TFG Asset Management - 8 August 2017
Before assessing the opportunity, the HAM should understand the type of owner who will be buying the property. In this industry, the diversity of owners ranges from Real Estate Investment Trusts (REITs), individual owners, hotel owning companies to family offices.During the preliminary stages, the appointed HAM is required to set a grid of criteria to evaluate the potential acquisition, taking into consideration the owner's interests and objectives. Other criteria that the owners need to consider can be classified into financial, commercial and building facility terms.The financial aspect: Factors such as the cost of land or existing building, potential appreciation of the asset, past earnings and future forecast, present value, and a proper valuation are some of the primary requirements.The commercial aspect: Factors such as the property type, location, current and future competition, actual management set up (i.e. franchise, lease, or management contract etc.) and the positioning of the hotel or area within the local community.Building facility aspect: Factors such as the existing facilities of the hotels, configuration, concept, insurance and warranty etc.The HAM is also expected to conduct a re-valuation of the opportunity. A large asset management firm, such as TFG Asset Management, will also advise the owner on the main commercial factors to consider during the negotiation process.As part of the due diligence, the HAM should be able to provide an in-depth market analysis covering the changes in competitive supply and demand and assessment of demand generators, along with any other trends which can have a considerable impact on the land and/or property.The clearer the information presented during the due diligence, the easier it is for the HAM to point out the critical elements affecting the purchase of the asset.Additionally, the HAM should also be familiar with the potential zoning regulations affecting the project if any future changes are proposed to be made as part of the value enhancement of the project.On a property-level, historical performance metrics against the competitive set (ARI, RGI and MPI), positioning, and net earnings need to be reviewed thoroughly. The historical performance will also help the asset manager to quantify assumptions and forecast the future performance.From a strategic level, the HAM shall value the opportunity, not only from the discounted cash-flow perspective, but also to identify the main operational and revenue upsides of the project. Furthermore, it is imperative for asset managers to ensure that the EBITDA will be able to support the debt service if the investor is leveraging the operation.As part of the process, a building surveyor shall be appointed and supervised by the HAM. They will inspect the building (in case of an existing building) and provide a full technical due diligence.The appointed surveyor will certify if the building is maintained properly and that there are no potential hidden flaws that could lead to major losses in the future. The technical due diligence reveals all faults, some of which are not material.The HAM shall evaluate the report and highlight elements that will affect the operations of the hotel. The HAM will have to evaluate them and incorporate those insights into their Capital Expenditure model. Whether or not this will affect the final purchase price, will be subject to the owner's decision.This article summarises the general principles and critical keys to assess an opportunity and presents a process to evaluate an existing hotel building or land. In reality, the process is much more sophisticated and many external factors should also be considered, such as the impact of government regulations and potential developments in the neighborhood.Whether the objective of an owner is to optimise the rate of returns or maximise residual values, the most critical step is to ensure a wise purchase decision. By employing a credible asset management company the processes can easily be accelerated, as due diligence will be done more thoroughly, helping to minimise the owners' acquisition risk.
