A payment structure seen with online travel agencies that requires a hotel to pay the online travel agency a commission for a guest’s booking. (See Merchant Model)
The highest rating given to bonds by bond-rating agencies. AAA bonds are thought to have almost no default risk. Fitch, Moody’s and Standard & Poor’s are the most widely used rating agencies.
A measure of the average rate paid for rooms sold, calculated by dividing room revenue by rooms sold. (ADR = room revenue / rooms sold)
The ADR index measures a hotel’s ADR performance relative to an aggregated grouping of hotels (e.g., competitive set, market, submarket/tract). An ADR Index of 100 equals fair share of ADR, compared to the aggregated group of hotels. An ADR Index greater than 100 represents more than a fair share of the aggregated group’s ADR performance. Conversely, an ADR Index below 100 reflects less than a fair share of the aggregated group’s ADR performance.
To calculate an ADR index: (Hotel ADR / Aggregated group of hotels’ ADR) x 100 = ADR index
Fair share can be thought of as the subject hotel’s “piece of the pie” in the market. For example, if the subject hotel’s ADR is €50 and the ADR of its competitive set is €50, the subject hotel’s index would total 100. If the subject hotel’s ADR totaled €60, its index would be 120, indicating the hotel has captured more than its fair share. If the subject hotel’s ADR totaled €40, its index would be 80, indicating the hotel has captured less than its fair share.
Accommodations other than hotels such as: vacation home rentals, cruise ships, home-sharing rentals, timeshares, hostels and serviced apartments.
the timeframe during which the loan amount will be paid down to a 0 balance; most hotel loans have a 25-yr amortization period, but some may be 20-yr or 30-yr
Or Full Board. The nightly rate by a hotel or resort which includes three meals a day, typically breakfast, lunch and dinner. Meals are served on property and prepared by its kitchen. The plan is not comparable to an all-inclusive plan, which includes snacks and alcoholic beverages in addition to the three main meals.
Often referred to as AI, artificial intelligence is the development of computer systems to perform tasks that generally require human intelligence such as voice search.
A system in which potential buyers place competitive bids on assets and services. The asset or service in question will sell to the party that places the highest bid. In most cases, sellers will pay a listing fee to the auctioneer, regardless of whether the item sells for the desired price. The Internet has increased the amount of exposure auctions have, and bidders no longer have to be present to participate. Online marketplaces connect buyers and sellers worldwide by allowing individuals to submit their bids (or list their products) online and send payment electronically.
The average published rate is measured by averaging the range of published room rates for various room sizes (single, double, etc.) during different times of the year. When hotels in the census database do not report data to STR, an estimate of actual average daily rate is derived using published rates.
Revenue from all hotel operations, including rooms sold, F&B, parking, spa, laundry, phone, miscellaneous, etc.
A program for property owners to reduce—but not eliminate—taxes based on investments made into new construction or renovations.
Also known as out of the money, an underwater option would be worthless if it expired today.
An index designed to measure a hotel's share of the segment's (comp set, market, tract, etc.) demand (demand = rooms sold).
(Hotel Occupancy / Segment Occupancy) x 100 = Occupancy Index
Fair share can be thought of as the subject hotel’s “piece of the pie” in the market.
For example, if there are 1,000 rooms in the competitive set and the subject hotel has 100 rooms, the subject hotel’s fair share is 10.00%. If the subject hotel accounts for 10.00% of the room nights generated within the competitive set in a given time period, the subject hotel’s actual share equals its fair share, giving it an occupancy index of 100%.
A legal proceeding involving a person or business that’s unable to repay outstanding debts. The bankruptcy process begins with a petition filed by the debtor (most common) or on behalf of creditors (less common). All of the debtor’s assets are measured and evaluated, whereupon the assets are used to repay a portion of outstanding debt. Upon the completion of bankruptcy proceedings, the debtor is relieved of the debt obligations incurred before filing for bankruptcy.
Bankruptcy offers an individual or business a chance to start fresh by forgiving debts that can’t be paid while offering creditors a chance to obtain some measure of repayment based on what assets are available. In theory, the ability to file for bankruptcy can benefit an overall economy by giving persons and businesses another chance and providing creditors with a measure of debt repayment.
