How to Preserve and Increase Hotel Value: Five Management Decisions from Yuliia Kosenko

Can a hotel meet its annual profit plan and still lose value as an asset? Yuliia Kosenko, CEO of Ribas Hotels Management, says it can. This may not show up in the annual report, but it will certainly show in the hotel’s future economics. Below, we look at five management decisions that determine whether a hotel’s value grows or declines.

Why the annual report doesn’t always show the full picture

A hotel can close the year on plan while accumulating hidden risks: deferred renovations, dependence on a single sales channel or one major client, a shrinking base of regular guests, or an unstable team after a key manager leaves. Each of these gradually reduces the value of the property, even though the current numbers still look good.

That is why Yuliia suggests looking at management over a longer horizon and judging decisions not only by what they deliver this season, but also by how they change the hotel’s value.

Two similar hotels, different results

Hotels are easy to compare by visible parameters: number of rooms, floor area, infrastructure, design. But two hotels with almost identical parameters can deliver completely different results in profit, reputation and risk.

In the first, income and costs are under control, the team is stable, the engineering systems are reliable, and the key decisions were thought through at the design stage. Such a hotel can be expected to keep delivering. In the second, design mistakes force renovations sooner than planned, or a large share of income depends on a single source of demand, for example children’s camps, trade union groups or international aid programs. If that demand disappears, the hotel feels it immediately.

So a hotel’s value is determined not by how much money was invested in construction, but by how stable and predictable the income it generates is. That is what an investor is willing to pay for.

Three groups of value factors

Yuliia identifies three groups of factors that are connected to each other.

The first is physical condition: the reliability of the engineering, well-thought-out logistics, the functionality of the spaces, and how well future renovations were planned from the start.
The second is cash flow: not only how much income there is, but how stable and predictable it is, and what risks could affect it.
The third is brand and reputation: guests’ trust and their willingness to return and pay more. Reputation should deliver an economic result, not just support the image.

Physical condition affects reputation, reputation affects demand, and all of it is reflected in financial results. The market and location also affect a hotel’s value, but the management team cannot change them. What it can influence is its own decisions.

Five decisions that shape a hotel’s value

1. Build demand for the whole year, not just the season. High occupancy in summer or winter often depends on circumstances and does not yet say anything about the resilience of the business. It is worth thinking ahead about what the hotel offers between seasons: which offers will fill the low season and whether there are segments that will come on weekdays. This is especially important for city complexes. The less income depends on seasonal peaks, the more stable the hotel’s value.

2. Judge every space by its contribution to the result. A restaurant, spa or conference hall should either generate income, raise the average room rate, extend length of stay, or fill the low season. If the contribution is unclear, such infrastructure remains a nice picture from the concept that only eats into profit. So for each space it is worth defining what role it plays.

3. Agree in advance where the profit goes. Operating costs, dividends and hotel renovation compete for the same budget. That is why, even before profit arrives, it is worth agreeing with the owners on a renovation (depreciation) fund and drawing up a capital investment plan for at least ten years. This also covers upgrades that keep the hotel modern, such as energy-efficient systems and new kitchen equipment. Deferred repairs do not go away: they move to later periods and can cost more.

4. Build convenient logistics in at the design stage. Where the storerooms are, how clean and dirty linen moves, how many times staff have to walk to fetch what they need: a decision made in a 30-minute meeting then affects costs every day, on every shift, for years. In an operating hotel, it is worth first analyzing workload, productivity and how processes are laid out, and only then changing staffing. Even if the staffing table looks too large for the number of rooms, that is not yet a reason to cut.

5. Build a management system that doesn’t depend on one person. Some hotels rely on a “heroic” manager or owner who personally holds the key agreements with partners. For a hotel as an asset, this is a risk. It is important to build a system that works even if someone leaves or the hotel is sold: the data, the clients and the established processes remain and keep generating income.

These decisions determine whether a hotel’s value will grow or fall over the next few years.

The wider responsibility of a management company

Operating profit is a mandatory condition, but, in Yuliia’s view, hotel management should also be assessed by resilience, liquidity and long-term value.

Resilience means the result can be preserved even when something changes: processes are repeatable and the condition of the properties is maintained by a system. The liquidity of an asset means the ability to sell it at an acceptable price and within an acceptable time. The market has a strong influence here, but a management company can ensure transparent reporting and a clear financial history. Long-term value requires a plan for renovation and improvement.

When an investor evaluates a hotel, they look at more than its physical condition. They assess the promise of tomorrow’s income: how predictable and repeatable that income is, what investments will be needed, and what could affect future revenue.

Questions to ask your hotel

Yuliia advises asking them even if the owner has no plans to sell. What stable income can the hotel generate over the long term? What investments does that require? What will sustain future demand? How transparent is the financial history? What could complicate financing or a sale, whether a legal or financial structure or outstanding obligations?

Returning to the two similar hotels, the value of each five years from now will be shaped by the decisions that the management team and owners make today.

Ribas Hotels Group works with hotels at different stages: from the idea and concept, through design and launch, to ongoing management. According to Yuliia, this experience helps to see how far and how deep decisions made at the early stages can reach.