Motels Hotels &
Bed & Breakfasts
We have years of experience in this industry for the valuation of the business, equipment and real estate. Let us help you with our valuation consultation in all areas of the valuation of motels/hotels and bed and breakfast businesses. Below is a brief synopsis of the industry.
Description of Business
Commercial establishments, known to the public as hotels, motor hotels, motels, or tourist courts, primarily engaged in providing lodging, or lodging and meals, for the general public.
General Industry Information
This industry accounts for approximately $90 billion in annual revenues, and is closely associated with the general travel industry. Business travel and leisure travel customers are roughly even in terms of consumption. Hotels are distinguished by the amenities they provide, and are generally classified as either full service or limited service (motels).
There are more than 47,500 hotel/motel properties in the US, according to the American Hotel and Lodging Association. The 1980s brought a huge construction boom to this industry, which eventually oversaturated the hotel market and depressed the per-room revenues.
Franchise operators account for a large amount of the industry’s revenues, and have emerged as powerhouses due to their strong marketing, standardized employee training, and brand loyalty programs. Industry leaders include Inter-Continental, Cendant Corporation and Marriott. Each of these hotel giants operate as parent companies for several hotel chains, which are varied in terms of price and amenities offered.
Lower-end, limited service operations have become quite popular in recent years, with cost-conscious travelers looking for no-hassle deals. Increased automation from the larger chain operators assists in keeping prices low, while maintaining reasonable profit margins. Many buyers seek a well established, low hassle reservation system in place. Limited service hotels are associated with comparably low staffing needs.
High-end resort hotels have experienced three consecutive years of double digit declines in profitability before a major rebound in 2004. Revenue from sources other than room rentals account for approximately 48% of the total revenue at these types of establishments. Resort hotels require significantly more staff than other types of hotels, which explains their higher payroll expense ratios. Generally speaking, resorts with an excess of 250 rooms enjoyed greater gains in revenue and profitability in recent years (source: Trends in the Hotel Industry, USA Ed. 2007 y PKF Consulting).
There are several attributes that are associated with a hotel’s success. The occupancy rate is a good measure of room rental activity, and is particularly useful for setting prices that optimize profits. Ancillary services, such as dining and convenience stores add value to a hotel, along with intangibles (such as retention rate and positive referral sources from travel agents).
Red Flags and Risks
The hotel and motel industry can be cyclical, as it is closely related to the travel industry. Businesses that cater primarily to business travelers typically go for higher multiples than businesses that cater primarily to leisure travelers. Financials should be requested that reflect an entire cycle of operation, to calculate a normal occupancy and rack rate. Having competitors within a close proximity can be a challenge, so buyers should consider local market conditions for feasible room rental rates. Owners run the risk of thinning profit margins caused by increases in operating expenses, namely utilities, minimum wages, and worker’s compensation. Assuming that the sale of a hotel/motel includes the real estate, buyers need to conduct a thorough investigation of the building. Inspection services should be employed to check for building damage and assess repairs. Order a star report. Seasonality in occupancy and rack rates should be tracked over the prior 3 years.
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