Use price per key as a cross-check, and income-based analysis to test what the operating business can support. HVS’s foundational valuation guidance distinguishes income capitalisation and discounted cash flow from sales-comparison and cost approaches. Its publication is dated 2011 and is used here for methodology, not current market assumptions. (publications.hvs.com)
| Approach | Useful question | Main limitation to challenge | Our recommended role |
|---|---|---|---|
| Transaction price per key | How does the acquisition compare with relevant sales? | Differences in income, condition, land, room mix, contracts and transaction circumstances | Screening and reconciliation |
| Capitalised normalised income | What value is implied by sustainable income and a supportable capitalisation rate? | A single year may not capture renovation, ramp-up or unusual trading | Stabilised-value cross-check with transparent adjustments |
| Discounted cash flow | What are the implications of dated operating cash, works and eventual exit? | Small changes in terminal assumptions can dominate the answer | Main scenario framework for repositioning and conversion |
| Buyer-specific bid ceiling | What price fits this buyer’s capital, liquidity and return constraints? | It is not necessarily market value or another buyer’s price | Investment-committee limit, explicitly distinguished from appraisal |
The practical acquisition comparison should contain at least three cases:
- Historical normalised: explain adjustments to the actual accounts.
- Executable base: include only changes supported by resources, approvals and capital.
- Downside: test weaker revenue, slower implementation and adverse cost outcomes together.
Do not publish one national “boutique hotel cap rate” for these cases. Require geographically and temporally relevant market evidence, a defined income basis and appropriate professional valuation input.