Hotel investors need to embrace ‘alpha’ investment theories to find and drive value in their hotels, according to Colliers International.
Nigel Greenaway, the head of Asset Management at Colliers, says that data analytics and technology need to be embraced and employed to find alpha; a component that is in excess of what the market will deliver.
Subsequently, investors often buy on the basis that value-add strategies, which will deliver enhanced returns above market movements, can be run and are viable.
“Alpha can take many practical forms in the hotel investment world,” said Nigel Greenaway, National Director, Hotels at Colliers International.
“For example; investors and operators use their combined knowledge and experience to strategically deploy capital to reposition a hotel for increased revenue and ultimately profit uplift.
“Another example occurs when management outsource overhead functions that have traditionally been resourced in- house, to deliver improved levels of profitability.
“Now more than ever, data analytics needs to be embraced by investors and operators alike in their pursuit of Alpha. For example, modern Property Management Systems time stamp all transaction and payroll systems house granular detail of resourcing. Analysing the combined information from these two systems can yield opportunities to fine tune labour costs.
“If investors harness a long time series of a single expense, they can use detailed data analytics to find where particular costs in the business have performed more efficiently; this can be used to provide blue prints within a hotel as to where alpha can be found.”
By harnessing the accumulation of cost efficiencies found through data analytics, a 4/5 star hotel in Australia’s major markets with a capitalisation rate of 6.5% could see valuation uplift by around $1.5 million, from a $100,000 cost saving.
Alpha also speaks of the analysis of operating and capital expenditure, by creating analytics and life cycle plans. If owners are able to understand the cycle plans of their capital expenditure commensurate with maintenance operating expenses, then these two major costs can be managed more efficiently within the hotel.
Jessica Morey, Analyst of Hotels at Colliers International says “My role is to help investment managers find alpha through a range of theories.”
“Some examples include analysis of expenses, room rates and market forecasts. Due to the nature of the hotel asset class, granularity serves great importance in the investment management world as investors seek to ‘squeeze the juice’.”
Ian Pert, National Director of Project Leaders at Colliers International says “In order to deliver a hotel development that performs above market, the developer needs to understand the local market trends and guest profile; drive and control the building economics as well as minimising recurrent and operational costs through design.”
However, due to the maturing and growth of the Hotels asset class, finding Alpha opportunities can be challenging, as investors and operators continue to reshape the hotel business and find new levels of efficiency.
“Sophisticated hotel investors have long-sought the “low hanging fruit” in hotels they acquire to generate either revenue uplift or improved cost control, that can then deliver the alpha factor” said Gus Moors, Head of Hotels for Colliers International.
“Historically, this low hanging fruit could be plucked through the use of technology, in areas such as hotel yield management software, housekeeping productivity tablets and guest self check-in terminals.”
“With the adoption of this technology becoming increasingly widespread, investors are now looking to data analytics to create a competitive edge that will unlock future alpha opportunities.”