Advances in Economics, Business and Management Research, volume 153

Proceedings of the 2020 International Conference on Management, Economy and Law (ICMEL 2020)

Study on the Application of Asset Management in

Hainan Hotel Management
Xuan Gao1,*
1
International Hospitality Management School, University of Sanya, Sanya, Hainan 572022, China
*
Corresponding author. Email: [email protected]

ABSTRACT
As one of the most important components of corporate strategic management, asset management is
increasingly valued by large hotel management groups. This article discusses the essential components
of dynamic lodging asset management and provides a detail background on six essential components
that often used by hotel industry of Hainan and how to be used. The article also discusses the role of
lodging assess managers and their working relationships with ownership and operators in Hainan.
Based on the surveys of the hotel industry in Hainan, the article finds that many hotel chain operators
and managers in Hainan still fail to pay attention to asset management. Even if the assent management
is utilized, it is only part of its functions. If the situation cannot be changed in time, it will inevitably
affect the overall performance of the hotel industry in Hainan.

Keywords: asset management, hotel management, enterprise strategic management

management, as well as the role and responsibilities of
I. INTRODUCTION asset management managers, in order to better
With the construction of Hainan International understand the role of hotel asset management.
tourism Island and Hainan Free Trade Port, tourism and
hotel industry have developed rapidly. Within a short II. HOTEL ASSET MANAGEMENT AND ASSET
period of time, international chain brands and domestic MANAGER
chain brands have occupied a place in Hainan market
with their strong strength. [1] However, operating a The primary objective of hotel asset management is
hotel is a high-risk investment, because the hotel to ensure that each hotel in the company's (or group's)
operation is highly susceptible to seasonal, competitive investment portfolio maintains the same market price,
and macro-fluctuations in the market, resulting in the achieves investors' investment objectives, and ensures
uncertainty of cash flow. [2] In addition, from the point that the hotel's operating performance, such as financial
of view of real estate management, hotel management statements, is in the best condition. [7] As the
has a simple rental structure, that is, its rooms "for rent intermediary between hotel investors and hotel
every day". Despite the simplicity of the hotel rental operators, hotel asset management managers achieve
structure, its success as a real estate investment depends the above goals through performance targets, return on
on the hoteliers' operational and strategic ability to assets (ROA) and market value. [8] Therefore, the
effectively manage their physical assets. [3] overall goal of hotel asset management is to ensure that
each asset can obtain the best ROA, and asset
In the course of operation, the hotel needs to management and asset managers must ensure the
achieve the dual objectives of increasing operating production of a high rate of return on capital investment
profit and meeting investors' investment expectations. through a variety of methods and means. [9] First of all,
[4] In this case, the asset management of the hotel is a hotel asset managers play the role of an intermediary
dynamic, multi-layered process that runs through the between the ownership and management operators in
entire life cycle of the hotel. [5] From the perspective of the investment and management of hotels. [10] It
the overall development trend of the hotel industry, the should be noted that although the hotel asset manager is
role of asset management is becoming increasingly an intermediary, the asset manager is actually the agent
important, because hotel investors need the expertise of of the hotel investor, so it has a fiduciary responsibility
asset managers to help them achieve a balance between for the property ownership of the hotel. [11] Secondly,
profitability, cost control and value creation. [6] the hotel asset manager links the objectives of the hotel
Therefore, this paper will elaborate the application of asset to the operation of the hotel in a dynamic, cyclical
asset management in Hainan hotel industry, focusing on process. [12] This cycle can be broken down into three
the role of asset management in hotel dynamic parts. First, the hotel asset manager evaluates the

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 Advances in Economics, Business and Management Research, volume 153