TFG Asset Management - 25 July 2017
Conventionally, the function of an all-day dining is to support the rooms department, serving as a convenient F&B outlet for internal guests. As the industry gradually shifts away from this model, it is the hotel asset manager's responsibility to advise both their owner and appointed operator to revise the dining concept. This article addresses four key reasons.Firstly, the function of the all-day dining should not solely support the rooms department. Hoteliers and owners should view it as an independent, concept substantiated, outlet and revenue generator. According to Deloitte Tohmatsu FAS, among full-service hotels in Japan, 34.3% of revenues are generated by the rooms department, and 60.5% originate from F&B activities. Based on STR Global, all-day dining revenue comprised roughly 59% of total F&B revenue in Japan, implying that 37% of total revenue could potentially be generated from all-day dining. This highlights the importance of such outlets in generating revenue, calling for hoteliers and asset managers to assess the space which is often conceived as an all-day dining outlet and revitalize the concept.Second of all, hotels should not be limited to solely addressing the needs of their in-house guests. They should activate their dining concepts and increase revenues by catering to the local neighborhood. Doing so requires considerable capital and time to be invested into executing a successful F&B concept and design that entices both internal and external guests, taking into account the tastes and habits of the local community. The main outlet for the hotel needs to be designed to be 'friendly' to its neighborhood through design, pricing, quality and service, otherwise, the purpose of a conventional all-day dining outlet will only be to support half-board, full-board or bed and breakfast packages.Thirdly, the all-day dining space is commonly underutilised and only optimised during breakfast, remaining empty for the rest of the day. The square footage allocated to the all-day dining is often calculated based on the number of guests supported by the hotel inventory. During lunch and dinner, hoteliers tend to offer buffets despite the fact that such concepts rarely attract internal guests nor do they generate high external footfall. An outlet that remains empty throughout the day is not an optimal source of profitability; because utilization of the area could be optimized by implementing an alternative concept that is positioned to generate revenue across all meal periods. The outlet needs to be concept driven with market research that supports its cuisine and style. It will provide breakfast for in-house guests but more importantly it will be known for the cuisine and concept it trades under for both lunch and dinner.Lastly, the buffet concept detracts from offering an enhanced dining experience. The food is produced in mass quantities instead of being tailored to specific client's needs, leading to mediocre food quality and increased wastage - an issue that is often reflected in online review websites.As a hotel asset manager, it is important to be able to present alternative strategies to optimise space and maximize profitability. The market is evolving and indicates that hotels should assess redeveloping all-day dining outlets into more attractive concepts that are open for breakfast, lunch and dinner. The role of the restaurant manager is imperative in creating a distinct ambiance and developing local promotions to attract external guests to the restaurant. The concept, food quality, menu and design of the restaurant should be aligned with market demands and current trends.On a global scale, there has been resistance towards altering F&B models, especially across large hotel chains which have yet to move away from the traditional all-day dining model. Therefore, instead of adhering to rigid brand standards, hotel asset managers should be able to advise both the hotel owner and operator to recognize the outlet as a business within the hotel rather than treating it as a support department and it should be measured in the same way as independent standalone operations on the basis of performance. This way, all stakeholders can attend to creating a unique experiential concept and move away from outdated and costly operations.
TFG Asset Management - 7 June 2017
Principle 1: On the top line, the Hotel Asset Manager (HAM) needs to divert away from strictly focusing on Rooms strategies.The risk of a hotel being treated as a commodity forces operators to solely compete on price, thus giving the hotel guests bargaining power. Hotel Owners tends to overlook opportunities to grow ancillary revenues and they can be strategically integrated with other facilities in the hotel's marketing activities. In this era, solely optimizing Room revenue is not an adequate strategy in the long run.A qualified hotel asset manager will take a broader look at their revenue strategy and understand that it is imperative to optimise revenue in all departments, from rooms, to F&B, to spa, or any other operating revenue streams.While it is vital to create a tailored segmentation strategy, it is also important to create value across all other operating departments. Asset managers must advise sales managers to map blueprints for each segmentation to understand individuals' needs and wants. For example, aside from maximizing room rates within each segment, the hotel must consider how they can encourage their guests to increase expenditure on other facilities offered at the property.There are multiple ways to optimise ancillary revenues and asset managers may evaluate the