Abstract
The valuation framework provided by calculating discounted cash flow (DCF) remains an accurate and well-accepted approach to determining hotel value. While the accounting measures provided by the Uniform System of Accounts for the Lodging Industry contain the necessary information, its format is not investor friendly. By comparison, the value-driver DCF approach is more effective because it rests on the drivers of hotel value-namely, growth, market share, level of services and amenities, profit margin, and cost of capital. The success of a hotel investment depends on those value drivers. An investor who can make an improvement in any one (or more) of those drivers is able to create value and improve the return on the investment. Paying attention to the value drivers is as important for short-term investors who plan to turn a hotel around (and thus capture a quick increase in value) as for long-term holders who intend to build value for a brand.
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