Valuation techniques used in valuing five-star hotels in Malta : analysis and assessment

Abstract

Purpose: The purpose of this study is to ascertain the techniques used in the valuing of Maltese five-star hotels. This study further aims to identify the major assumptions and factors entailed in such valuations and the extent of their relevance in the current scenario. Design: The objectives of this study were attained by means of nine personal semi-structured interviews held with representatives from ten five-star hotels in Malta. The respondents ranged from group and company financial controllers to financial analysts, as well as external financial advisors. Based on the interviews conducted, the study made use of three case studies to better describe such findings. Findings: This study ascertained that in the majority of the valuations of five-star hotels, the income approach is adopted. At the same time, valuers tend to make use of other techniques to corroborate their results. Amongst these are the market multiple and the net asset value. In valuing five-star hotels, analysts tend to include various factors which can be classified into: firm-related factors, industry-related factors, and economic factors. Moreover, it was established that analysts consider a range of assumptions about the risks encompassed by their hotel and assumptions concerning the future prospects of the industry and the economy in general. Conclusion: This study concludes that while a lot is being already done to achieve a realistic value of the five-star hotel, there are still certain industry related and economic factors which are not being considered and which their inclusion would otherwise provide the user with a better picture of the hotel's value, even though such process would always remain subjective. Moreover, the study resolved that management is not making full use of the valuation process which should be included in their strategic planning and assist them in identifying value drivers. Value: It is expected that this study will be of use to Maltese practitioners when valuing five-star hotels. Besides making valid comparisons with the foreign practice on the area, it shall also highlight weaknesses in the current methods used. This study presents the same practitioners with valid recommendations.