Bankruptcy filings in the United States can fall under one of several chapters of the Bankruptcy Code, such as Chapter 7 (which involves liquidation of assets), Chapter 11 (company or individual reorganizations) and Chapter 13 (debt repayment with lowered debt covenants or payment plans). Bankruptcy filing specifications vary widely among different countries, leading to higher and lower filing rates depending on how easily a person or company can complete the process. Bankruptcy filings in Europe and Africa vary per country.
Or Base Point. A unit equal to 1/100th of 1% and used to denote the change in a financial instrument. The basis point is commonly used for calculating changes in interest rates, equity indexes and the yield of a fixed-income security. The relationship between percentage changes and basis points can be summarized as follows: 1% change equals 100 basis points, and 0.01% equals 1 basis point. A bond whose yield increases from 5% to 5.5% is said to increase by 50 basis points; or interest rates that have risen 1% are said to have increased by 100 basis points.
Hotel industry example: Strands hotel direct operating profit for the fourth quarter of 2007 increased 19.4% to €5.8 million from the prior-year period, a 205 basis-point increase to 15.7% versus 13.6% in 2006.
Or Spread. The amount by which the ask price exceeds the bid. This is the difference in price between the highest price a buyer is willing to pay for an asset and the lowest price a seller is willing to sell it. If the bid price is €20 and the ask price is €21, then the bid-ask spread is €1. The size of the spread from one asset to another will differ mainly because of the difference in liquidity of each asset.
Bleisure travel refers to the phenomenon of business travelers combining their business trips with leisure outings, often extending their duration of travel.
The owner of a government or corporate bond. Being a bondholder is often considered safer than being a shareholder because if a company liquidates, it must pay its bondholders before it pays its shareholders. Being a bondholder entitles one to receive regular interest payments, if the bond pays interest (usually semiannually or annually), as well as a return of principal when the bond matures.
Bonds are perceived as being low risk, but the level of risk depends on the type of bond in question. For example, holding corporate bonds will yield higher returns than holding government bonds, but they come with greater risk. Bonds also are subject to interest rate risk, reinvestment risk, inflation risk, credit/default risk, liquidity risk and rating downgrades. An advantage of being a bondholder is that some bonds are exempt from federal, state or local income taxes.
Properties that have historically been described as unique in style and design-centric, and are either independent or affiliated with a brand system. This term has expanded to include many types of hotels and is often open to interpretation.
A broad term used to refer to hotel companies’ (or other brands) first-party websites, which are used as a primary portal for consumers to book directly with said company.
The capitalization rate (or cap rate) for a hotel is used as a way to compare potential returns on various real estate investments. Different operating metrics can be used, however, net operating income is most frequently cited. To determine a hotel’s cap rate, divide the NOI (or other metric selected) by the hotel’s total value.
Hotel industry example: According to a 2019 sales and capitalization rate trend report by HVS, as of year-end 2018, implied lodging REIT cap rates had increased by 230 basis points compared to year-end 2017 because of the stock market correction and concern regarding slowing hotel NOI growth mixed with higher interest rates.
A market in which individuals and institutions trade financial securities. Organizations/institutions in the public and private sectors also often sell securities on the capital markets to raise funds. This type of market is composed of the primary and secondary markets.
The stock and bond markets are parts of the capital markets. For example, when a company conducts an IPO, it’s tapping the investing public for capital and is using capital markets. This also is true when a country’s government issues Treasury bonds in the bond market to fund its spending initiatives.
Ratio of annual NOI after debt service to the total cash invested in the hotel; the cash investment includes the equity investment in the hotel plus any additional cash invested in capital improvements by the owner; = (NOI – debt service) ÷ cash investment
The total number of hotels and rooms in STR’s database in a particular segment.
A central business district, often referred to as CBD, is the commercial and business center of a city.
Chain scale segments are a method by which branded hotels are grouped based on the actual average room rates. Independent hotels, regardless of their average room rates, are included as a separate chain-scale category.
The chain-scale segments are:
A type of software that handles a wide range of services, such as booking reservations and answering customer service inquiries as well as checking guests in and out.
