HOSP 4040 Johnson & Wales University Week 2 Brand Affiliation Essay

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Business Finance

HOSP 4040

Johnson & Wales University

HOSP

Description

In this case study, you are the Asset Manager for a large hotel Real Estate Investment Trust. Your company is in the process of due diligence on a hotel in the Midwest. In the case study you are given facts about the hotel, the market, and the potential impacts of your branding decisions.

Using the information in the case, and what you have learned to date, you will recommend what type - if any - of brand affiliation the hotel should make, and why.

Please make certain you begin this assignment early, and refer to the grading rubric as you work.


Format requirements:

  • Microsoft Word
  • 12 Point Font
  • Margins 1.5 inch top and bottom, 1 inch left and right.
  • No grammatical nor spelling errors
  • Minimum 3 pages.
  • You may use Excel for your financial projection(s), but you must copy into your word document.

Unformatted Attachment Preview

HOSP 4040 Asset Management Assignment: Soft Branding Decision This assignment is a short case study in which you assume the role of a hotel development/ownership company that has just completed the purchase of a hotel asset in a secondary, but rapidly growing Midwest market. Using the information provided in the case, you will take a position on how to brand (or if to brand) this asset. This assignment is due via the Assignment Link by 11: 59 PM Eastern, on the due date. This assignment will be graded based on the rubic. You may view the rubric by clicking on the assignment link. Late work will not be accepted. The Case You are working as the asset manager for a large Hotel REIT. In your role, you oversee a portfolio of 9 assets in the Midwest. Your REIT is performing due diligence for the potential purchase of a 350 room full service hotel in Indianapolis, Indiana. As a part of the due diligence you are exploring whether to remain independant or affiliate with a major global brand as a “Soft Brand”. The Hotel: • Opened as an independent luxury hotel in 1968, the hotel has operated as an independent hotel and is currently affiliated with Historic Hotels of America. Historical Hotels is a marketing affiliation group that provides very limited marketing, and no reservations presence. • The hotel has been owned by a prominent local family since its opening. The family are leaders in the community and very actively involved in local charities and other businesss ventures. The hotel enjoys a strong reputation for excellence in service and has been host to high profile events for decades. • 340 Guest Rooms and 10 Suites. • 25,000 Square Feet of flexible meeting space • A Business Center that is leased and operated by FedEX. • 2 restaurants and 1 lobby bar. One of the restaurants is leased and operated by a third party (well known regional chef). • A 2,000 square foot day spa that is leased and operated by a third party. • Located in the downtown business core, within 1 block of the city convention center. • The physical plant has been well maintained, and the building is up to local code requirements for life safety, energy consumption, and guest security. Your company is planning a multimillion dollar guest room and public space refurbishment project following the acquisition of the hotel. • • • The design of the hotel is “mid century modern” and contains several iconic design elements in the public space consistent with the original design. The guest rooms are 300 square feet, slightly smaller than the current design requirements for the major global “core”. For the past 5 years, the hotel has had a mix of businesss that is 60% Transient and 40% Group. The current Financial Data for the hotel is given below. You should prepare your financial projection using this same format. Hotel Financial Data: Market Projections: • The market has enjoyed robust growth. Over the past 7 years the demand has grown by over 6% per year (REVPAR) and supply has grown by only 3%. The majority of the growth occurred immediately after the convention center opened. • Based on the most recent STR pipeline report, there is no new product planned for this market, but several hotels are planning renovations within the next 3 years. The Decision: As a part of the acquisition decision process, you must decide first if the hotel should affiliate with a major brand as a “soft brand” or remain independent. Your decision is based entirely on the financial projections and the related costs for the rooms department and the marketing costs. Everything else is assumed to remain the same in both scenarios. What is a Soft Brand? A Soft Brand is the term used that allows a hotel with a unique “iconic” identity to retain that identity, and yet affiliate with a major global brand company and enjoy the benefits thereof. It lets a hotel enjoy affiliating with Hilton, or Hyatt, or Marriott but without being a Hilton or a Hyatt, or a Marriott. Soft brands are typically much “lower key” on the hotel logo, etc. Here are some Examples. In the three examples above, each of the hotels prominately feature (and keep) their iconic identities, but “softly” announce their affiliation with a major global brand. The Autograph Collection is a Marriott soft brand. The Tribute Portfolio and the Luxury Collection are both Starwood (now Marriott) soft brands. Financial Considerations: • Renovation: o If independent, the renovation requirement would be simply to bring the hotel up to a competitive state. Your company wants to keep the hotel in the upper upscale segment, and competitive