decision to operate facilities in-house or outsource them. Many hotels underestimate the potential revenue that can be generated through F&B, viewing it as a department that supports hotel guests rather than functioning as a profit centre. Hoteliers tend to dedicate fewer resources and spend less marketing effort on maximizing the profitability of restaurants. They are often adamant about altering the F&B models, especially across large hotel chains and have yet to move away from the traditional model which typically comprises an all-day dining, room service, banqueting, and a specialty restaurant.Principle 2: On the bottom-line, minimising expenses and capital expenditure does not lead to a high profit margin in a long run.There are many cases where heavy investment is actually required to boost revenue and profit in the long-run. For example, the investment in lighting replacement from conventional bulbs to LEDs can be substantial. However, the payback period usually ranges between one and three years, as energy savings will increase to 75% - 80% with a lifespan of approximately 25,000 hours as opposed to 1,000 hours. Asset managers will understand that such an investment results in a high return on investment by saving costs in the long-run. Another capital intensive investment that is traditionally overlooked is the principle of investing in a hotel renovation plan to upgrade the property.Renovation and refurbishment are some of the key drivers to improve the hotel's value. Sometimes, the Hotel Asset manager should not pressure the hotel operator to sustain high occupancies when the property needs a full refurbishment. The asset manager must initiate the refurbishment plan to stay ahead of the competition, allowing them to charge premium prices, increase revenue, profit and ultimately appreciate the value of the property.In the case of a sale, the owner is always interested to increase the overall asset value. A good renovation plan will improve the Net Operating Profit (NOP) and consequently, the trading value. The key is to understand to what extent owners should invest in the refurbishment plan. Asset managers and hotel managers must be able to measure the impact of the renovation plan on the hotel's performance, image, positioning and value before sending the budget to the owners for approval.Principle 3: On a tactical level, Hotel Asset Manager needs to analyse the hotel's positioning and competitive set instead of being overly reliant on the RevPAR index as the final performance metric.The RevPAR index benchmarks a hotel against its competitive set and functions as a tool that allows the Hotel Asset Manager to evaluate the performance of the Operator. Operators have a tendency to select a favorable competitive set and may, for example, select competitors with lower star category or fewer higher room categories. The incompatible competitive set will boost the hotel's RGI and function as a false indicator of actual performance.It is the hotel asset manager's role to conduct proper field research by reviewing the appropriate competitive set to position the owners' properties correctly. They are required to gather benchmarking data from the competitors and from Smith Travel Research (STR) reports. It is important to identify a suitable set of competitors at the beginning to provide a consistent base of measurement throughout the period of the Management Agreement. This will enable asset managers to understand the potential improvements and develop appropriate strategies accordingly. Performance evaluation should not be solely dependent upon the hotels' internal figures.Principle 4: At a strategic level, Hotel Asset Managers need to properly implement the objectives of the owning company in relation to the acquisition and disposition of the hotel portfolio.On a strategic level, the hotel asset manager must have the knowledge and understanding of the market to advise the owners on the appropriate acquisition and disposition strategies of their properties. In terms of acquisitions, mandatory preliminary research such as a feasibility study must be conducted in order to understand the level of expected returns.Upon purchasing the actual asset, the Hotel Asset Manager must select the most suitable brand for the property. Not all brands are adequate for some specific markets and locations. The Hotel Asset Manager should understand the profile of the owner to select the appropriate operator.During the life cycle of the asset, the asset manager should always keep the disposition strategy in mind. Multiple operational decisions can be postponed or advanced depending on the moment that the Owner is determined to sell. Understanding the hotel investment market is a determinant factor to effectively execute a sale. An example for a successful divestment strategy is Tata-owned Indian Hotels Company (IHCL)'s decision to go asset-light back in 2016 by a near-total equity exit from the Bermuda-based Belmond. The monetization of a 90-year-old property in Boston alone helped the group earn 1,250 crores, equivalent to approximately 193 million USD - 12 times the profit before tax reported in the previous year. This helped them to clear their debt partially.The hospitality industry has been undergoing enormous changes in the past years and is predicted to accelerate in the future. Hotel owners see the lucrative investments but also voice concerns over their asset strategy, management and partner. For this reason, employing an expert in the field - a professional hotel asset manager is becoming more and more crucial for all types of owners, from individuals, to private equity firms and REITS.
