Intangible Brand Values Spark Appraisal Debate—HotelNewsNow.com

Posted date: December 10, 2012 In: QuickPress, Valuation/Appraisal

Is Brand Value Best Calculated by Deducting and Capitalizing Franchise and Management Fees? Or by Weighing Brand Value as a Factor of Revenue?

A debate is swirling in the appraisal community regarding the value of intangibles, most notably brand affiliation, reports Patrick Maycock at HotelNewsNow.com. While one party holds to a more traditional viewpoint that calculates such intangibles by deducting and capitalizing a property’s franchise and management fees, the other is looking toward a newer approach that weighs brand value as a factor of revenue:

David Sangree, president of Lakewood, Ohio-based Hotel & Leisure Advisors LLC, identifies with the former school of thought. “As an appraiser, you are required to come up with a value and then allocate it between real estate, personal property and intangibles,” he said. “If you’re paying a brand such as Holiday Inn or Marriott between 5(%) and 12% of revenue … if you subtract that out of the financial projections, that would be considered the intangible values. You could capitalize that in income flow,” Sangree added.

“Determining How to Calculate Intangible Value is Tricky.”

Bruce Walker, president of San Antonio, Texas-based Source Strategies, identifies with the latter—a position he and industry peers A. Scruggs Love and Douglas W. Sutton spelled out in “New option in hotel appraisals: Quantifying the revenue enhancement value of hotel brands,” which was published in The Appraisal Journal.

By examining the revenue impact of a property that was either independent and then switched to a brand or was first a brand and then became an independent hotel, Walker and his co-authors calculated the variance in revenue-per-available-room index. By averaging findings from several such instances, the team was able to attribute a revenue-generation score for six brands. Hampton Inn, for instance, has a 40% RevPAR index premium over the same real estate without a brand affiliation. To put it another way, if a Hampton hotel were to lose its flag, the result would be a 40% decline in revenue.

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The National Association of Certified Valuators and Analysts (NACVA) supports the users of business and intangible asset valuation services and financial forensic services, including damages determinations of all kinds and fraud detection and prevention, by training and certifying financial professionals in these disciplines.

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