In Brief: A hotel management company is worth what the hotels behind its fees will keep paying. Learn how to read competitive position, contract survival and owner economics, then turn them into a defensible multiple, with a hypothetical worked example of a downside case.
-
Valuing a Hotel Management Company: Read the Hotels Behind the Fees – Image Credit Horwath HTL
Executive summary
A hotel management company’s income statement records fees already earned. Whether those fees will grow, persist or disappear depends on the hotels it manages, so valuation should start there: with each hotel’s competitive performance, the direction that performance is moving, and the property values that future operating results can support.
The management company and its hotels remain different assets. Owners hold the property interests, while the manager holds contractual rights to compensation. A rise in hotel value does not belong to the manager, but it can reveal stronger fee capacity, healthier owners and a greater likelihood of renewal.
This paper traces that evidence through to value. It covers:
- how management fees arise, and which receipts are retained revenue rather than reimbursements;
- how to move from observed prices and public transactions to a selected multiple;
- how to value management contracts through the hotels, including survival, termination and key money;
- how to read competitive position and direction together, and convert revenue gains into owner value;
- how to test whether the manager is the best solution, and why affiliated managers need an arm’s-length test;
- a scorecard of illustrative multiple sensitivities, and a hypothetical worked example in which a downside case reduces enterprise value from $12.12 million to $9.97 million;
- what buyers, sellers and lenders should request in diligence.
Every figure in the scorecard and the worked illustration is hypothetical, and none is a market benchmark.
Download the Valuing a Hotel Management Company report.