TFG Asset Management - 27 April 2017
What exactly is this shift in luxury and what are the causes?As wealth is being redistributed across the globe, the social hierarchy between the rich and poor is losing stature. Estimates reveal high growth within the middle class, which is expected to reach 3.2 billion people globally by 2020, up from 1.8 million in 2009. This provides greater access to goods and services, including the ability to travel and exposure to luxury brands. Luxury becomes a norm. Travelers seek different experiences rather than pure extravagance and opulence. The traditional glitz and glamour are no longer perceived as a 'wow factor' for the majority of people, especially amongst the millennials. People who travel on a regular basis seek unique experiences and brands need to adapt to evolving needs. In the past, luxury brands were able to differentiate themselves from the regular brands, but this is no longer applicable in today's era. Hotel operators need to conduct meticulous market research to rebrand and rejuvenate themselves with a fresher, more vibrant and trendy feel. A clear example is Accor's strategic movements to develop a strategic partnership with 25 hours (30% stake) - a design-orientated boutique hotel group in Germany offering ample entertainment options within their bed and breakfast concepts. Accor has also launched the Mama Shelter lifestyle brand and Jo&Joe, a "co-living" brand which challenges the holiday home rental business model. Travelers, especially millennials, no longer discuss "star categories" or how luxurious the hotel is, but rather focus on the concept, the experience, the entertainment, the people, and the ambiance of their lodging. This brings us to the second point - a shift in demographic trends.Hotel operators need to adapt in order to capture the emerging generation Y. Hoteliers must learn about this segment's habits; that is, what the new generations' needs and wants are. The term "luxury" is like a membership tag that excludes individuals - this is often seen as a negative attribute to millennials, as they have no interest in being separated from their peers. The concept of co-living is on the rise for a reason, and of course, it contradicts the luxury living proposition. Generation Y is more concerned with being part of communities in order to share, to interact, to bridge people and to break barriers. Lifestyle brands which quickly adapt to these changes will gain a competitive advantage over the traditional luxury brands.What more should we know about Generation Y? They are urban, digital nomads - thanks to our advancements in technology and connectivity. Today's era is recognized as "digital by default". Connectivity and sharing platforms enable people to understand more about what's happening around them, creating a desire to travel to the same places as their influencers. This generation is driven by a need to actively share travel photos on their social networks. Brands which understand this know that investment in their website, digital marketing and social content is just as vital as the hotel's operations. Experts will use this to their advantage to enhance potential guests' curiosity about the brand and about the place, converting these visitors to bookers.One of the most difficult tasks for brands is to accept changes and innovate outside of their standard operating procedures. An obvious example is the all-day dining concept which primarily functions to support hotel guests and to provide breakfast service in particular. Meanwhile, during lunch and dinner this outlet is usually under-utilized - causing space to be wasted and food & beverage costs to be driven upwards. Analysis beyond the standard operating procedures is a means to optimize yield by maximizing the use of space, and to position F&B as a potential revenue generator, not a support center for the Rooms department.Luxury and sustainability hardly go hand-in-hand. A luxury concept demands numerous materials, and operating standards that increase waste and carbon and water footprints. Sustainable practices are now incorporated into most hotel brands' CSR strategies to respond to travelers' awareness and expectations. While travelers might not feel that their impact in greening the environment, they certainly expect big hotel brands to initiate and lead the way. Eco-conscious travelers no longer appreciate the tailored opulent, luxurious stay for their holiday but seek accommodations where they can experience raw, pure form, closest to nature with minimalistic, unobtrusive designs as opposed to opulent glitz and gold. This is the new luxury.Those who cannot change their minds cannot change anything. Unless you own and or operate George V Four Seasons or Emirates Palace - the luxury landmarks -, resistance to the fast-paced environment will only prove your hotel as an obsolete product. Traditional luxury is long gone, challenged by the holiday homes concept that embodies the sharing economy. Now it is time to challenge these disruptors (if you can't acquire them), taking your hotel brand to another level. This requires a change in the way traditional hotels operate, from changing the revenue model and repositioning ancillary departments, changing the concept and considering CSR strategies.This topic will be discussed by TFG Asset Management's Head of Asset Management, Mariano Faz during Arabian Hotel Investment Conference on 27th April 2017 from 12:00 - 12:30.