Class is an industry categorization which includes chain-affiliated and independent hotels. The class for a chain-affiliated hotel is the same as its chain scale. An independent hotel is assigned a class based on its ADR, relative to that of the chain hotels in its geographic proximity.
An investment-grade security backed by a pool of bonds, loans and other assets. CDOs don’t specialize in one type of debt but are often nonmortgage loans or bonds. Similar in structure to a collateralized mortgage obligation (CMO) or collateralized bond obligation (CBO), CDOs are unique because they represent different types of debt and credit risk. In the case of CDOs, these different types of debt are often referred to as tranches or slices. Each slice has a different maturity and risk associated with it. The higher the risk, the more the CDO pays.
A debt-based funding arrangement a business can set up with a financial institution. The proceeds of commercial loans may be used to fund large capital expenditures and/or operations a business may otherwise be unable to afford.
Because of expensive upfront costs and regulation related hurdles, smaller businesses don’t typically have direct access to the debt and equity markets for financing purposes. They must rely on financial institutions to meet their financing needs.
Similar to consumer credit, businesses have a variety of lending products to choose from. A line of credit, term loans and unsecured loans are examples. Small businesses should shop at different institutions to determine which lender offers the best terms for the loan.
A type of mortgage-backed security secured by the loan on a commercial property. A CMBS can provide liquidity to real-estate investors and to commercial lenders. As with other types of MBS, the increased use of CMBS can be attributable to the rapid rise in real-estate prices throughout the years. Because they’re not standardized, there are many details associated with CMBS that make them difficult to value. However, when compared to a residential mortgage-backed security (RMBS), a CMBS provides a lower degree of prepayment risk because commercial mortgages are most often set for a fixed term.
Hotel industry example: Mag Mile Capital secured a €7.5 million 10-year fixed rate, non-recourse CBMS loan on behalf of The Ponce St. Augustine Hotel in St. Augustine, Florida, with a 25-year amortization at a small interest rate that paid off the borrower’s current loan, closing costs and provided them with a cash-out.
A competitive set consists of a group of hotels by which a property can compare itself to the group’s aggregate performance. There must be a minimum of four hotels in any competitive set, excluding he subject hotel. To protect proprietary data, a single hotel or brand cannot exceed 50% of the competitive set. A single hotel company (i.e. Accor brands, Hilton brands, Marriot brands, Choice brands, etc.) may only comprise 70% of the competitive set room supply.
The mean of annual growth rates over a multiple-year period. It is found using a specific formula involving an investment’s ending value, beginning value and the number of years included in the time period.
The nightly rate includes breakfast, usually set buffet-style, on property for each guest that occupies a room overnight.
Or Development Loan: financing for a development project; typically these loans are short-term, covering the construction timeframe (1 to 3 yrs); after construction is completed, the developer usually pays off the construction loan by refinancing with a Permanent Loan – a standard loan for existing hotels.
Contract rooms are occupied at rates stipulated by contracts – such as for airline crews and permanent guests. Room allotments that do not require guaranteed use or payment should not be classified as contract. Rooms sold under such allotments should be classified as transient.
A legal contract in which a bank arranges to loan a customer a certain amount of money for a specified amount of time. The credit agreement outlines all the rules and regulations associated with the contract. This includes the interest that must be paid on the loan.
A credit agreement can be a lengthy and detailed document that explains all the terms of the contract. For the most part, all types of loans (ranging from credit cards to mortgages) have some credit agreement, which must be signed and agreed on by the bank or lender and customer. The contract doesn’t come into effect until the document has been signed by both parties.
Centralized reservation systems utilized by several large companies and travel agents to book multiple travel-related services, including hotel rooms, airfare and rental cars.
Gross operating profit per available room. The metric measures performance across all revenue streams.
Hotel classifications are driven primarily by rebuilding structure and, secondarily, by service level. Chain management has provided the market with hotel type classifications for a significant number of locations. Hotel types include:
Net revenue per available room is guestroom revenue divided by the total number of available rooms after deducting the costs of customer acquisition, including sales and marketing, commissions and the costs of loyalty. (See RevPAR)
A company’s operating income after operating expenses are deducted but before income taxes and interest are deducted. If this is a positive value, it’s referred to as net operating income, while a negative value is called a net operating loss. NOI often is viewed as a good measure of company performance. Some believe this figure is less susceptible than other figures to manipulation by management.