performance of each hotel. Then, he or she develop a management process of the hotel industry from the
value-driven strategy for each hotel based on perspective of the hotelier and understand the structure
performance. Finally, once these strategies have been of hotel assets and the maintenance of key assets.
implemented, the asset manager will continue to Finally, the hotel asset manager must be a skilled
monitor the implementation of these strategies and negotiator. Only when the above requirements are met
provide feedback to make adjustments to ensure that can the hotel asset manager, on behalf of the investors,
these strategies can deliver a substantial return on the effectively supervise the hotel management company or
asset. management team in order to ultimately ensure that the
hotel assets are in a favorable position and the operation
Although the hotel asset manager must perform and cost control of the hotel can meet expectations and
several responsibilities, the main responsibility is to ultimately achieve the profit target.
consider the hotel's long-term development strategy
while ensuring the maximum performance of the asset.
Therefore, the basic task of the hotel asset manager is to III. THE COMPOSITION OF HOTEL ASSET
propose corresponding strategies based on the operation MANAGEMENT
status and financial statement performance of the hotel Hotel asset management can be broadly divided into
assets through the constantly changing hotel dynamic 13 basic responsibilities. They are operation analysis
market, so as to maximize the hotel property and ensure and review, asset relocation analysis and strategy, asset
the interests of the hotel investors. [13] The specific location selection and evaluation, review and evaluation
performance is that the hotel asset manager uses all of contracts and franchise agreements, the monitor and
means to maximize the hotel's cash flow while evaluation of the brand and product improvement
enhancing the hotel's market position to maximize the strategies, lifecycle management of the hotel
hotel's return on investment while ensuring the overall investment, risk control and stop loss management,
asset value. [14] It can be seen that hotel asset acquisition survey, strategic investment management,
managers must be result-oriented, provide reasonable capital expenditure and budget management, real estate
suggestions to hotel owners (or investors), and planning and development management, brand choice,
transform these recommendations into quantifiable and facilities management. [16] It is important to note
results, that is, to use qualitative and quantitative that these 13 basic responsibilities do not coexist in the
performance evaluation tools to ensure a high level of same hotel asset management task. Its importance and
return on assets. [15] Using a combination of necessity depends on the type of property, ownership
quantitative and qualitative performance means is better structure and investment objectives of the investors. [17]
than using only a quantitative indicator, because it is Interviews with 35 hotel asset managers of international
difficult for quantitative financial indicators to chain brands in Hainan shows that the Hainan area
accurately show the overall benefits of the hotel. hotel assets management mainly concentrated in six
Therefore, hotel asset management should not be parts, namely the operation analysis and review, asset
limited to the benchmark calculation of facilities and repositioning analysis and strategy, review and
equipment management, but should be combined with evaluation of franchise agreements, lifecycle
other directions in the field of strategic management. management of hotel investment, risk control and stop
Based on the above analysis, it is not hard to see loss management, and capital expenditure and budget
that hotel asset managers must be skilled in reviewing management.
and interpreting hotel operational data and financial
reports. Although hotel asset managers are the agents of A. Operation analysis and review
hotel investors (or owners), while protecting the Operation analysis and review in hotel asset
interests of investors, hotel asset managers also need to management focuses on monitoring the performance of
take the financial status of the hotel operation and hotel operations and prescribing the frequency of
market prospects into consideration in the decision- reporting such data. The reports may be daily, weekly,
making. These two points is often full of contradictions or monthly according to operational requirements. The
in the goal and strategy, though. In order to enable hotel purpose of analysis and review is to obtain information
assets and hotel management to effectively play their that can help optimize short-term business performance
respective functions, it is necessary to establish a kind and help reduce operating costs and increase long-term
of trust relationship between hotel asset managers and value without compromising service quality. This
hotel operators. Hotel asset managers who are generally requires the hotel asset managers to timely obtain the
able to establish a good relationship of trust with real hotel business statistics, such as occupancy,
hoteliers have excellent communication and average room rate, booking report, market segmentation
interpersonal skills, have relevant (or similar) report, RevPAR, daily and monthly financial statements,
experience in hotel management, understand the and compare these actual data with budget data and
dynamics of the hotel market, especially the changes of market average industry data to find differences and
market supply and demand, are able to understand the propose rectification opinions.