TFG Asset Management - 20 March 2017
Based on our field and secondary research, we have come up with four critical strategies that can help to solve or limit this alarming issue.Strategy I: Apply correct recruitment strategy The key to reducing staff turnover starts with recruiting the most suitable employees for the positions available, emphasising the importance of identifying the correct fit. In order to do so, the HR department will need to establish a comprehensive recruitment process to screen each candidate carefully and understand their skill set as well as their suitability for the role.An interviewer should challenge the candidate by asking situational questions to examine their problem-solving skills, cross-checking for references and asking them questions related to the hotel brand to analyse their understanding of the company's approach to business.The HR department should ensure the salary package offered to candidates meets market rates. HR professionals should assess the market and take into account the changing expectations of employees in the digital age, in order to develop new and effective HR practices.Our interviews with the hospitality experts revealed that large international hotel groups successfully attract talent through the implementation of succession planning programmes. These hotel groups present potential employees with a path for long-term career development, which is a primary concern for young graduates. They also nurture existing talent by creating fair competition for promotion which helps to boost motivation and loyalty among employees. Succession planning reduces the need for basic training, as promoted staff already appreciate the brand's strengths and operational processes, and therefore actively embrace greater responsibility.Strategy II: Improve training, learning & development programsOur research revealed that one of the main factors that improves a company's ability to attract top talent and avoid staff's intention to leave is the provision of customised training programmes that support professional development.Staff training programmes can be costly. Hoteliers may contemplate the risk of investing in career development for employees who then resign; however, retaining employees whose skills have not been cultivated may have repercussions in the future. It is generally agreed that all employees should have access to basic training in order to promote an understanding of the brand, its values, protocols and standards. It is imperative to note that training programmes can be expensive hence the recruitment process needs to be designed and executed correctly to minimise the risk of employing unfit candidates, who will add further costs in this respect. It is also important for customer-facing employees to be trained to communicate with clients in a professional manner. Training staff to deliver a consistent brand message and effectively and efficiently deal with complaints will improve overall customer satisfaction.Another advantage in crafting effective training, learning and development programs is that promising talent is typically identified during training exercises. From then, the best talent should be offered extensive training to further their career development.In regards to training programmes, forward-thinking companies have implemented creative and easy-to-use online portals and video-sharing systems. This includes building internal knowledge sharing programmes and developing mobile apps that provide employees real-time access to training modules. However, these services may not appeal to all staff members. Hence, it is then critical to involve managers, who know their employees best, to help develop training programmes that cater most effectively to their requirements.Despite the costs associated with training and development programmes, from a hotel asset manager's perspective, it has been demonstrated that the benefit of reducing staff turnover outweighs the costs of such programmes. Employees with a willingness and enthusiasm to learn are more likely to demonstrate higher levels of productivity.Strategy III: Rethink organisational structure The top-down hierarchical corporate structure is gradually becoming obsolete as a business model across all industries. The bureaucratic nature of hierarchical organisations may demotivate creative employees. In a dynamic hotel environment, it is important management nurtures and encourages creative talent. Hotel executives must at all times be transparent in their dealings with employees. Management should brief staff about annual budgets and ensure each team member understands their department's Profit & Loss accounts. It is important to infer the notion of ownership and accountability to individual employees so they embrace their role in meeting departmental targets.Secondly, communication should be simplified as much as possible, flattening the chain of command and eliminating bottlenecks.Strategy IV: Rethink the HR Management Role There is a long-standing misconception that HR Management largely assumes an administrative role. Ulrich (1997) coined the term 'administrative expert' whereby operational effectiveness or output is their main goal. This perception of the HR department is still considered purely administrative; that is, that they are responsible for meeting government regulations and ensuring overall compliance with their organisation's internal policies.HR department should be the ambassador of the brand to potential candidates. HR departments should focus on investing in talent management schemes and learning and development programmes, aside from handling administrative work such as visa applications, procedures for recruitment and termination, and arranging staff accommodation, transportation and insurance. The HR manager is an organisational architect who is responsible for ensuring operational structures are designed in a way that meets both the company's and employees' needs. Such models promote stronger performances in the workforce and a higher Return on Investment (ROI) for the company.Based on Deloitte University Press's recent publication "The Global Human Capital Trends 2016", skills in the following areas are required:Organisational networks - to analyse, build and develop the existing talent and expertise.Team-building and team-leader - develop potential team leaders who can later develop people.Employee engagement and culture - Understand the current culture