Despite being a new entrant to the Italian market, Pygmalion Capital has managed to more than double the gross operating profit (GOP) across its two hotels in Florence through cluster optimisation.
Hotel investment firm Pygmalion Capital owns close to 2,000 rooms, mainly in Spain. Last year, the group revealed it was exploring €150m+ in transactions in southern Europe as well as putting nine Silken hotels on the market.
In April 2021, the group acquired a portfolio of two hotels, its first Italian acquisition – the 212-bedroom Hilton Florence Metropole, and the 121-bedroom Hilton Garden Inn Florence Novoli, dubbed ‘Project Arno’. Part of the strategy, explains Pygmalion’s head of asset management Ramon Tomàs Ranz, was to take both hotels from being managed by Hilton into a franchise agreement.
This saw Amapa put in charge of the hotels’ operations and the Hilton-branded Metropole converted into a DoubleTree, which meant more flexible standards and a lower capex requirement. Pygmalion invested close to €4 million into the asset, a figure Ranz says, “would have been significantly higher if we had wanted to stay with Hilton”.
Capex delays
The properties, he explains, were “more or less well-maintained”, but also “more or less the same as they were originally conceptualised” and in need of a refresh. However, market conditions including the Covid-19 pandemic, inflation and war in Ukraine meant a delay in capex deployment.
“We had in mind six months to develop the design, then probably around a year for execution, but this didn’t happen,” says Ranz. “We can very gladly say that we have funded this capex through the NOI [net operating income] generated by the properties over the last three years.”
Florence’s low season between December and February was used to focus first on refurbishing the common areas and then the rooms. Given its rebrand, the Metropole was a particular focus, with a complete redesign of the breakfast room to ensure the space met brand standards such as referencing the location, while the meeting rooms were given a refresh with new paint and carpets.
The Garden Inn, says Ranz, was in “better shape” and received a soft renovation focusing on the common areas, including a new terrace space which he says is “very successful” and “helps to sell the meetings business”. With the new operator in place, Pygmalion also decided to take F&B in-house, which Ranz says allowed the business to control the quality of output and capture its “full potential”.
“MICE plays a big part, so controlling the F&B operation was key,” he says. “Now this contributes to our wider P&L [profit and loss], and we deliver a better service to the guest.”
Less is sometimes more
The two hotels have already seen GOP increase from €2.4 million in 2019, to €5.2 million in 2024, with a 46 per cent increase in revenue and 25 per cent increase in revenue per available room (revpar). These results are expected to increase further following completion of the Metropole capex programme this year, and the aim is for the entire portfolio to have a GOP margin above 40 per cent (the Metropole is currently at 34 per cent, the Garden Inn at 42 per cent).
Ranz says the results were supported by a shift in focus from volume to pushing average daily rate (ADR). The loss of a large client account, he says, “pushed us to look for new revenue streams, new segments” and diversify the customer base. The business leveraged the secondary location of the Metropole to its advantage, selling privacy and developing its sports group business, helped by the opening of the Palazzo Wanny sports facility nearby in 2022.
“We’re maybe downsizing in terms of volume, but we’ve substantially increased the weight of the higher yielding segments, and that improved the profitability,” says Ranz.
Optimising synergies across the two properties, meanwhile, helped to make cost savings, for example admin and general expenses savings of close to €500,000 and €1 million in IT and marketing. Housekeeping contracts were also renegotiated, and some service providers and suppliers changed – flexibility that became possible with the change in operating model.
The project was named winner of this year’s HAMA Award by the Hospitality Asset Managers Association (HAMA), and Pygmalion launched a sales process in January. “We’re confident to say that we’ll probably meet and exceed our fund returns,” says Ranz.
All those quoted in this article appeared on stage at IHIF EMEA, held in Berlin, Germany, between 31 March – 2 April 2025, in a session called: Asset management excellence: HAMA Europe award-winning case studies.