International
management techniques in the hotel industry follow precise standards
and are applied the same way worldwide. Hotel managers are used to
speak about Occupancy ratio, RevPar and RGI and financial valuations
based on FCF are commonly applied. However there are some
peculiarities in the Italian hotel industry and in the Italian Real
Estate market that deserve some attention in order to set and manage
the appropriate business value drivers of an Hotel and for Hotel M&A deals..
Italy
is a wealthy country with high density of population, no surprise if
Real Estate in Italy is generally expensive
Italy
in one of the European country with the highest density of population
, with over 200 inhabitants for square kilometers, the double of
France and Spain and just lower then the UK and Germany. However if
we take into consideration that there are Italian regions that have
few inhabitants because of the mountains (Valle Aosta, Trentino, Alto
Adige, Sardinia) we find out that the density varies from 200 to 400
inhabitants for square kilometers not to talk about cities of course.
As elsewhere, when a wealthy country has a lot of people in a limited
space then the value of the space and the real estate value are high.
Average
hotel premises quality is low and their renewal is expensive and
requires time and efforts
Although
Italy has a huge offer of rooms and beds, only recently built or
renewed 4 to 5 stars hotel have more than 100 key and up-to-date
energy and technology systems. Most of the hotel industry offer is
still represented by hotels with less than 30 keys, built more than
40 years ago, with poor technology and poor services. Regulatory
issues might be relevant if the building is located in ancient city
centres, so the necessary restructuring is an important issue: costs
may be high, time may be long.
and
therefore the cost of financing the RE is a relevant issue
As
the real estate portion of the hotel business is so expensive in
Italy, then the first and main issue is how to finance it, both for
the premises acquisition and for their renewal. There are very few
real estate investment funds ready to invest in hotel assets in Italy
and banks are reluctant to extend long term financing unless the
leverage is low. Which means that the hotel manager will have to
invest more equity than he might expect elsewhere.
Hotel
Occupancy may have a strong seasonality therefore yearly based
averages may be misleading.
Weather
and incoming are not constant during the year: each region and city
has some seasonality. Even Milan, a business oriented hotel offer,
suffers from low demand in January and August. Revenue and cost
planning, especially number of hours worked and labour cost in each
department, require accurate different month-by-month budget and
financial control as the yearly average is nice for statistics but
does not help to run business.
The
value of the location is high and the value is persistent over long
time period
Art,
climate and food are probably considered the main incoming client
attractiveness for Hotels in Italy. These factors tend to be
persistent in the long time much more than business, fairs, sport
facilities or events that may move from one place to another. This
means that the incoming interest for Italy was relevant one century
ago, it is relevant today and will be relevant one century from now.
I would think that only Paris in the world can claim such a
prerogative. For the hotel business this means that in Italy the
value of the location is very high and this value is persistent over
long time period.