Valuation of hotel property: issues and challenges

Abstract

Purpose The purpose of this paper is to provide a practitioners’ perspective on the valuation models used for valuing hotel property and the challenges posed by traditional valuation models in their application and use. Set in the context of the Indian hospitality industry, the paper brings out the paradigm shifts that have taken place in recent years in the context of valuations. The paper also attempts to provide resolution to the issues and challenges raised. Design/methodology/approach This study assimilates data from senior finance professionals and by using semi-structured interviews, draws on a wide spectrum of hotels in India. Findings The findings suggest that the earnings-based models are largely followed in valuing hotel property in India. The major challenges encountered in the valuation process as highlighted by the respondents are related to (a) the growing uncertainty associated with projections of future earnings given the plethora of assumptions made at a micro and macro level, and (b) determination of an appropriate discounting factor for computing the present value of future cash flows. Research limitations/implications This paper generates useful qualitative information on existing practices in valuation in the Indian hospitality sector. The findings will be useful for hoteliers, policymakers and researchers in bringing forth the valuation challenges faced in the context of a developing economy and its characteristic institutional weaknesses. The findings of this paper may be furthered through appropriate and detailed quantitative analysis of primary and secondary data on the issues and challenges raised here. Originality/value This paper makes a sincere attempt to highlight the real challenges faced in valuing hotel properties and as such adds value to the existing literature.