at the hotel and propose improvements to the workplace culture.Analytics and Statistics - HR professionals must be proactive in studying the market trends and embracing changes. Mee suggested that HR must be proactive in benchmarking them with the market KPIs.Crafting experience - HR professionals are the brand ambassadors. They need to find the most effective way to communicate brand value to current and potential employees.HR professionals employ a range of tools and KPIs to measure the overall performance of their company's workforce. HR functions should take a holistic approach to Human Capital analytics - and spend time seeking to understand the impact, correlation and causation of HR metrics on overall business performance. Multi-dimensional analysis is critical if organisations are going to extract value from workforce insights - in general the best approach is to try to focus efforts on helping to understand and solve specific business problems. In general, within the hospitality industry, it makes sense to focus key efforts on specific workforce clusters that are guest or customer facing - as trends within these groups (e.g. recruitment and Attrition, Engagement levels, Productivity, Learning & Development, Reward & Recognition etc.) are more likely to have a direct impact on revenues and customer advocacy.To download our research, please click on the following link: http://www.hospitalitynet.org/news/global/154001038/4081228.html
TFG Asset Management reveals industry first insight into recruitment challenges facing Dubai hoteliers
TFG Asset Management - 6 March 2017
In an industry first, hotel asset management specialist TFG Asset Management has revealed the financial impact of high staff turnover on Dubai's booming hotel industry.Dubai's hotel room supply grew five percent in 2016 to surpass the milestone of 100,000 rooms for the first time. The emirate currently has more than 20,000 rooms under construction in 69 properties, according to the latest data from industry analyst STR.With the influx of new supply and increased competition for experienced staff, the issue of high staff turnover has become an increasing concern for Dubai's hoteliers.In its new industry white paper, The Impact of Staff Turnover on a Hotel's Income Statement, which was produced in conjunction with Jumeirah Group venture, Emirates Academy of Hospitality Management, the firm reveals that hotel staff turnover in Dubai currently averages 25-30 percent per annum.The research, which surveyed industry stakeholders including global hotel management firms with a significant presence in Dubai, revealed that a 30 percent turnover rate could potentially reduce a hotel operator's gross operating profit (GOP) by AED6 million ($1.63 million) per annum.Commenting on the findings, Mariano Faz, head of TFG Asset Management, described this turnover rate as a "significant figure that can be mainly attributed to deteriorating staff loyalty"."The challenge facing Dubai-based hoteliers to retain their best staff can be immense in the face of increasing competition from new operators entering the market and the expansion plans of existing rivals," he said."In a market with such vast opportunities, job seekers have considerable options, making it challenging for hoteliers to attract and retain the best talent."Interestingly, financial incentives are not always the primary motivator for hotel staff seeking alternative employment opportunities.According to the research, likely factors can range from a lack of faith in management, poor relationships with colleagues, and a lack of career development opportunities.Entry-level staff were also more likely to switch jobs more regularly than middle- and senior-management employees.Importantly, the white paper presents a range of strategies designed to help hoteliers mitigate these challenges.Faz believes encouraging staff loyalty should begin at the interview phase."Given the fierce competition for staff, hoteliers will often rush an appointment without considering that person's real-world qualifications for the role," he said. "A better approach is to consider a potential candidate based not only on their experience, but their attitude and willingness to embrace the corporate culture and their perceived long-term ambition to develop their career with the operator."The Impact of Staff Turnover on a Hotel's Income Statement is available to qualified industry professionals via download here: http://www.tfgassetmanagement.com/news/tfg-asset-management-library/the-impact-of-staff-turnover-on-a-hotel%E2%80%99s-income-statement.aspx
TFG Asset Management - 27 February 2017
In this white paper, TFG Asset Management in collaboration with the Emirates Academy of Hospitality Management analyse the hospitality labour market in Dubai and identifies the main challenges facing operators in retaining elite staff. We have conducted extensive research to assess the impact of staff turnover on a hotel's profitability, and as a result, developed relevant strategies to mitigate such challenges.In this white paper, TFG Asset Management in collaboration with the Emirates Academy of Hospitality Management analyse the hospitality labour market in Dubai and identifies the main challenges facing operators in retaining elite staff. We have conducted extensive research to assess the impact of staff turnover on a hotel's profitability, and as a result, developed relevant strategies to mitigate such challenges. Through field research, we have consulted six experienced Hospitality Managers (HMs) to gain a deeper and more precise understanding of the main issues.
TFG Asset Management - 8 March 2016
The case for developing more sustainable hotel industry practices is complex and subject to ongoing debate. Many hotel owners are still reluctant to embrace green initiatives, deterred by the associated increase in capital costs and what they deem an ambiguous return on investment. In Dubai the sustainability concept was initially considered impractical given the lack of supporting facilities and the belief that the high investment cost of green practices would impact bottom-line profits.
TFG Asset Management - 22 September 2015
The hospitality industry is never static but rather shaped and driven by the dynamic, ever-evolving environment in which hotel properties operate. In order to excel and compete, hotel brands must continue to expand their footprints and adapt their commercial strategies to meet new challenges