Should Private Hotel Operating Companies Acquire Assets to Enhance Shareholder Value?

By Bill Boyar Chairman, Boyar and Miller | January 14, 2010

If you are a private hotel operating company and have built your company on providing third-party management services, there will come a point in time when you will most certainly question your own strategy and its direction.  Can we really build sustaining value if we don't own our hotels?  Can we attract and retain quality talent if we don't have a substantial number of hotel assets under long-term control?  Is there sufficient margin in the management business to sustain the company for the long term? 

These are just some of the questions that you will be faced with in exploring your alternatives. This is a pretty typical conundrum that operating companies face at some stage in the growth of the company.  What's often missing is an understanding of the important distinctions between a pure operating company (opco) and an operating company that incorporates the ownership of real estate (propco) into the structure and design of the company.  What's also often missing is the experience to fully evaluate and understand the important issues that need to be addressed. Let's look at these two fundamental strategic options and how they affect your current circumstances and future opportunities.

This is a pretty typical conundrum that operating companies face at some stage in the growth of the company. What's often missing is an understanding of the important distinctions between a pure operating company (opco) and an operating company that incorporates the ownership of real estate (propco) into the structure and design of the company. What's also often missing is the experience to fully evaluate and understand the important issues that need to be addressed.

Let's look at these two fundamental strategic options and how they affect your current circumstances and future opportunities.

The "Opco" Option

Many private hotel companies start out as pure third-party managers. The focus of management is on operations; asset management and investment management are left to the asset manager or owner. The management team is typically from an operations background. Possessing hands-on, on-site experience is critical. The strength of this structure is the P&L; the weakness is the Balance Sheet. Pure operating companies can be run profitably, but they do not build strong balance sheets.

Coming up in March 2018...

Human Resources: Value Creation

Businesses must evolve to stay competitive and this is also true of employment positions within those organizations. In the hotel industry, for example, the role that HR professionals perform continues to broaden and expand. Today, they are generally responsible for five key areas - government compliance; payroll and benefits; employee acquisition and retention; training and development; and organizational structure and culture. In this enlarged capacity, HR professionals are no longer seen as part of an administrative cost center, but rather as a member of the leadership team that creates strategic value within their organization. HR professionals help to define company policies and plans; enact and enforce systems of accountability; and utilize definable metrics to measure and justify outcomes. Of course, there are always new issues for HR professionals to address. Though seemingly safe for the moment, will the Affordable Care Act ultimately be repealed and replaced and, if so, what will the ramifications be? There are issues pertaining to Millennials in the workforce and women in leadership roles, as well as determining the appropriate use of social media within the organization. There are new onboarding processes and e-learning training platforms to evaluate, in addition to keeping abreast of political issues like the minimum wage hike movement, or the re-evaluation of overtime rules. Finally, there are genuine immigration and deportation issues that affect HR professionals, especially if they are located in Dreamer Cities, or employ a workforce that could be adversely impacted by federal government policies. The March Hotel Business Review will take a look at some of the issues, strategies and techniques that HR professionals are employing to create and sustain value in their organization.