major hotel franchises continue to play a pivotal role in shaping the future of hospitality in Australia, ensuring that travellers have access to world-class accommodations and experiences across the continent.

While it’s not always necessary to embark on your hotel franchise journey with sights of being one of the big guns, these key players can act as helpful roadmaps with which to guide your own process.

The Rise of Hotel Franchising

Hotel franchising has a rich history, dating back over 80 years in the United States, where it now dominates the hospitality landscape with over 90% of hotels operating under this model. Europe, while adopting it later, also boasts a significant share of franchised hotels, surpassing 50%.

In Australia, hotel franchising is a relatively new concept, but its popularity is skyrocketing as hotel owners and brands recognise the advantages it offers over traditional hotel management agreements (HMAs).

Key Factors Driving Hotel Franchising in Australia

If you’re interested in the hotel franchise industry, or perhaps you’re wondering how to get involved in the best hotel franchise in Australia, there are a few key factors to consider:

Growing Availability of Third-Party Management Companies

One of the driving forces behind the surge in hotel franchising in Australia is the increasing number of experienced third-party hotel management companies. These firms offer invaluable operational support to hotel owners under franchise agreements.

They provide options such as asset management and white-label management, wherein they operate the hotel under the franchised brand, eliminating their own branding. Further, they often commit to achieving key performance indicators (KPIs) related to financial returns, ensuring a win-win scenario for all parties involved.

Brand Management Companies’ Strategic Expansion

Brand management companies have strategically embraced hotel franchising as a means to enhance their distribution networks. Research from Cornell University reveals that these companies can secure superior returns from franchise contracts compared to HMA contracts.

This is due to reduced operating costs and more stable cash flows, enabling them to focus on brand development and marketing while delegating operational aspects to franchisees and partners.

Enhanced Owner Control and Flexibility

Hotel franchising empowers owners to exercise greater control over hotel operations, which can translate to higher returns. Under HMA agreements, owners often relinquish significant decision-making authority to the brand or management company, potentially misaligning with their interests.

In contrast, franchise agreements allow owners to implement customised strategies that cater to their specific market, property, and vision. This agility proves crucial in adapting to evolving customer needs, especially in times of crisis, such as the challenges posed by COVID-19.

hotel staff handing a key to a guestChallenges and Risks of Hotel Franchising

While the hotel franchise industry presents numerous benefits, it’s not without its challenges and risks:

  • Successful franchising hinges on strong alignment of values and expectations between franchisors and franchisees, along with clearly defined roles and responsibilities.
  • Effective communication and trust are paramount, requiring ongoing monitoring and feedback mechanisms to maintain quality standards.
  • Additionally, it’s crucial to note that hotel franchising may not be suitable for every property or market, as some may demand more direct involvement or guidance from the brand or management company.

If you’re unsure whether entering into the hotel franchise world is the right move for you, we recommend speaking to one of our experienced team members. We can assist you with navigating the process, evaluating your assets, and determining what kind of franchise would best suit your business goals.

The Future of Hotel Franchising in Australia

Given the current trends and opportunities in the Australian hotel industry, hotel franchising is poised for continued growth and success. It offers a flexible and cost-effective strategy for owners to leverage the reputation and reach of established brands while retaining control over their assets.

Simultaneously, it provides brands and management companies a means to expand their footprint without excessive capital investment.

Hotel franchising is a model that continues to evolve and adapt to meet the changing needs of hotel owners, operators, customers, and markets. It represents a smart and promising path toward better outcomes for all stakeholders in the hotel industry.

Speak To Us About Your Hotel Franchise Needs

In conclusion, the future of hotel franchising in Australia is bright. With its numerous benefits, including increased control for hotel owners and strategic growth opportunities for brands, it’s becoming the preferred choice in the hospitality sector.

If you’re interested in exploring hotel franchising or looking for the best hotel franchise options, consider partnering with Axsia HTL to gain access to leaders in the industry. Embrace the future of hospitality and embark on a journey toward success with the bright future of hotel franchising.