Hotel Industry Terms to Know

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Author:
anatmd
ID:
239018
Filename:
Hotel Industry Terms to Know
Updated:
2013-10-06 12:49:25
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hospitality
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Description:
This list of terms is meant to be an ongoing resource within the ever-changing hotel industry.
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  1. AAA
    The highest rating given to bonds by bond-rating agencies. AAA bonds are thought to have almost no default risk. Moody’s and Standard & Poor’s are the most widely used rating agencies.
  2. ADR (average daily rate)
    A measure of the average rate paid for rooms sold, calculated by dividing room revenue by rooms sold.(ADR = room revenue / rooms sold)

    ADR (rate) index - 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 US$50 and the ADR of its competitive set is US$50, the subject hotel’s index would total 100. If the subject hotel’s ADR totaled US$60, its index would be 120, indicating the hotel has captured more than its fair share. If the subject hotel’s ADR totaled US$40, its index would be 80, indicating the hotel has captured less than its fair share.
  3. amortization period
    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
  4. auction
    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. 

    Hotel industry example: The Watergate Hotel in Washington, D.C., was auctioned because the owners, Monument Realty, defaulted on a US$70-million loan.
  5. average published rate (APR)
    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 our census database do not report data to STR, an estimate of actual average daily rate is derived using published rates.
  6. bankruptcy
    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.

    Hotel industry example: The hotel chain Extended Stay Hotels filed for Chapter 11 bankruptcy protection, citing massive debt stemming from its 2007 acquisition by Lightstone Group and a sharp drop in business travel because of the recession.

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