IS THE MID-MARKET HOSPITALITY SECTOR A VIABLE INVESTMENT FOR THE NEXT DECADE?

Abstract

Hotels are a unique class of real estate where, akin to an airplane seat, every room is perceived to be a perishable good. GIC's acquisition of non-luxury hotel assets like the Korean love hotel chain Yanolja ("Hey, let's play") and a 25% stake in the Dutch boutique hotel chain citizenM, gave rise to one pertinent question: "Is the mid-market hospitality industry a good space to invest into in the coming decade?". Extant literature are centered around the usage of financial and non-financial methods to measure performance of hotels. Recent papers have proposed a "Balanced Scorecard approach where corporate strategy is taken into consideration. This research has three hypotheses: H1 : Smaller hotel companies have higher profit margin H2 : Smaller hotel companies have lower operating revenue H3 : Small hotel companies have higher investment returns in the next decade Multivariate regression analyses on the financial performance of 82,607 Hotel and Accommodation companies have been conducted. Company sizes are utilised as a proxy for hotel grading. Variables include four financial indicators and one operational indicator: Current ratio, Solvency ratio, Profit margin, Operating revenue and the number of employees respectively. Results shows smaller hotel companies having higher profit margins. This research seeks to contribute to current literature by exploring a new direction for hospitality research where hotels are compared based on their grading. The intention is to showcase results that will be meaningful for academics and practitioner, and attempt to make an investment case for mid-market hotel assets in the coming decade.