ADR (Average Daily Rate) - The average rate at which rooms are sold during a given period. It is calculated as total room revenue for the period divided by total number of rooms sold for the period.
Booking Pace - The rate (velocity) at which the hotel is booking rooms. Hotels often use this metric to forecast demand and understand what future revenues look like. Similar to lease-up at a multifamily property.
Brand - The specific brand of the property, for example, a Residence Inn brand as part of the Marriott flag.
Brand-managed - A type of arrangement where the actual brand will also provide the management services for the hotel. For example, many higher-end properties are brand managed so the franchisor can ensure high standards and level of service for its brand.
Demand Segmentation - The break out of where the hotel's source of demand, such as group bookings, events (weddings or corporate), business meetings, transient travel. It is important to understand where your demand is coming from in order to target your marketing efforts most efficiently.
Competitive (Comp) Set - A selection of nearby comparable/competitive properties that are used to benchmark the subject hotel that is being analyzed.
Comfort Letter (Tri-party letter) - A document that stipulates the terms and process in the event of a default for the eventual assignment of the franchise agreement to the lender if the lender ever had to foreclose and operate the property. This document ensures that the lender will have sufficient ability to continue to operate the property under the same brand as the original owner.
Chain Scale - The classification of hotel brands by STR, the leading hotel research company.
Franchisor - The hotel company that is franchising their brand to individual owners and operators (e.g. Marriott, Hilton, Hyatt).
Franchisee - The individual owner that wishes to operate their hotel under a specific franchised brand.
Franchise Agreement - The franchise agreement is a document made between a hotel franchisor (Marriott, Hilton, Hyatt, etc) and a franchisee (individual hotel owner) that governs the use of the name or “brand” of the specific hotel. A franchise fee is stipulated as well as many brand standards that the owner is required to follow.
Franchise Agreement - A type of licensing agreement that stipulates the terms under which an owner can operate its hotel using the specific brand and related services of a hotel company. Major items in the franchise agreement are brand standards, owner responsibilities, brand responsibilities, fees, term, transfer restrictions, etc.
Flag - The overarching “network” of a hotel. I.e. Marriott, Wyndham, Hilton, Hyatt, etc. Some industry professionals use “flag” and “brand” interchangeably. It’s OK to clarify.
FF&E Reserves - Furniture, Fixtures, and Equipment Reserves. These amounts are ongoing reserves that are deducted from cash flow that are usually stipulated by lenders and someonetimes franchise agreements. The reserve dollars accumulate in a separate account so the property has sufficient capital to maintain competitiveness with updated furniture, electronics, and systems. Most properties reserve 4% of gross revenues annually for future FF&E updates.
F&B - Food and Beverage; this is the portion of the hotel dedicated to food service and drinks. Depending on the property, this can be a lobby bar, a rooftop lounge, a fancy restaurant, or a breakfast buffet.
Economy (Chain Scale) - Example: Motel 6
Hotel Management Company - A specialized company that focuses on managing daily operations of a hotel such as front/back office, food/beverage venues, staffing, housekeeping, hiring, etc. The hotel management company typically needs to have a local understanding of the labor market to make good hires. Management companies are hired on a contract basis by the hotel ownership group and are paid a percentage of gross revenues, typically 3-5%. Some management contracts also have a performance fee which is a profit split above a specific return to the ownership.
Independent Hotel - A hotel that is not affiliated with a major brand or flag and instead operates independently.
Luxury (Chain Scale) - Example: Ritz Carlton
Key Money - The up-front payment to a potential franchisee by a franchisor to entice the franchisee to use a specific flag or brand of hotel.
Midscale (Chain Scale) - Example: Tru by Hilton
Program - The layout and goals of the hotel. Hotel “programming” is important such as the layout of the meeting space, where the food/beverage outlets are located, etc.
PIP (Product Improvement Plan) - Renovation plan mandated by the franchisors (brands i.e Hilton, Hyatt, Marriott) in order to keep up with brand standards and is typically required to renew a franchise agreement
Per Key - Hotel purchase prices are commonly quoted as “per key” which is derived from the fact that you use a “key” to enter a hotel room. For example, if a $1 million hotel has 10 guest rooms, the purchase price would be $100,000 per key.
Penetration - A metric used to understand how much of the market a hotel is capturing. Penetration is usually calculated by the subject property’s RevPAR/ADR/Occupancy divided by the average of the comp set. Penetration can be above or below 100%.
OTAs - Online travel agencies (Expedia, Travelocity, etc).
Occupancy (Hotel) - Expressed as a percentage, the total number of rooms actually sold/occupied divided by the total number of rooms available in a given period.
RevPar - Revenue per Available Room. This is calculated by multiplying the ADR by the occupancy. This metric allows you to see the actual revenue-generating potential of a hotel on a per-key basis. For example, if you only consider ADR, this doesn’t tell the full story of how much revenue you will generate for ALL of the rooms in the hotel and only the rooms that were sold. Instead, RevPAR considers all rooms in the calculation, rather than just the rooms that are sold.
Re-Flag - A rebranding of a hotel property. This can occur for a few reasons such as the current brand not performing well or if the owner of the hotel does not want to invest further PIP (see property improvement plan) dollars into the property to keep up to brand standards. These issues will usually result in a loss of flag. When a property gets “re-flagged” it is oftentimes a downgrade but can sometimes be the same chain scale or even an upgrade with additional improvements to the property.
Rack Rate - The original price of a hotel room before any discounts or promotional rates are applied.
Tri-party Letter or Comfort Letter - An agreement between a lender, the borrower/owner/franchisee and a franchisor that provides the lender reasonable comfort that they will be able to continue normal operations under a brand in the event of a foreclosure.
Tri-party Letter - an agreement between 3 parties, See comfort letter.
STR Report - A report published by STR, a leading hotel research company, that displays the competitive set for the specific hotel in question and the respective room rates, occupancy trends, and other metrics.
Soft Brand - This is a relatively new hotel term that has come about with the proliferation of all the new brands that have been launched. It is typically under the umbrella of one of the major flags (Hyatt, Hilton, Marriott, etc) but not branded specifically a Hilton or Marriott. Examples of soft brand include Curio Collection by Hilton or Autograph Collection by Marriott. This allows the hotel to retain its own identity while still being part of a larger global brand.
Upscale (Chain Scale) - Example: Doubletree
Upper Upscale (Chain Scale) - Example: Kimpton
Upper Midscale (Chain Scale) - Example: Holiday Inn