Correctly Accounting For Mobile Key In Hotels & Resorts

2020 is widely considered to be the year that mobile keyless entry becomes standard within the hotel industry.  Every major hotel brand has a mobile key initiative in place.  From REITs to independent hotel portfolios the internal debate has shifted from ‘whether’ to implement smartphone room access to ‘when’ and ‘how’.

One of those questions is which budget funds should come from.  Should mobile key be considered a Capital Expense (CAPEX) or Operating Expense (OPEX)?  Capital Expenditures are defined as costs incurred with the purchase and installation of capital assets to maintain and enhance hotels.  An Operating Expense is an expense a business incurs through its normal business operations.  In the case of mobile keyless entry, the question can be complicated.  There is often hardware associated with upgrading guestroom locks to make them capable of communicating with a smartphone as well as a license agreement to provide ongoing mobile key service for guests.

Most brand and independent management company management contracts establish a percent of revenue either to be invested in a reserve for capital replacement fund or to be spent in the current year on capital items. The ISHC 2018 study of capital expenditures in the hotel industry showed REIT average annual spend as a percentage of total revenue ranged from 5.6 percent to 8.7 percent. The percentage for non-REIT hotel owners ranged from 5.5 percent to 8.0 percent.  Fortunately there are guidelines in place to help hoteliers determine which budget keyless entry should be attributed to.

The largest hotel brands are considering mobile key to be a Capital Expense.  Other CAPEX items commonly found alongside keyless entry include:

  • New lobby designs and concepts, including eliminating traditional front desks, creating seating and congregation areas, and adding small retail areas, large-screen televisions and workstations
  • Increasing high-speed internet capacity
  • Upgrading or replacing RFID locks to BLE (Bluetooth Low Energy) required for mobile key
  • New guestroom designs

Hotels are adding new tech in lobbies, including directory boards with interactive screens and big-screen TVs. They are also adding new food-and-beverage outlets adjacent to and in the lobby, and many are eliminating the front desk and replacing it with kiosks that allow guests to check in themselves.

A trend that became significant in recent years and that continues to influence capital expenditures is social media comments for individual hotels and for brands about property condition, amenities, design and services.  Mobile key has proven to be an influential factor in improving social media scores for individual hotels and brands – often improving stay ratings by 7 percentage points or more.  Hilton and Marriott continue to track the measurable benefits that their digital key initiatives are providing for their hotels and increasingly hotel technology focused on the guest mobile device is becoming a competitive differentiator in every market.

As hotel technology continues to evolve in 2020 and beyond, current accounting models will continue to be challenged by attribution benefits that seem to blur the lines between capital and operating expenditures.  Large brands will likely continue to be the arbiters by which the hotel industry determines how these new, exciting and influential hotel technologies are accounted for among and within budgets.