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News release


Potential upsides from capital expenditure

Hotel refurbishment

Sydney, 21 November 2013 - In an increasingly competitive market and with new state-of-the-art accommodation projects on the horizon, existing hotel owners and operators need to actively consider their future asset and customer requirements. Whether it is towards on-going maintenance or a total refurbishment, well deployed capex can go a long way in protecting and enhancing asset value.

So, when is the best time to refurbish a hotel? "Hotel refurbishment is not appropriate all of the time, but rather when it will deliver the greatest returns or is required to protect the current cash flow. Hotel owners need to apply three-dimensional strategic thinking to an asset overlaying the hotel market cycle with the hotel asset cycle, as well as their underlying business strategies." answers Mr Ross Beardsell, Senior Vice President - Asset Management, Jones Lang LaSalle's Hotels & Hospitality Group.

"'Soft refurbishment' projects are sometimes undertaken in flat or weakening markets. They are defensive in nature and typically involve upgrading of soft furnishings and fittings. Whereas extensive upgrade programs are ideally undertaken in the 'trough' or early upturn phase of the cycle to minimise disruption to hotel operations and maximise the number of areas which can be worked on at any one time. Most importantly, this timing enables the hotel to leverage fully off a rising market, thereby maximising return on the refurbishment expenditure." continued Mr Beardsell.

The frequency of hotel refurbishment is largely dependent on the age of buildings, standard of construction and current fit-out, level of on-going maintenance and strength or competitiveness of the operating market, along with changes in consumer preferences.  

Mr Beardsell said "Typically operators and investors work on seven year cycles for room refurbishments and five-year cycles for food, beverage and public areas but this can be extended with a well-designed, high-quality fit-out and rolling maintenance programs. However, with increasingly discerning customers and frequent technological advancements the acceptable time between refurbishments appears to be narrowing. To maintain market position there is often the need to regularly enhance the product to create the perception of a 'new' environment."

Whatever the level of renovation, a well thought out hotel improvement plan is paramount. Owners and operators need to collaborate more on the capex planning and execution, ensuring highest operational efficiency and therefore financial performance. For a hotel operator a successful program supports satisfied repeat customers and maintains market position, while a hotel owner may gain increased profitability, a higher return on investment and driving the capital value up in the long-term.

"Hotel improvement planning at its best is evident in the Four Seasons Hotel Sydney which recently sold for AUD340 million. The world renowned 531-room property underwent an extensive AUD45 million dollar refurbishment program over recent years, including complete refurbishment of guest rooms, the addition of a new restaurant, bar and substantial state-of-the-art conferencing facilities. The repositioning of the asset is an excellent illustration of how, though collaboration between hotel owner and operator, significant change can maximise returns for both parties." said Mr Craig Collins, CEO Australasia, Jones Lang LaSalle's Hotels & Hospitality Group.

"In an era of tight capex budgets, hotel owners and operators need to maximise efficiency of their available capital to impact revenue performance and long-term hotel value. Traditionally hotel owner and operator capex priorities have not always been in alignment. A collaborative approach is required to plan for improved trading performance, adaptation to technology advances, changes in consumer trends and compliance with legislation. A well thought out and executed capital expenditure strategy in the form of a hotel improvement plan can propel a hotel ahead of its competitive set." concluded Mr Beardsell.