Rooms
A room is a part or division of a building enclosed by walls, floor, and ceiling, which is rented by hotel guests for accommodation or lodging on a short-term basis in exchange for money.
Guide to Hotel KPIs
This guide highlights the key performance indicators for the hotel and timeshare industry and where investors should look to find an investment edge. While this guide is not a full hotel industry primer, as the market leader in granular consensus estimates data, Visible Alpha works with partners and clients to determine the key hotel metrics that will aid market participants in identifying hotel trends and future performance of hotel companies – including InterContinental Hotels Group, Hilton Worldwide, Marriott International, AccorHotels and more – by region and key values.
Hotel Business Model
The hospitality industry operates its hotels and other business segments under one of the following operating models:
- Franchised or licensed hotels,
- Managed or company-operated hotels, or
- Owned or leased hotels.
Franchised or licensed model: In the franchise model, the hotel group functions as a franchisor, with which different hotel owners sign a franchise agreement. The hotel owners who run the franchisee hotels are thereby licensed to run their hotel using one of the hotel group’s or franchisor’s branding. The franchise agreement allows the franchisee to not only use the franchisor’s brand name but also related commercial services, such as reservation systems and marketing and information technology services. However, the franchisees have to invest their capital into the hotels and are charged a certain percentage of room sales as franchise fees.
The franchisor has a performance obligation to provide the franchisees a license to use the company’s brand names. The franchisor is in turn entitled to initial application fees and ongoing royalty fees. The initial application fees are fixed considerations, payable upon submission of a franchise application. The royalty fees are variable considerations and are based on a percentage of certain hotel revenues, mainly room revenues plus a percentage of food and beverage revenues.
Managed or company-operated model: Company-operated hotels are either owned or managed by the company. In this model, companies have performance obligations to provide hotel management services and an intellectual property license of the hotel system to the managed hotel for using the company’s brand name. As compensation for such services, the company is entitled to receive base management fees, which are a percentage of the hotel revenue, and incentives fees, which are generally based on the hotel’s profitability.
Owned or leased model: In an owned or leased business model, revenue is generated from hotel room sales, food and beverage sales, and other such services. For owned and leased hotels, companies provide accommodations and other ancillary services to hotel guests and are entitled to a nightly hotel room revenue and additional fees for any ancillary goods and services sold. Revenue is recognized when rooms are occupied and services are rendered; however, they are payable by the hotel guests at the time of check-out.
Revenue Model
Average daily rate (ADR) measures the average room price and is used to assess the operating performance and pricing levels of hotels. ADR trends provide information related to the pricing environment of a hotel group. ADR is calculated by dividing the property room revenue by the total number of rooms sold.
Occupancy rate refers to the number of rooms occupied in a hotel, compared to the total number of rooms available at a given time. Expressed as a percentage, occupancy rate is used to gauge the demand at a hotel group for a given time period. It measures the capacity utilization of a hotel. Achievable ADR can also be determined based on the occupancy percentage as it indicates an increase or decrease in demand for hotel rooms. Occupancy rate is calculated by dividing the total number of occupied rooms in a hotel by the total number of rooms available in the hotel.
Revenue per available room (RevPAR), a commonly used performance measure in the hotel industry, is the product of ADR and occupancy rate. RevPAR for hotels enables the comparison of room revenues among comparable properties to evaluate a hotel’s performance.
Room nights are calculated by multiplying the number of days available in a given period by the total number of rooms available across all hotels of the hotel group.
Room revenue is calculated by multiplying the total number of room nights by RevPAR. Such room revenues are generated at owned, leased, managed and franchised hotels.
System-wide revenue is the total sales generated at hotels. A major component of system-wide revenue is room revenue. Base management fees and incentive management fees are computed on the basis of system-wide sales for managed hotels. Franchise fees are calculated by multiplying system-wide sales for franchisee hotels by the royalty rate. These fees together constitute managed and franchise revenue.
Other revenue may include global design fees, termination fees, and other property and brand revenues. As a part of the loyalty program, companies enter into agreements with financial institutions to issue co-branded cards and receive certain fees when customers redeem their loyalty points.
Cost reimbursements are applicable under management and franchise agreements. Companies are entitled to reimbursement for certain costs incurred on behalf of the managed, franchised and licensed properties. These costs mainly consist of payroll and related expenses at managed properties and also include certain operational and administrative costs that are predetermined in the contracts.
