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Hotel Divestment as a Growth Strategy within the Industry

Hotel Divestment as a Growth Strategy within the Industry

The growth and expansion of the hotel industry has set the focus on internationalizing all business and tourism initiatives, developing different strategies, including divestment as a hotel growth model.

First, you might be wondering “what is divestment?” Divestment is the reduction of a certain type of asset or the increase of a certain type of liability. In the case of hotels, this may be carried out for ethical or financial reasons, or due to the sale of an existing business. Reducing the total amount of ongoing hotel investments is also part of divesting.

In the last few months some of the largest international hotel chains in the world have been buying and selling hotels: NH, Intercontinental, Starwood, Hainan Airlines, Riu, and Best Western, among others. The divestment strategies of these and other hotel companies plus their expansion plans and therefore the construction of new properties are causing the economic flow to move at an unstoppable pace.

Today, the tourism industry is operating at full capacity, the real estate market is recovering, and new investors are showing their interest in different types of hotels. Divesting of less profitable assets is on the rise, as well as consulting on leases, rental, management, and franchising agreements for hotel projects. All of this is taking place in order to be able to free up capital and finance expansion into new international markets.

We are aware that the situation within the tourism and real estate industries is positive and that therefore divestment, changes to hotel management models, and corporate brand diversification are increasing proportionally, taking advantage of the closing of some hotel operations by international funds. This situation should help us when creating opportunities and allow us to get even more out of the asset portfolio while balancing it and creating value for future shareholders, profiting from the potential of the hotel portfolio held by the brand.

The challenge for most hotel entities is knowing how to take on asset acquisition processes reasonably, let the least interesting options go, and manage all of the profitable ones so that assets do not lose value over time while waiting for the best time to divest.

Divestment is synonymous with growth strategy: the moment when hotel managers put their asset portfolio on the table to assess the different options, and as a result, create a value line based on profitability, using the rotation of assets as a driver for growth both for large hotel brands and sub-brands, which will create more capital gains. Moreover, there are hotel managers who prefer renting, specifically fixed rents, as they grow on a greater scale compared to variable rents.

The trend of divestment within the business model to be carried out by hotel management groups continues to move toward models posing lower risk for operators. Within this context, the strong increase in franchising agreements in a market as fragmented as the hotel industry should be mentioned. This is a market in which independent owners are looking for management formulas parallel and complementary to their own, formulas that allow them to enter and position themselves in alternative markets.

The financial market crisis and the resulting credit restrictions directly affect the development of new projects and condition the expansion plans of hotel chains. At this point… How can a hotel consultancy firm like ours help? With our hotel Asset Management service; a consulting service for hotel asset owners aiming to reach their projected break-even points. With this service, we supervise and control the investment and divestment strategy, assessing the property in the right investment strategies, analyzing and evaluating the transaction market, selecting the right hotel operators, and administrating management contracts until the right time for divestment arrives.

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