DUBUQUE, Iowa—From its origin as the owner of a single hotel in 1963 to a portfolio of nearly 80 hotels 51 years later, Kinseth Hospitality Companies is on the lookout for growth.
Company leaders—the four children of founders Ken and Cyrena Kinseth—said during a panel discussion moderated by Hotel News Now at KHC’s annual conference and trade show in February that there’s a clear growth path to follow: third-party management contracts.
“Our goal as a company is to not own any hotel 100%,” said Bruce Kinseth, executive VP. “Our goal is to go out, build a Hilton Garden Inn, build a Holiday Inn, build a Marriott or something and own 10(%) to 30% of that hotel.”
The chief reason for that philosophy is to mitigate risk—especially when a market becomes overbuilt, he said.
“Our goal is to take the capital of Kinseth Hospitality and spread it into 100 hotels instead of 20 hotels,” Bruce Kinseth said.
The company has five hotels under construction, including a dual-branded project that includes a 102-unit Hampton Inn & Suites and a 100-unit Homewood Suites in West Des Moines, Iowa. Other hotels include a Homewood Suites in Ankeny, Iowa; a Home2 Suites by Hilton in Omaha, Nebraska; and a Hilton Garden Inn in Bettendorf, Iowa.
Based in North Liberty, Iowa, KHC operates 81 hotels in 13 states—including 46 hotels owned by Supertel Hospitality, a real estate investment trust that joined forces with KHC in 2011.
“Third-party management is a leg of the stool,” said Les Kinseth, president. “It is just another important leg of the stool to help us broaden the income without all the financial obligations associated with development.”
Serving primarily as an operator, KHC’s task of creating more value for owners is clear. Bruce Kinseth said growing average daily rate is a major goal for 2014 and beyond.
“The owners have that expectation,” he said. “From the end of ‘08 to the end of 2012, they were saying, ‘I understand why we haven’t made any money; we haven’t made any distribution; we have to invest in these assets.’ Now they’re saying, ‘Go get me more revenue. I want more money. I want more cash flow. I’ve got to get a return on investment or I’ve got to sell that investment or I’ve got to find a new management company that can drive the rate.’”
Bruce Kinseth said confidence is the first step in raising rates.
“You have to sell the benefits of your product. … You have to sell them on the fact of why it’s worth $5 more than it was last year,” he said.
Linda Kinseth Skinner, a VP, agreed. She oversees some properties, has a major role in design of the hotels and deals with many property improvement plans.
“When you have spent a lot of money on a renovation, then the expectation is that we’ll have a return on that investment,” she said. “The only ways to get that return on the investment is to raise the rate, get more occupancy. (General managers) have to have confidence that we have a new product and everything looks good and we have good leadership in our hotels and good managers and good salespeople.”
That becomes a little more complicated during the type of cycle the industry is experiencing—when developers such as KHC are becoming more active.
“We’re seeing lots of new construction these days. It is a little unnerving,” Les Kinseth said. “On the other hand, we’re doing the same thing.”
According to STR, parent company of Hotel News Now, as of March there were 381,503 rooms in the active development pipeline—a 14.7% increase over the number in March 2013.
“When a new property does come in, it is concerning, especially depending on the age of the existing property we have and what brand we have,” Les Kinseth said.
“We’re throwing a lot of renovation at our hotels so we can meet those competitive challenges of the new competitors,” Bruce Kinseth added.
Relying on the staples
Older hotels faced with new competition in the market must rely on customer service and guest satisfaction as the differentiator, the executives said.
“We just have to do the right things,” Bruce Kinseth said. “We have to manage the hotel and give good service and good quality and make those customers feel like they’re coming home.”
That also means staying on top of the ever-changing technology space, something that is more challenging than it sounds.
“One of the biggest things is how many devices people are carrying,” Gary Kinseth, a VP who oversees sales, marketing and e-commerce. “What do we have in place for devices? We have a lot of hotels that are upgraded now. That’s important in establishing ourselves for demand, and it’s going to continue to change and push forward a lot of technological innovations.”
One piece of growing concern for all hotel owners is the amount of bandwidth needed for Internet access. Bruce Kinseth said each of the company’s hotels loses money by providing Internet, especially when guests are hogging a lot of broadband. That also affects guest satisfaction, he said.
“We’re probably 15 times the amount of broadband we had seven or eight years ago, and it will probably double again,” he said. “If we don’t have Internet, it’s like water; people aren’t going to stay with us. That’s the bottom line.”
That bottom line is the driver, and Bruce Kinseth said he’s happy to hear that most of the major brands are going down the road of tiered Internet access so that heavy broadband users are charged.
“We’ve got to meet whatever those needs are,” Bruce Kinseth said. “We have to try to figure out how to do that and still charge to be able to make a profit, whether it’s on the Internet or build it into the room rate. We have to get our take somewhere.”
Facing tough issues
With approximately 1,500 employees, the company faces other challenges as well. Near the top of the list is health care.
Bruce Kinseth said the Affordable Care Act is a big change for the company to absorb—one that likely will result in it having two options for employees in 2015—one more than it has now.
“We’ll have one that’s a bronze plan and one that’s the gold plan; there’s going to be a price difference,” he said. “The bronze plan might be the same (cost) as our current gold plan, but the gold plan is going to be priced higher. There’s no way we’re not going to avoid costs to the (profit-and-loss statement) from ‘Obamacare.’”
He said approximately 400 of the company’s full-time employees are on the company’s health plan. That number will increase dramatically under the ACA.
“Clearly we’re going to have to re-engineer jobs and positions to be as efficient as possible,” Bruce Kinseth said.
That philosophy spills over to the available talent pool for employees—a pool that at times is difficult to navigate because of the changing tastes and beliefs of various demographics. But it’s one that KHC is embracing.
“There’s a lot more tolerance in the workplace for differences that I think as managers we’ve got to embrace a little bit differently today than we embraced 10 years ago or 15 years ago,” Gary Kinseth said. “These kids, they want to have more input into the job, so asking them what they think about a decision or the process or how we service the guest is important because it is changing, and our guests are changing with them.”
“We need to be constantly looking at our workforce and developing them to the next level,” Skinner said. “The GM has to communicate through regular meetings and regular training all the time to keep these people developed and motivated.”