Hotel industry example: A hotel’s net operating income percentage is most closely tied to its occupancy, although it also influenced by average daily rate (ADR), market segment, property’s age and brand affiliation.
Includes all other revenue excluding room revenue and F&B revenue.
Other Revenue = Total Revenue - (Room Revenue + F&B Revenue)
This type of data is seen in the segmentation portion of USALI and used in market reports (eg from STR).
Occupancy is the percentage of available rooms that were sold during a specified period of time. Occupancy is calculated by dividing the number of rooms sold by rooms available.
Occupancy = Rooms Sold / Rooms Available
An Internet-based hotel and travel reservations system. Hotels typically provide inventory to OTA's, which sell the rooms in exchange for a commission.
Property Improvement Plan - also Product Improvement Plan: a requirement by hotel brands that owners undertake renovations and upgrades to meet current chain and brand standards. PIP's are generally required when a hotel joins a brand system, when a branded hotel is sold or when a franchise or membership agreement comes up for renewal.
Pipeline data details existing hotel supply and projected growth globally. Construction data is gathered from the major chains and management companies, tracking all stages of development. Phase definitions:
Note: The availability of financing, issuance of building permits, owner commitment and many other factors can alter anticipated completion dates, number of rooms to be constructed, or the viability of the project.
Number of projects and number of rooms in the construction pipeline are subject to change. Projects in early stages of development are less likely to be completed than projects in later stages.
A RevPAR (yield) index measures a hotel’s fair market share of their segment’s (competitive set, market, submarket, etc.) revenue per available room.
If a hotel is capturing its fair market share, the index will be 100; if capturing less than its fair market share, a hotel’s index will be less than 100; and if capturing more than its fair market share, a hotel’s index will be greater than 100.
RevPAR index is calculated: (Hotel RevPAR / Segment RevPAR) x 100 = RevPAR Index
Fair share can be thought of as the subject hotel’s “piece of the pie” in the market.
For example, if the subject hotel’s RevPAR is €50 and the RevPAR of its competitive set is €50, the subject hotel’s index would total 100. If the subject hotel’s RevPAR totaled €60, its index would be 120, which indicates that the subject hotel has captured more than its fair share. If the subject hotel’s RevPAR totaled €40, its index would be 80, which indicates that the subject hotel has captured less than its fair share.
Revenue per occupied room is calculated by dividing total revenue by the number of occupied rooms actually being sold. The total revenue includes all revenue generated by an occupied room, such as room service, dry cleaning, spa sales and more. RevPOR differs from RevPAR because RevPAR takes unoccupied rooms into account by multiplying overall occupancy.
An acronym for the social, military, educational, religious and fraternal segment of the group travel market.
A loan offered by a group of lenders who work together to provide funds for a single borrower. The borrower could be a corporation, a large project or a government. The loan may involve fixed amounts, a credit line, or a combination of the two. Interest rates can be fixed for the term of the loan or floating based on a benchmark rate such as the London Interbank Offered Rate (LIBOR).
Typically there’s a lead bank or underwriter of the loan, known as the arranger, agent or lead lender that may be putting up a proportionally bigger share of the loan or perform duties like dispersing cash flows amongst the other syndicate members and administrative tasks.
Also known as a syndicated bank facility. The main goal of syndicated lending is to spread the risk of a borrower default across multiple lenders (such as banks) or institutional investors like pensions funds and hedge funds. Because syndicated loans tend to be much larger than standard bank loans, the risk of even one borrower defaulting could cripple a single lender. Syndicated loans are also used in the leveraged buyout community to fund large corporate takeovers with primarily debt funding.
Syndicated loans can be made on a best effort basis, which means that if enough investors can’t be found, the amount the borrower receives will be lower than originally anticipated. These loans can also be split into dual tranches for banks (who fund standard revolvers or lines of credit) and institutional investors (who fund fixed-rate term loans).
Also known as “percentage rent” or "flex lease" is the percentage of turnover that the tenant pays to the landlord. Turnover Rent can be with or without a minimum, which is then called the Base Rent.