Total revenue is the sum of owned and leased revenue, managed and franchise revenue, other revenue and cost reimbursements.
Timeshare Business Model
A timeshare is a shared-ownership model in the hotel industry in which multiple parties hold exclusive rights to use the same hotel property for an allotted period of time. Timeshare companies market and sell vacation ownership intervals, manage resorts and/or operate points-based vacation clubs.
There are two major operating segments for revenue generation in the timeshare industry:
- The sale of vacation ownership interests; and
- Resorts and club management.
In addition, rental, financing and cost reimbursements also contribute to a timeshare company’s revenues.
Vacation ownership allows customers to share ownership and use of fully-furnished vacation homes or resorts. Vacation ownership resorts typically provide multi-room accommodations with in-unit kitchens and laundry facilities. They may also provide resort-like amenities such as swimming pools, gyms and spas, restaurants and bars, sports and recreation facilities, and convenience stores. The purchaser can buy an interest known as a vacation ownership interest (VOI). The interest can be for a “timeshare estate,” which is a real estate ownership, or a “timeshare license,” which is on a contractual right-to-use basis for a specific resort or a group of resort properties.
Developers sell VOIs for a fixed price that is paid fully at closing or is financed by a loan. Many timeshare companies provide customers with financing options or facilitate access to third-party bank financing. Sales of VOIs are either cash sales or developer/seller-financed sales. Generally, companies receive upfront deposits and the remainder of the purchase price at the closing. Until the legal rescission period has expired, customer deposits are recorded as refundable liabilities or advance deposits on the company’s balance sheet. Revenue is recognized when the statutory rescission period has expired, the sales contract is executed, receivables have been deemed collectible, and the remainder, if any, is assured. Companies also record a provision for loan losses to hedge against default risks of estimated vacation ownership contract receivables. This provision is largely based on the company’s static pool analysis, which tracks historical payment default data.
Resorts and club management includes day-to-day management of resorts, clubs or lodging properties, membership programs, vacation exchanges, and certain accounting and administrative functions. Timeshare companies offer vacation exchange services to timeshare owners. A timeshare owner deposits their interval or points from a resort or club into the company’s network to have the option to use another owner’s interval at a different destination. The company assigns a value to the owner’s deposit. This value is based on several factors such as supply and demand for the destination, dates of the interval, size of the property and the amenities available. Companies offer their members the option to exchange their VOI usage rights, facilitate such exchanges, and generate revenues through annual membership fees and commissions. Timeshare companies also offer vacation rental opportunities to members of the network that allow members to rent accommodations.
VOI rental revenue is generated from renting inventory held for sale as interests in vacation ownership programs. Alternatively, rental revenue is also generated from renting inventory that is controlled by the company because its owners have opted for alternative usage options under vacation ownership programs.
Financing services revenue is the interest income on loans that are provided as an option to qualifying purchasers of vacation ownership products. Financing revenue also includes loan servicing and other fees.
Cost reimbursements include direct and indirect costs that are reimbursed to the company under management contracts. Timeshare companies are entitled to reimbursement of costs incurred from providing club and resort property management services for day-to-day operations.
Industry Revenue Models
CLICK DIAGRAMS TO EXPAND
Key performance indicators (KPIs) are the most important business metrics for a particular industry. When understanding market expectations for hotels and timeshares, whether at a company or industry level, here are some of the hotel KPIs to consider:
Visible Alpha’s Standardized Industry Metrics
To understand market expectations for the hotel industry, a key information source is sell-side analyst estimate and consensus forecast data. The buy side, sell side and public companies leverage this type of data to conduct competitive analysis, a type of analysis conducted by professional analysts that involves comparing standardized metrics of one company with those of similar companies. Because companies report metrics differently – and sometimes report on different metrics altogether – standardizing the key metrics for each company can be a cumbersome process.
Visible Alpha Insights includes analyst data, company data and industry data at level of granularity unparalleled in the market. Our industry data – Standardized Industry Metrics – enables market participants to quantify and compare market expectations for companies across 150+ industries.
Data as of January 2023
34
Global Tickers
400
Current Analyst Excel Models
310
Unique line items in our standardized operating metrics data
64
Contributing Brokers
527
Total standardized line items
217
Unique line items in our standardized financials data
Visible Alpha offers 8 hotels, resorts and cruise lines comp tables, comparing forecasts for key financial and operating metrics, to make it easy to quickly conduct relative analysis, whether you are interested in looking at key values for Marriott International competitors or RevPAR. Every pre-built, customizable comp tables is based on region, sub-industry or key operating metrics.
