The Impact of Renovation Capital Expenditure on Hotel Property Performance

Abstract

This study investigates the impact of renovation capital expenditure on multiple measures of hotel property performance. We conduct analyses in two time periods: for a 3-year period immediately following renovation (short-term impact), and 3 to 6 years following renovation (long-term impact). The study is based on proprietary project, operational and financial data obtained for 305 renovation capital expenditure projects of individual properties within a single budget hospitality chain. We find renovation capital expenditures offer significant short-term beneficial impact in terms of increased revenue, profitability gains, higher customer satisfaction, and decreased repair and maintenance expense. Altogether, these outcomes should be advantageous to hotel property performance. In the long-term, a significant decline is apparent in revenue and profitability. Surprisingly, customer satisfaction does not decline, and repair and maintenance expense does not increase, which are both favorable.

Does Tourism Contribute to Real Estate Boom? A DSGE Modeling in Small Open Economy

“…Steady state entrepreneurial loan-to-value ratio m is set to 0.7 to account for the average downpayment requirement for mortgage loans (Elíasson & Pétursson, 2009). The capital depreciation rate in the tourism sector is assumed to be higher than that in the manufacturing sector to account for the intensive utilization of facilities in tourism and hospitality-related activities during peak seasons (Turner & Hesford, 2018). This difference implies the tourism sector is more labor intensive than manufacturing sector (higher labor share in tourism production function), which is consistent with the general empirical fact (Chen et al, 2016).…”

An investigation into the anthropogenic nexus among consumption of energy, tourism, and economic growth: do economic policy uncertainties matter?

“…Hospitality firms are conventionally capital-intensive and increasing economic uncertainties is likely to drive down, postpone, or cancel the provision of physical infrastructures which will directly impact tourists’ arrivals. This is because the decline or non-existent infrastructures will hamper the abilities of hospitality firms to satisfactorily meet tourists’ demand creating less-satisfied customers and a reduction in tourists’ receipts (Turner and Hesford 2019 ). In other words, in the event of uncertainties, the option value of waiting for better information increases (Dixit and Pindyck 1994 ).…”

The Importance of Capital Investment and Debt Financing in Deriving Shareholders’ Value; A Literature Survey

“…These investment decisions are directly associated with the cash and financing decisions of the companies. The capital expenditure done by a company increases the revenue and profitability gains and enhances the overall performance of the company [28].…”