The definition of turnover refers to the net revenues of the hotel. ‘Net Revenues’ exclude certain payments and charges from being counted as part of a tenant’s hotel turnover. These exclusions commonly include:
A potential negative outcome of overbooking, turnaway refers to when a hotel tells a booked guest they cannot accommodate them because no room is available. (Also referred to as “walking.”)
Total revenue per available room. The sum total of net revenues from all operated departments plus rentals and other income per available room for the period divided by the total available rooms during the period.
An asset that becomes illiquid when its secondary market disappears. Toxic assets can’t be sold because they’re often guaranteed to lose money. The term “toxic asset” was coined in the financial crisis of 2008/09, in regard to mortgage-backed securities, collateralized debt obligations and credit default swaps, all of which couldn’t be sold after they exposed their holders to massive losses.
A piece, portion or slice of a deal or structured financing. This portion is one of several related securities that are offered at the same time but have different risks, rewards and/or maturities.
Tranche is often used to describe a specific class of bonds within an offering wherein each tranche offers varying degrees of risk to the investor.
For example, a CMO offering a partitioned MBS portfolio might have mortgages (tranches) that have one-year, two- year, five-year and 20-year maturities. It can also refer to segments that are offered domestically and internationally.
Include rooms occupied by those with reservations at rack, corporate, corporate negotiated, package, government, or foreign traveler rates. Also includes occupied rooms booked via third party web sites (exception: simultaneous bookings of 10 or more rooms which should be defined as group).
A period of calculation that looks at a one-year period. The full year’s worth of data is meant to account for seasonality or other calendar shifts. (Also referred to as “running 12 months.”)
STR’s Top 25 Markets are generally the largest U.S. metro markets by number of rooms (inventory), but STR does apply geographic diversity to provide more rounded coverage for the whole industry.
For example, STR adds Oahu, Hawaii, and excludes a few California and Texas markets because those states are already well represented. STR also intentionally excludes Las Vegas, the largest hotel market based on number of rooms available, due to the gaming nature of the market and sample depth of the casino hotels.
First published in 1926, the Uniform System of Accounts for the Lodging Industry provides hotel owners, managers and others with operational information pertaining to the lodging industry and allows benchmarking and comparison between hotels.
A common sales practice used by hotels to generate more revenue by encouraging guests to purchase additional services on property or upgrade rooms.
the process of evaluating an investment, including its potential value, risk, future cash flow, probable return, and ability to fund debt; performed by both investors and lenders.
A company or entity that administers the public issuance and distribution of securities from a corporation or other issuing body. An underwriter works closely with the issuing body to determine the offering price of the securities, buys them from the issuer and sells them to investors via the underwriter's distribution network.
Underwriters generally receive underwriting fees from their issuing clients, but they also usually earn profits when selling the underwritten shares to investors. However, underwriters assume the responsibility of distributing a securities issue to the public. If they can’t sell all of the securities at the specified offering price, they may be forced to sell the securities for less than they paid for them or retain the securities themselves.
Technology that uses speech recognition to allow guests to search by speaking keywords or terms.
Often referred to as VR, virtual reality provides a simulated experience through computer-generated three-dimensional images. Hotels use VR for giving guests virtual tours of properties as well as for training staff.
Taxes on goods and services, including hotel stays, seen in various countries and regions around the globe. The taxes are paid by consumers.
Guests who arrive to stay at a hotel without a prior reservation.
Reducing the book value of an asset because it’s overvalued compared to the market value. This is usually reflected in a company’s income statement as an expense, reducing net income.
Follows the United Nations World Tourism Guidelines. There are four world regions which are divided into 15 sub-continents as follows:
Companies that purchase hotel rooms and then sell them to OTAs or travel agents.
The process of determining the right rate to price a hotel room for the right customer at the right time. Yield management differs from revenue management because it only encompasses the revenue generated through the room charges or occupancy.
A period of calculation that begins at the start of a calendar or fiscal year and extends to the current date.
A comparison of metrics between a specific date and the same date one year earlier. Often presented as a percentage change.
A type of United Kingdom employment contract where employees have no guaranteed hours of work but must agree to be potentially available, although they are not obliged to accept any employment. This type of contract increased during the past recession.