AMER Hotels
- Choice Hotels International, Inc. (CHH)
- Hilton Worldwide Holdings Inc (HLT)
- Hoteles City Express S.A.B. de C.V. (HCITY_MX)
- Wyndham Hotels & Resorts Inc (WH_US)
EMEA Hotels
- AccorHotels (AC_FR)
- InterContinental Hotels Group PLC (IHG)
- Melia Hotels International SA (MEL_ES)
- Scandic Hotels Group AB (SHOTE_SE)
AMER Timeshares & Cruise Lines
- Bluegreen Vacations Corp (BXG_US)
- Marriott Vacations Worldwide Corp (VAC_US)
- Norwegian Cruise Line Holdings Ltd (NCLH)
- Royal Caribbean Cruises Ltd (RCL)
APAC Hotels
- Huazhu Group Ltd (HTHT_US)
- Central Plaza Hotel (CENTEL_TH)
- BTG Hotels Group Co Ltd (600258_CN)
- Shangri-La (0069_HK)
- GreenTree Hospitality Group (GHG_US)
Industry KPI Terms & Definitions
Owned Hotel
A privately-owned and operated hotel has proprietary ownership in the company’s name, though investors or others may have a financial interest in the hotel.
Leased Hotel
A leased hotel is owned by a third-party but has leased the physical building of the hotel to the company for a predetermined period.
Managed Hotel
A managed hotel is owned by a third-party but has signed an agreement with another hotel brand to manage the hotel operations.
Franchisee Hotel
A franchisee hotel is owned by a third-party, but to use the brand name, the owner pays an upfront fee and ongoing royalties.
Rooms
A room is a part or division of a building enclosed by walls, floor, and ceiling, which is rented by hotel guests for accommodation or lodging on a short-term basis in exchange for money.
Room Nights
Room nights are the number of rooms available multiplied by the number of days in a given period.
Number of Days
The number of days in an analyzing period.
Occupancy Rate
The occupancy rate is the percentage of available rooms being sold for a certain period. It is computed as the total number of rooms sold divided by the total number of rooms available. Occupancy rate measures the utilization of a property’s available capacity.
Average Daily Rate (ADR)
Average daily rate (ADR) is the average price or rate at which each hotel room was sold for a specific day. ADR is also a financial indicator to measure how successful the performance of a hotel is compared to other hotels with similar offerings, such as hotel size, amenities, services, location and the hotel’s historical trend.
Revenue Per Available Room (RevPar)
Revenue per available room (RevPAR) is a metric used in the hotel industry to measure hotel performance. It is calculated by multiplying a hotel’s occupancy rate by its average daily rate (ADR). RevPAR is also derived by dividing a hotel’s total room revenue by the total number of available rooms.
Royalty Rate
A royalty rate is a legally-binding payment made to a company for the ongoing use of the company’s brand. Royalties are revenue generators specifically designed to compensate a company for allowing franchisees to use its brand name. Royalty payments typically constitute a percentage of the gross or net revenues obtained from using the owner’s property, referred to as royalty rate.
System-Wide Sales
System-wide sales is the total sales generated at all the hotels of a company. It includes total sales held at company-owned, leased, managed and franchisee hotels. System-wide sales are different from the company’s net revenue. Net revenue includes sales from owned and leased hotels, franchise fees based on a percentage of franchisee system-wide sales, and base management fees and incentive management fees, both as an agreed percentage of managed system-wide sales.
Tour Flow
Tour flow is the number of sales presentations given at sales locations in a given period.
Volume Per Guest (VPG)
Volume per guest (VPG) is calculated by dividing consolidated vacation ownership contract sales – excluding fractional sales, telesales, resales, joint venture sales and other sales that are not attributed to a tour at a sales location – with tour flow. It measures the effectiveness of the sales process.
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Guide to Hotels KPIs for Investment Professionals
This guide highlights the key performance indicators for the heotels industry and where investors should look to find an investment edge, including:
- Hotels Industry Business Model & Diagram
- Key Hotels Metrics PLUS Visible Alpha’s Standardized Industry Metrics
- Available Comp Tables
- Industry KPI Terms & Definitions
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