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In addition, the hotel asset manager should analyze the revenue and value they bring. It should be noted
the cash flow status of the hotel and other properties to that the audit here refers to the audit of revenue and
ensure that the hotel and other properties as a whole value, not the audit of legality. For most asset managers,
generate sufficient cash flow to pay financial bills. The the most important contract review is the franchise
information will also help the hotel owner (owner or agreement review. This is a particularly important part
investor) decide whether to raise funds or share equity of hotel asset management because franchise
dividends. Another important responsibility of agreements can provide a competitive advantage to the
operation audit is to analyze the balance sheet of the hotel business.
hotel, such as whether the hotel accounts receivable
arrive in time and whether the accounts payable are Therefore, franchise agreement is generally a
paid in time. Assessing whether changes in tax and combination of commercial terms and legal terms, in
insurance policies will affect hotel cost control is also a which the investor (owner) retains limited rights and
basic responsibility. assumes most of the risks of the assets. This usually
affects the amount of cash flow provided to hotel
Finally, in the survey, about 25% of hotel asset owners and long-term management. So it is a better
managers in Hainan believe that the analysis of hotel choice to evaluate with measurable performance criteria.
operation should include the analysis of hotel guests' Typical performance indicators include expected profit
evaluation and hotel internal staff's views on hotel guarantee, performance incentive, RevPAR and annual
management, because any negative evaluation of hotel GOP, etc. Bankruptcies, fraud, poor performance and
guests or staff will affect the overall profitability of the asset sales are all potential legal issues that hotel asset
hotel. managers should handle with care.
The hotel asset manager should also be responsible
B. Asset repositioning analysis and strategy for managing the franchise relationship. they should
Asset repositioning is a strategic tool that hotel asset manage the franchise as a hotel asset, as the franchise
managers should consider when a hotel's main target will generate revenue for the hotel, which will
market or major market segments are not performing as ultimately benefit the owner or investor of the hotel.
expected. In this case, hotel asset managers should Therefore, the hotel asset manager carries out in-depth
conduct market perception difference analysis and evaluation of each brand to ensure that the selected
analyze hotel positioning from the perspective of hotel brand conforms to the characteristics of the asset and
customers and hotel brand management. If there is a the investment objectives of the investor. This requires
significant difference between the two and it is difficult asset managers to get involved in the brand selection
to eliminate the difference, the problem of repositioning process at the very beginning and assist investors in
must be considered, because the difference will cause choosing the right brand to maximize the value and
the overall perceived value or actual value of the asset profitability of hotel assets. At present, the franchised
to decrease. Therefore, hotel asset managers must be hotels in Hainan are mainly some economical
able to be sensitive to changes in consumer demand, international chain brands.
have a comprehensive understanding of the source of
hotel demand, including short-term needs and team D. Lifecycle management of hotel investment
needs, and develop the corresponding marketing plan
based on them. The positioning of the hotel is very Hotel asset managers are generally involved in the
important for the operation of the hotel. In case of management of the investment in hotel lifecycle and
improper positioning, the hotel asset manager should provide advice to investors at each stage. The
suggest the best asset repositioning strategy to the asset investment hotel life cycle usually includes the
owners or investors, such as changing the brand. Other acquisition phase, the retention/sale/refinancing phase,
strategies include updating facilities, redecorating, or the relocation phase, and the clearance sale phase.
adding other facilities and services. Updating During the acquisition phase, the hotel asset manager
equipment and facilities, redecorating or adding other must utilize its operational and financial knowledge to
service facilities is a common repositioning method in ensure that all investors are rational and financially
Hainan hotel market, accounting for about 85.7% of the structured in terms of the purpose, objectives and
surveyed hotels. Rebranding is unusual but shows an expectations of the project. In addition, asset managers
increasing trend. need to understand what investors' investment
motivations are and, in particular, why to invest in or
acquire target assets. For investing in hotel acquisition,
C. Review and evaluation of contracts franchise the motivation is nothing more than the ability to obtain
agreements cash flow, obtain tax revenue and hedge inflation,
The evaluation and review of contracts and diversification of investment risk, asset appreciation
performance agreements is an ongoing process of hotel and psychological satisfaction. After understanding
asset management. All contracts signed by the hotel investors' motivations, the hotel asset manager should
shall be reviewed by the hotel asset manager to assess

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make investment suggestions to them if a project is are part of the income stream of real estate management,
compatible with investors' motivations. Among the and they usually generate positive income through
object of investigation in this paper, it is a typical case ownership development or acquisition of assets. This
that Banyan Tree in Sanya was sold off by its hotel requires hotel asset managers to use what they have
owner BTG HOTELS because it couldn't make a profit. learned to ensure that hotel assets reach their full
investment potential. The main purpose of hotel asset
E. Risk control and stop loss management management is to provide a fair perspective for the
Risk control and stop-loss are indispensable parts of income generation of hotel assets. Then, the
hotel asset management. The function of asset information of asset evaluation should be accurately
management in this regard is mainly to minimize conveyed to investors, owners, borrowers and other
investors' exposure to various investment risks and to stakeholders, and it can be ensured that the asset
reduce losses caused by existing risks. Although the management strategy can increase the value of assets,
risk reduction of hotel asset management does not and assist operators to transform their value into profits.
reflect obvious value on cash flow, it can at least This requires asset managers to constantly monitor
protect investors from the impact of potential legal existing assets to ensure operational performance and
actions, which indirectly saves cash expenses. As a asset maintenance. Asset management also requires
firewall of risks, hotel asset managers should regularly asset managers to be able to develop final strategies by
review hotel assets to identify and record potential risks, evaluating and analyzing asset dynamics.
such as human-made risks or natural risks. Once the However, as far as the current situation is concerned,
potential risk is identified, the hotel asset manager many hotel chain operators and managers in Hainan
should develop the corresponding crisis prevention and still fail to pay active attention to asset management. It
treatment mechanism. The research of this interview is still common that capital is given more emphasis than
shows that in terms of risk prevention and control, asset asset, and purchase is given more focus than
managers of Hainan hotels pay more attention to the management in the management status of most hotel
prevention and control of natural risks. owners now. Even if the assent management is utilized,
it is only part of its functions. If this situation cannot be
F. Capital expenditure and budget management changed in time to improve the quality of asset
In the process of capital expenditure and budget management, it will inevitably affect the overall
management, the primary task is to set the capital operation of the hotel industry and the healthy
expenditure target for investors and balance the gap development of investment enterprises in the future.
between investors and operators in expenditure. Under Therefore, this paper aims to discuss the role of asset
this requirement, the hotel asset manager shall ensure management in hotel dynamic management and the role
that the operating expenses are aligned with the and responsibilities of asset management managers by
investor's strategic objectives without affecting the illustrating the application of asset management in hotel
operation. At the same time, the asset manager should industry, in order to play a positive role for hotel
ensure that necessary infrastructure maintenance costs, owners, investors and hoteliers to better understand
such as refurbishment of hotel facilities, are in place hotel asset management.
and in use in a timely manner. The role of hotel asset
management in the capital expenditure and budget
process can be simply summarized as the following References
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