1. (Mt) – hotel management assignment
HOSP4040 Hotel Asset Management Assignment: Soft Branding Decision This assignment is
a short case study in which you assume the role of a hotel development/ownership
company that has just completed the purchase of a hotel asset in a secondary, but rapidly
growing Midwest market. Using the information provided in the case, you will take a
position on how to brand (or if to brand) this asset. The Case You are working as the asset
manager for a large Hotel REIT. In your role, you oversee a portfolio of 9 assets in the
Midwest. Your REIT is performing due diligence for the potential purchase of a 350 room
full service hotel in Indianapolis, Indiana. As a part of the due diligence you are exploring
how or if to associate your hotel with a major hotel brand as either a core brand or a soft
brand. The Hotel: • Opened as an independent luxury hotel in 1968, the hotel has operated
as an independent hotel and is currently affiliated with Historic Hotels of America. • The
hotel has been owned by a prominent local family since its opening. The family are leaders
in the community and very actively involved in local charities and other businesss ventures.
The hotel enjoys a strong reputation for excellence in service and has been host to high
profile events for decades. • 340 Guest Rooms and 10 Suites. • 25,000 Square Feet of flexible
meeting space • A Business Center that is leased and operated by FedEX. • 2 restaurants and
1 lobby bar. One of the restaurants is leased and operated by a third party (well known
regional chef). • A 2,000 square foot day spa that is leased and operated by a third party. •
Located in the downtown business core, within 1 block of the city convention center. • The
physical plant has been well maintained, and the building is up to local code requirements
for life safety, energy consumption, and guest security. Your company is planning a
multimillion dollar guest room and public space refurbishment project following the
acquisition of the hotel. • The design of the hotel is “mid century modern” and contains
several iconic design elements in the public space consistent with the original design. • The
guest rooms are 300 square feet, slightly smaller than the current design requirements for
the major global “core” brands. Hotel Financial Data: Summary Operating Statement
Current Period Rooms Available 127,750 Rooms Sold 91,980 Occupancy % 72% ADR
185.00 Rooms RevPAR 133.20 Operating Revenue $ Rooms 17,016,300 60.0% Food &
Beverage 9,926,175 35.0% Other Operated Departments 1,418,025 5.0% Total Operating
Revenue 28,360,500 100.0% Departmental Expenses $ % Rooms 10,113,040 59.4% Food &
Beverage 1,009,329 10.2% Other Operated Departments 976,223 68.8% Total
Departmental Expenses 12,098,592 42.7% Total Departmental Profit 16,261,908 57.3%
Undistibuted Operating Expenses $ % Administrative and General 1,501,630 5.3%
2. Information and Telecommunications 1,018,025 3.6% Sales & Marketing 1,118,025 3.9%
Property Operation and Maintenance 1,278,987 4.5% Utilities 1,387,435 4.9% Total
Undistributed Operating Expenses 6,304,102 22.2% Gross Operating Profit 9,957,806
35.1% Mangement Fees 992,618 3.5% Income Before Non-Operating Income and Expenses
8,965,188 (NOI) 31.6% Property Taxes 750,815 2.6% Insurance 1,001,630 3.5% Interest
Expense 1,110,050 3.9% Depreciation and Amorization 850,815 3.0% Net Profit 5,511,113
19.4% The Market: • • • • • • The city has a population of 1 million. The surrounding county
has an additional 250,000. The city has a modern airport served by 11 major domestic
airlines. Presently there are 150 daily departures. There is non-stop international service to
Canada and Mexico. The city has a 600,000 square foot convention center that recently
completed an expansion. The center serves the National and Regional Association markets
primarily. The city has regional offices for 100 Fortune 500 companies. This is a desirable
regional location for these companies because of the moderate cost of living, the good
educational system, and the regional airport. Last year, this segment generated a significant
portion of the total demand into the market. The hotel has strong relationships with the
majority of these companies The city has a modern 70,000 seat stadium that is host to an
NFL team. In addition the venue is host to a number of concerts throuout the year. The
stadium is located downtown. The market has over 9,000 hotel rooms. There are 4 hotels
downtown between 300 and 450 rooms that are within the same proximity to the
convention center as your hotel. The other hotels are branded with Hilton, Marriott, Hyatt,
and Crowne Plaza. There are existing “area of protection” agreements with these
franchisors which prohibit the branding of another hotel within the physical geography of
the downtown area – however, the brands would be able to brand your hotel with another
brand they control, for example Renaissance (Marriott) or Doubletree (Hilton) or with one
of their downscale brands. Market Projections: • The market has enjoyed robust growth.
Over the past 7 years the demand has grown by over 6% per year (REVPAR) and supply has
grown by only 3%. The majority of the growth occurred immediately after the convention
center opened. • Based on the most recent STR pipeline report, there is no new product
planned for this market, but several hotels are planning renovations within the next 3 years.
The Decision: As a part of the acquisition decision process, you must decide first if the hotel
should affiliate with a major brand or remain independent. If you do decide to affiliate, you
must decide whether you would affiliate with a core brand or a soft brand. Financial
Considerations: • Renovation: o If independent, the renovation requirement would be
simply to bring the hotel up to a competitive state. Your company wants to keep the hotel in
the upper upscale segment, and competitive with the local market. o If a soft brand is
selected, the renovation requirement would be similar to that of remaining independent. • •
• • o If a core brand is selected, the hotel would be required to replace all guest room FFE
and renovate the bathrooms to brand standard. Your internal estimates are that regardless
of the brand selected, this would result in a 30% increase in the renovation cost. Systems: o
If an independent the hotel will keep it’s current reservations, front desk PMS, and guest
room locking systems – each of which is in good condition. o If the hotel brands with a soft
or core brand it will be required to install the brand directed PMS and guest room locking
systems. The estimated cost of this is $650,000. Uniforms: o The hotel has iconic unique
3. uniforms that have been used since the opening. The uniforms are considered an integral
part of both marketing and the guest experience. A change in uniforms would be instantly
noticed by repeat guests and would likely not be a positive. o If the hotel affiliates as a core
brand, they would need to comply with the brand standard uniform. If they affiliated with a
soft brand, they would be allowed to keep their unique uniforms. Fees: o If the hotel
remains independent, it will continue its marketing and affiliation agreement with Historic
Hotels of America at a cost of 0.6% of rooms revenue. This covers both marketing and
reservations – though the majority of the reservations do not come through that channel. o
If the hotel brands either soft or core, the estimated total fees are expected to be 13% of
hotel revenue based on your company’s experience with the major global brands in the
other hotels they own. This includes franchise, reservations, marketing and frequent
traveler program fees. Market Share: o The average ADR market share of this hotel in the
competitive set has been 101. o The average Occupancy Share of this hotel in the
competitive set has been 81. o Based on your companies experience with the global brands
in other markets, they typically deliver fair share ADR and occupancy shares of between
102 and 115 for both core and soft brands. Your deliverable for this assignment In the form
of a memo to your due diligence team, you will recommend whether the hotel should
remain independent, affiliate as a core brand with a global franchisor, or affiliate as a soft
brand with a global franchisor. Your paper needs to consider the following: • The impact of
a change in ownership, given the strong local ties of the existing owners. • The impact of the
cost of renovation, systems, fees, and uniforms on a change in affiliation. • The impact of
improved market share if affiliated. Format requirements: • Microsoft Word • 12 Point Font
• Margins 1.5 inch top and bottom, 1 inch left and right. • No grammatical nor spelling
errors • Minimum 3 pages.
