The value of a hotel property is governed to a considerable degree by the content and formulation of the hotel lease. The objective is to formulate an agreement where all parties concerned are given an incentive to continuously improve the hotel property’s profitability.
Each property has its own characteristics
Before Pandox enters into a lease, a comprehensive market analysis is performed that includes known changes in the market and competition from various players both in the short and long-term. Different models are applied in the leases in order to limit the risk in a declining market, simultaneously as Pandox may participate in an upward trend. Should an operator’s liquidity weaken, Pandox has the expertise and ability to manage the related hotel operations, which indeed has occurred on several occasions.
Pandox’ active and situation-adapted ownership is reflected in the various lease models. The lease structure is governed by factors such as anticipated market trends, local competition, planned investments, as well as choice of operator and distributor. By combining various types of leases, Pandox has achieved a lease structure that provides the Company with increased cash flow in a rising market while simultaneously offering protection against downturns in the market through rental guarantees.
Types of lease
Revenue-based hotel leases are linked to sales generated by the hotel business. This form of lease provides Pandox with a share of growth in both the market as a whole and in the market share. To limit the risk, these leases often specify a minimum rent (guarantee/base rent).
A result-based hotel lease implies that the hotel property owner receives a share of the hotel operator’s operating net. This type of lease requires that the hotel property owner understands the operator’s financial control system. Result-based hotel leases can also specify a minimum rent (guarantee/base rent).
Fixed-fee hotel lease
Fixed-fee hotel leases with an index linked to the development of the Consumer Price Index (CPI) are used in mature markets and in well-established hotel products. A fixed-fee lease limits the risk factor but also the potential.
A management agreement can be perceived as a sort of agent contract. The main characteristic is that the hotel property owner also owns the hotel business. Through a management agreement, an operator/manager is assigned to operate and manage the hotel on behalf of the hotel property’s owner, for which a management fee is paid to the operator/manager.
In its own operations, franchise contracts can be entered into where Pandox gains the benefits of a larger system that embraces the hotel’s overall marketing and sales.