The Real Value of Dual-Brand Hotels

The pace of new hotel construction is picking up. According to STR, there were 1,003 hotels under construction in the United States as of January 2015, up 31.8 percent from January 2014. The most active under-construction segments of the hotel industry are upper-midscale (37.9 percent of total projects) and upscale (34.5 percent of total projects).

One way developers are taking advantage of the popularity of these segments is to build dual-branded hotels. The majority of dual-branded properties in the United States consist of affiliations within the upper-midscale and upscale segments. For the purpose of this article and analysis, we defined dual-branded hotels as single buildings that contain two distinctly branded operations. More often than not, the dual-branded properties contain separate entrances, front desks, and elevators for each brand but share back-of-the-house operations and guest amenities, such as meeting space and pools.

According to Kallenberger Jones & Company, there were 30 dual-branded hotels in the United States as of year-end 2014, offering a total of 12,193 rooms. Another 24 projects, with a total of 10,284 rooms, were under construction as of January 2015.


Operating Efficiencies
In theory, dual-branded hotels allow developers to benefit from the marketing advantage of two brands while taking advantage of operational efficiencies. By combining back-of-the-house and guest amenity spaces, dual-branded hotels can lower construction costs, and by sharing personnel and overhead expenses, they can reduce operating costs.

To examine the operating performance of dual-branded hotels, we analyzed the 2013 operating statements for seven dual-branded hotels. The data came from the Trends in the Hotel Industry database of PKF Hospitality Research. The seven properties were selected because they represent the most frequently found combination of two of the following property types: select service, extended stay, and limited service.

We performed a comparability analysis to assess the operating performance of dual-branded hotels. Operating statements from comparable properties were selected for each of the two brands within the seven subject properties. Comparability was based on affiliation, property type, room count, occupancy, average daily rate (ADR), and location. The aggregate financial performance of each set of comparable properties was added together on a proportional basis to establish the financial benchmarks for each of the seven subject properties.

Gross Profit Margins
As previously stated, it is assumed that a benefit of a dual-branded hotel is the operating efficiencies achieved by sharing personnel and overhead costs between the two brands. To analyze operating efficiency, we compared the gross operating profit (GOP) margins of the subject dual-branded properties to their respective comparable hotels. GOP accounts for all expenses in the operated and undistributed departments but comes before any deductions for management fees, property taxes, and insurance.

Out of the seven dual-branded properties we analyzed, three of them achieved a GOP margin greater than the comparable properties in 2013, indicating that operating efficiencies do exist. However, for three other dual-branded hotels, the GOP margin was less than the GOP margin of their respective comparables. The remaining subject property achieved a GOP margin virtually equal to its comparable hotels.

To identify the factors that might influence the ability to achieve operating efficiencies at dual-branded hotels, the seven subject properties were separated by occupancy level, age of property, and the combination of property types that compose the dual-branded property.

Occupancy Is An Indicator
Of the three factors analyzed, occupancy level appears to have the greatest influence on the ability of a dual-branded property to achieve operating efficiencies. The three subject dual-branded hotels that achieved a GOP margin greater than their respective comparables were also the hotels that achieved the three highest levels of occupancy. On average, these three hotels achieved an occupancy level of 82 percent, versus an aggregate occupancy level of 68.3 percent for the remaining four subject properties.

At a high level of occupancy, hotels have already covered their fixed expenses and are only incurring variable expenses as the business volume rises. It is assumed that the break-even level for fixed expenses would be lower at a dual-branded hotel because undistributed costs (management, accounting, marketing, maintenance) can be shared between the two brand entities.

A property’s age does not appear to be an indicator of a dual-branded property’s ability to achieve operating efficiencies. The only observation of a one-year-old property found a GOP margin less than its comparables. This is to be expected given the initial operating inefficiencies of any new hotel. Properties that were four years or older had mixed results. Only half of these properties had a GOP margin greater than their comparable hotels.

As with age, we found mixed results with analyzing the data by the property-type components. Two out of the five select-service/extended-stay dual-branded hotels achieved an operating efficiency, but the other three properties in this category did not.

Earn Your Efficiencies
While the sample size was small and analysis was limited, it does provide some insights into the operating performance of dual-branded hotels. Based on the analysis of the seven subject properties, it appears that operating efficiencies do not come automatically for all dual-branded properties. Throughout all facets of the lodging industry, attention must be paid to the fundamentals. Dual-branded hotels provide the opportunity to achieve operating efficiencies, but management still needs to optimize shared resources to earn their efficiencies.

Robert Mandelbaum and Gary McDade are located in the Atlanta office of PKF Hospitality Research, a CBRE company. To purchase a copy of Trends in the Hotel Industry, please visit