To nearly everyone involved in the hospitality business, the STAR report is the periodic answer to the question, “How did the hotel do compared to our competition?” Yet I challenge conventional thinking by asserting that the STAR report is not the best tool to value your competition or a property you are eying to purchase.
For example, Property A being number 1 in occupancy compared to 5 other properties in its STAR report, one can not jump to the conclusion it is the best in its market. Property A might have the least rooms out of its competition, therefore, occupancy will look higher. If property A has 100 rooms and sold 75 - it is 75% occupied, however if Property B has 200 rooms and sold 120-it is 60% occupied. However, Property B sold almost twice amount of rooms as Property A. In a different analysis, if Property B was showing higher occupancy, then its figures are probably being boasted by Out of Order/ Maintenance rooms that show less inventory. There are always ways to tweak your occupancy to look better that the competition. Average Daily Rate (ADR) is a more productive measure to look if your property is selling around the same rate as the competition, thus not leaving money on the table. However, ADR can be manipulated depending on how third party vendors such as Hotels.com, are taking their cut upfront or billing at the end of the month. I can go down the list on the pros and cons of STAR Report- justification why STAR report can be only a informative tool, however not a great tool to measure success.
I believe in the bottom line: Holding the GM accountable for ROI is you’re held accountable for a measured return on each dollar invested, then you’ll question each and every expenditure to ensure that it’s an optimal decision. Any questions or concerns?
So if neither the STAR report nor ADR is a way to judge the hotel performance what would you recommend to someone eyeing to buy a business? What report or due diligence should he consider?
ReplyDeleteYou want to start by looking at the CAP rate of the property. http://en.wikipedia.org/wiki/Cap_rate- will help you understand the significance of the Cap rate. It helps you value the business and how much you are willing to pay for it. More significantly, get down to basics - Look at the P&L and identify ways in which you could improve it - after which make your own Pro forma. Also, how much your mortgage payment/property tax, etc will be, to determine if the NOI will be able to sustain your debt ratio. Thus rather than getting to fancy with the STAR report, look at your personal expectations from the property by doing the X and O's.
ReplyDeleteI agree with the STAR report - it is not the end all or be all of performance - I often say that I can criticize or defend any property's STAR Report (like many hospitality vets). It is limited in its scope as it only focuses on Top Line Room Revenues (not F&B or Meeting for full service properties). Additionally, people only pay attention to the first page but there is always more to analyze on the supporting pages - that can be affected by Brand, Property Size, Segment etc. For example, in a market with a Marriott, Hilton, Starwood, IHG and Wyndham product - the IHG product may have a lower index in RevPAR as it is being compared to what is considered the top 3 brands. However, when looking at the rankings, if the property is 4 out of 5 in its compset, - it is WHERE it belongs in this kind of compset unless there is some kind of anomaly for it to realistically be higher. I am hoping not to many GM's or DOS's read this blog - but the case can definitely be made for what I said!
ReplyDeleteI agree- its very important you get the right properties on your STAR Report. However, if you have to include properties that are not in your property segment, one should look at the tract scale - it shows you how similar properties in your area are performing.
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