Budget season – the busiest three months of the year for an asset manager – is now upon us, with this year made more complex by the ongoing choppy trading following the pandemic.
Contributed Alex Sogno, CEO, Global Asset Solutions, Geneva, Switzerland
The market is still experiencing short lead times and corporate travel has yet to fully return, all of which makes putting a budget together challenging.
Asset managers are now reviewing budgets for owners and considering the questions for the brands so that all parties are aligned going into the new year.
This phase of the year is where owners see the greatest value in asset management as they ensure that the brands are addressing their performance as well as proposing strategies to improve the value of the property.
The asset manager holds the brand to account on behalf of the owner and must be well informed about the current market and the new reality so that pertinent questions can be asked and the budget modified accordingly. Moreover, high flexibility is requested by both parties to adapt the budgeted strategy based on the markets’ volatility throughout the year.
Budgets are traditionally based on historic trends, but the inconsistent environment of the past few years has made further demands on all stakeholders in a property. Luxury properties, which have more elaborate operations than other segments, require a deeper level of understanding.
Recent years have seen large operators commit to the luxury segment and growing concerns over global economic conditions have not caused them to waver.
One can see the appeal: Choice Hotels International reported that, after buying Radisson’s Americas business, every new unit entering its portfolio generated, on average, twice the revenue as a unit leaving it.
Tony Capuano, CEO, Marriott International, told analysts on the group’s third-quarter earnings call that ADRs had continued to grow as the hotel segment defied the pressures seen in other industrial sectors and guests viewed travel as an essential.
The group saw gross fees from its luxury properties up 13% versus the same quarter in 2019, even with Greater China’s weaker performance. While luxury properties accounted for 21% of its managed rooms, they contributed 34% of its total incentive management fees in the third quarter.
The company was focusing on development at the upper end. In China, about 60% of the pipeline was in luxury and upper upscale tiers.
The message was similar at Accor where the group is splitting its portfolio along economy and luxury lines – and where in Asia Pacific, upscale and luxury was more than 40% of the pipeline, up from 25% four years ago.
Accor CFO Jean-Jacques Morin echoed Capuano, telling analysts: “The number of rooms that you open is one element of the equation. But what really matters is the fee that you generate. So, what is 30% in volume, is 70% plus in fees.”
A common theme across the results season was the push to luxury expansion, but also the increasingly complicated – and rising – cost equation. Luxury is more complicated to deliver and comes with higher staffing costs, which must be managed alongside the issues with energy, which are being faced across the sector.
It is here where an asset manager with a thorough command of the bottom line and vast knowledge of the market opportunities is crucial. They must be able to oversee a budget and create a robust asset management plan to build hotel’s real estate value for the owner.
The big brand stables are turning their eye to luxury and selling their attractions to owners. Asset management has never been more necessary to ensure that all parties cooperate to meet everyone’s aspirations.
Asset management at its best sees on-the-ground knowledge combined with experience to ensure owner, brand and all stakeholders are aligned and function at their best.