By: Lewis M. Foshee, Vice President, DYNA Software & Consulting, Inc. Summer 1996

Increased emphasis on the efficiency of acquiring, owning, and managing hotel assets is motivating hotel owners and lenders to explore the capabilities provided by new financial analysis and portfolio management software products.

With the increased institutionalization and public market ownership of real estate through REITs and securitized debt, and with the recent preponderance of C-Corp real estate initial public offerings, the demands for property and portfolio reporting and monitoring capabilities have increased significantly. Owners must also capitalize on technological offerings simply to remain competitive.

An asset manager needs to know, with as high a degree of accuracy as possible, the cash flows that will be produced by the asset being managed. More companies are using specialized financial analysis software, like DYNA Software’s Hotel Quick Input, to forecast cash flow streams from their hotel properties and portfolios. Property and portfolio forecasting systems are used for forecasting the cash flow, taxable income, and or/or GAAP income from the property and portfolio for valuation, capital planning, financial reporting, and other purposes.

No hotel owner or investor has been immune to the competitive pressures and requirements for greater efficiency dictated by today’s real estate environment. A major determinant of the efficiency achieved is the quality of communication within the organization, not only among the organization’s people, but also in its information systems. Today’s software systems improve greatly upon previous communication among information systems.

Increasing information systems communication enhances the efficiency of conducting financial analysis by eliminating redundant entry and re-entry of data in several different computer systems and databases. Examples of systems that share common elements of data include the property management system, the accounting or general ledger system (G/L), the hotel property financial forecasting system, and the miscellaneous spreadsheets that have been laboriously developed to perform specialized functions for which no commercially developed applications exist.

How do we eliminate the redundancy of information exists in these separate systems? One way is to allow these systems to share data with one other. DYNA’s software products allow organizations to share data through the use of its “open database.” This means that external applications can read and access information contained in the database.

Having the property and portfolio forecasting systems communicate with property management and G/L systems is one of the best ways to improve communication. How does this communication concept work? To answer this question, let’s look at the typical hotel investor. The investor’s property management and accounting database contains massive volumes of historical financial operations information for individual properties. Investors are increasingly concerned with having the ability to not only monitor the actual performance of properties and immediately calculate the life to date return form their investments, but also to combine this historical information with forecasted financial information to calculate the anticipated returns for the property or portfolio holding period. To accomplish this, most organizations have to retrieve information from several different accounting and forecasting systems, bring the information into a spreadsheet, and then do custom calculations to get an answer. This is a time-consuming effort. But with products like DYNA’s Performance Measurement module, owners can seamlessly tie all of this information together and effortlessly perform the investment holding period return calculations at a property level, or perhaps more importantly for some investors, at a portfolio level. Investors can then use this information to compare hotel returns with alternative investment classes.

As another example, communication between the property management application and forecasting system enables a user to populate a larger portion of the cash flow forecasting or discounted cash flow valuation model from data already resident in the property management system. This electronic population of the cash flow forecasting system enables continual updating of the forecast files to reflect changes in the outlook for the property or portfolio. This is a classic example of the truly increased efficiency available through use of today’s new generation of communications-capable products.

The Real Estate Report is published by KPMG's National Real Estate, Hospitality, and Construction Practice. © 1996 by KPMG Peat Marwick LLP All rights reserved. For additional information email KPMG.

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