Major events such as Expo 2020 Dubai and the 2022 FIFA World Cup in Qatar are helping to fuel the continued growth of the Middle East hotel sector. During this exciting period of expansion in the region, there is likely to be an increasing amount of hotel acquisitions.
Whether you are expanding your portfolio or entering the hotel industry for the first time, purchasing a hotel can be a complex and time consuming process. We set out 10 key issues to take into account when buying a hotel:
1. Determine your acquisition criteria
There can be many different reasons for acquiring a hotel. For some buyers, it may be a short-term investment with a view to selling quickly at a higher price. Others may take a more long term view, based on, for example, the potential of the hotel to generate significant cash returns. Ultimately, the criteria will be unique to each buyer but typical factors include:
(a) purchase price and commitments for capital expenditure and working capital immediately and in the medium and long term;
(b) will owner operate the hotel, enter into a franchise agreement, or have the brand manage the hotel;
(c) potential appreciation in asset value;
(d) upside potential from re-branding taking into consideration the cost of any associated property improvement plan (PIP) required by the incoming operator etc;
(e) financial performance including current and potential cash flow yield, revenue per available room (RevPAR), occupancy rates etc;
(f) a hotel as a “trophy asset”;
(g) whether the hotel is sharia-compliant, which includes not only that it is alcohol free but includes other considerations;
(h) location — strategically, a buyer may want an asset in a certain city or part of a city and assessing the competitive set of the hotel and likely future development in the area surrounding the hotel;
(i) if adding to existing portfolio, whether the target hotel is a “good fit”, results in economies of scale, or gives the portfolio geographic scope that it previously did not have; and,
(j) anticipated “hold” period (which will be tied to the strategy).
There is no right or wrong answer but ultimately a buyer needs to be clear on what its reasons are for wishing to purchase a hotel before entering the acquisition process.
| Advertisement |
Search our database of more than 2,700 industry companies
