What is the value of my hotel?
Hotel owners are sooner or later confronted with the question: what is the business value of my hotel? This question will arise when an owner wants to sell, or wants to retire, or the hotel is set up as collateral for a bank loan or perhaps some investor is interested to buy the hotel and needs to determine the value. Therefore, the purpose of a hotel valuation is to determine:
- a sale or purchase price;
- a reasonable rent;
- whether an investment makes sense;
- the value to cover loans from banks or other financial institutions;
- the value within real estate portfolios;
- the value in arbitration cases.
Valuing a hotel as an ongoing business requires considerable experience and expertise specific to the hotel sector. GBR Consulting offers this service together with our partners CBRE Axies, so as to present internationally recognised valuation reports conforming to RICS and CBRE standards. CBRE Axies is the local valuation firm of CBRE (www.cbre.com), the world's largest commercial real estate consultancy, which includes CBRE Hotels (www.cbrehotels.com) an entity focusing exclusively on the hospitality industry.
The value of a hotel as an ongoing business (as distinct from its value based on land and non-depreciated construction and equipment cost) is determined on the basis of a projection of future net operating income. For an operating hotel, net operating income is determined on the basis of past performance, taking into account expected future developments in the market place. If the property needs to be repositioned or is not in operation or even in the case where it has not been built yet, we would assess the future trading potential of the hotel to be (re)developed; from this we will subtract operating expenses and investments necessary to achieve this potential. In all cases, future values are then discounted to present values to reach the value of the hotel in the present.
In analysing the future trading potential of a hotel, the following issues are addressed:
- demand analysis (arrivals, overnight stays, seasonality patterns etc.);
- accessibility of the region and property;
- market mix analysis and segmentation;
- competition analysis including descriptions, location and financial performance, as well as investments in new-builts;
- existing and planned infrastructure developments.
In addition or as an alternative to the method outlined above, we can use the Comparative Method, which determines values on the basis of actual transactions of hotels with a profile similar to the hotel concerned. The property is valued at a price at which comparable properties in the area have recently been sold / rented with a differential added or subtracted to adjust for the unique characteristics and advantages and disadvantages of the subject property (location, accessibility, situation, upkeep etc.).
GBR Consulting maintains a database with financial information of over a 1,000 hotels in Greece and records hotel transactions that take place. With this data we can determine benchmarks such as the sales price per room, Revenue and EBITDA multiples etc.