with the local market. o If a soft brand is selected, the renovation requirement would be similar to that of remaining independent. • Systems: • • o If an independent the hotel will keep it’s current reservations, front desk PMS, and guest room locking systems – each of which is in good condition. o If the hotel brands with a soft brand it will be required to install the brand directed PMS and guest room locking systems. The estimated cost of this is $650,000 and would be considered a capital expense – not an income statement expense. Fees: o If the hotel remains independent, it will continue its marketing and affiliation agreement with Historic Hotels of America at a cost of 0.6% of rooms revenue. This covers both marketing and reservations – though the majority of the reservations do not come through that channel. o Currently, only 5% of the transient reservations are made through the hotel online reservations site. Of the remaining transient resevations, 80% are made through third party Online Travel Agents (Expedia, Booking.com, etc). The average commission rate for these is 23%. o For a Soft Brand Affiliation, 80% of transient reservations come through the brand website (Marriott, Hyatt, Hilton, etc). 5% come through the OTA channels,and the brands have negotiated a 12% Commission with the OTAs. o If the hotel soft brands , the estimated total fees are expected to be 13% of hotel revenue based on the fee schedules the major global brands in the other hotels they brand. This includes franchise (6%), reservations (3%), marketing (2%) and frequent traveler program fees (2%). Market Share: o The average ADR market share Index of this hotel in the competitive set has been 101. o The average Occupancy market share Index of this hotel in the competitive set has been 81. o Based on your companies experience with the global brands in other markets, they typically deliver ADR indexes of 105 and occupancy indexes of 108 in markets similar to yours for soft brands. If the hotel remains independent, you project that you could gain only 1 point in Market Share for both Occupancy and ADR. o These indexes would apply to both group and transient segements Your deliverable for this project: In the form of a memo to your due diligence team, you will recommend whether the hotel should remain independent, affiliate as a core brand with a global franchisor, or affiliate as a soft brand with a global franchisor. You must provide the financial projection that supports your position. Your paper needs to consider the following: • The impact of a change in ownership, given the strong local ties of the existing owners, and how this impact could be mitigated. • The impact of improved market share, and other cost changes as a result of moving to a soft brand. Format requirements: • Microsoft Word • 12 Point Font • Margins 1.5 inch top and bottom, 1 inch left and right. • No grammatical nor spelling errors • Minimum 3 pages. • You may use Excel for your financial projection(s), but you must copy into your word document. Affiliation Case Study Financial Data Financial Rooms Available Occupied Transient Occupancy % Transient Occupied Group Occupancy % Group Total Occupied Rooms Occupancy % Total 350 127,750 55,188 43.2% 36,792 28.8% 91,980 72.0% Index 81 81 ADR Transient ADR Group ADR Total REVPAR $ $ $ $ 185.00 163.00 176.20 126.86 Transient Room Revnue Group Room Revenue Total Room Revenue $ $ $ 10,209,780 5,997,096 16,206,876 Rooms Dept Expenses OTA Commission Expense Rooms Systems All Other Rooms Dept Expenses Total Rooms Dept Expenses $ $ $ $ 1,878,600 500,000 3,565,513 5,944,112 18.4% 3.1% 22.0% 36.7% Rooms Department Profit $ 10,262,764 63.3% $ $ 162,069 97,241 $ 259,310 Net Profit from Considered Items $ 10,003,454 All Other Items Not Considered $ 8,814,631 Net Profit $ 1,188,822 Marketing Fees Reservations/Hotel Website Marketing Affiliation Brand Marketing Brand Franchise Fee Brand Frequent Traveler Fee Total Marketing Fees 101 101 Cap Rate Hotel Valuation Hotel Valuation Increase 6.0% $ 19,813,707
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Explanation & Answer

Attached.

Introduction

A. Topic/focus of the essay
B. Thesis Statement

Body

First paragraph description

A. Summary of first piece of supporting evidence/information
B. Summary of second piece of supporting evidence/information

Second paragraph description

A. Summary of first piece of supporting evidence/information
B. Summary of second piece of supporting evidence/information

Third paragraph description

A. Summary of first piece of supporting evidence/information
B. Summary of second piece of supporting evidence/information

Conclusion

A. Restatement of thesis
B. Concluding remarks


Running Head: WEEK 2 ASSIGNMENT BRAND AFFILIATION

Week 2 Assignment Brand Affiliation
Student’s Name
Instructor Name
Institutional Affiliation
Date

WEEK 2 ASSIGNMENT BRAND AFFILIATION

2

Impacts of Change in Ownership
The transformation the organization is about to go through is will come up with quite
a number of changes. The ownership of the business is affected by so many factor as a result
of the risk mitigation process. The management process will be affected significantly and
before the new ownership hits to adapt in establishing the organization process, the
productivity will have fallen significantly in the organization. The other impact that will
come in is the strategies lessening their effects. Strategies are normally formulated by the
organization ownership. When a new ownership comes in, they may have a problem trying to
understand the prev...


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