Number of Hotel Properties
Number of hotel properties is the total number of hotels owned by a hotel & resort REIT.
Guide to Hotel REIT Industry KPIs
This guide highlights the key performance indicators for the hotel REIT industry and where investors should look to find an investment edge. While this guide is not a fully integrated hotel REIT industry primer, as the market leader in granular consensus estimates data, Visible Alpha works with partners and clients to determine the key performance indicators in this industry. This guide will aid market participants in identifying industry trends and the potential future performance of hotel REITs.
Industry Business Model
Revenue
Hotel REITs derive their income primarily from renting out rooms and facilities to guests. Income streams also include food and beverage services, and other services including event hosting and various recreational amenities.
Room revenue is one of the primary sources of revenue for hotel REITs. It includes income generated from renting out guest rooms, suites, and accommodations to guests. Room revenue is typically the largest revenue segment for these REITs. Room revenue is calculated as:
Here, available room nights refer to the total number of rooms a hotel or lodging property has available for guests to book over a specific period. It is a crucial metric for assessing a hotel’s capacity and potential occupancy. RevPAR, on the other hand, is the revenue generated per available room, whether or not they are occupied. It is calculated by multiplying a hotel’s average daily room rate (ADR) by its occupancy rate. ADR measures the average price or rate at which rooms are sold or rented over a specific period, typically on a daily basis. Occupancy rate measures the percentage of available rooms or units that are currently being rented or occupied by guests. A high occupancy rate generally indicates strong demand for the REIT’s properties, which can lead to higher rental income. Conversely, a low occupancy rate may suggest weaker demand and could impact the REIT’s revenue and profitability.
Hotels and resorts often also have on-site restaurants, bars, cafes, and room service that generate revenue from food and beverage sales. Food and beverage revenue includes income from dining and drinking establishments within the property.
Hotel REITs also generate revenue from providing several other services. This may include:
- Ancillary services revenue, generated from parking fees, laundry services, valet parking, and airport shuttle services, among others.
- Recreational and leisure revenue, generated from recreational amenities and activities such as spa treatments, golf courses, fitness centers, and water sports.
- Many hotels and resorts have meeting rooms, conference facilities, banquet halls, and event spaces that can be rented for corporate meetings, conferences, weddings, and other events.
- Additionally, if the REIT manages properties on behalf of others, it may earn management fees.
The revenue mix can vary significantly depending on the type of property, its location, and its target market. While room revenue tends to be the most substantial segment for most hotel and resort REITs, diversifying revenue sources through food and beverage services, events, and amenities helps them mitigate risks and enhance profitability.
Hotel REITs typically expand their portfolios by acquiring or developing hotel properties. Companies in this industry frequently acquire existing hotel properties and may purchase individual hotels or entire hotel chains. Such expansions allow them to diversify their holdings and gain access to properties in different markets and regions. The effects of these transactions are reflected in their financial statements, such as “cash & cash equivalents,” “property, plant and equipment, net,” and cash flow indicators like “net (acquisitions)/disposals” and “increase/(decrease) in debt, net.”
Some Hotel REITs may also engage in new hotel development projects. They invest in the construction of new hotels or the expansion of existing properties. This strategy allows them to customize the hotels to meet their specific requirements and to enter markets where they do not currently have a presence. The impact of these development projects can be seen in the cash flow category of “capital expenditures.”
Hotel REITs may enter into joint ventures with other real estate developers or hotel management companies. By pooling resources and expertise, they can jointly develop or acquire hotel properties. The overall effects of these external growth activities are reflected in metrics such as the “number of hotel properties (#)” and “number of hotel rooms (#).”
Hotel REIT Industry Business Models
CLICK DIAGRAMS TO EXPAND
Expenses
Hotel REITs incur various expenses in managing and operating their properties. The major expenses for these REITs typically include:
- Room expenses: Expenses related to rooms include specific costs associated with providing accommodations to guests. These expenses are a significant component of a hotel and resort REIT’s overall operating costs.
- Food and beverage expenses: Food and beverage expenses are another significant component of the operating costs for hotel and resort REITs, and they encompass all costs associated with providing dining and beverage services to guests. These expenses can vary depending on the size and type of the establishment, its culinary offerings, and the level of service provided.
- Management fees: Management fees are a type of expense incurred by hotel and resort REITs when they engage third-party management companies to oversee the day-to-day operations of their properties. These fees compensate the management company for its services in running and maintaining the properties efficiently. These fees are broken down into:
- Base management fee, which is a regular, ongoing fee paid to the management company. It is typically calculated as a percentage of the property’s gross revenue or net operating income (NOI). This fee compensates the management of the company for its general management duties, including staffing, operational oversight, and property maintenance. If the hotel or resort is part of a franchise agreement with a well-known hotel brand, the REIT may have to pay franchise fees to the brand owner. These fees are occasionally categorized by companies as management and franchisee fees.
- Incentive fees are often tied to specific performance metrics, such as achieving certain revenue or profitability targets. When these targets are met or exceeded, the management company earns additional compensation.
- Property-level expenses such as property taxes, insurance costs, ground lease expenses, and other fixed costs. These vary significantly depending on the local jurisdiction’s taxing authorities.
- Other hotel expenses include labor and other costs associated with administrative departments, advertising, promotion, repairs, maintenance, utilities, and information technology systems.
Profitability
Investors assess the profitability of hotel REITs by considering various financial metrics, including Hotel EBITDA, Funds from Operations (FFO), and Adjusted Funds from Operations (AFFO).
- Funds from operations (FFO): FFO is a key metric for investors to assess the operating and financial performance of a REIT. It is calculated as net income applicable to common stockholders, excluding non-cash adjustments.
- FFO Payout Ratio: This ratio helps investors understand how much of the earnings are being paid out as dividends. It’s calculated as the total dividends paid divided by funds from operations.
- Adjusted Funds from Operations (AFFO): AFFO is a financial measure used to estimate a REIT’s value. It’s calculated as FFO, but it excludes capital expenditures and maintenance capital expenditures.
- AFFO Payout Ratio: Similar to the FFO Payout Ratio, this ratio helps investors understand the percentage of earnings paid out as dividends, but it’s based on adjusted funds from operations over the same period.
- Hotel EBITDA: Hotel EBITDA is a hotel’s operating income from its primary operations, including room, food, and other revenue, minus all operating expenses like wages, utilities, and maintenance. It also excludes interest, taxes, depreciation, and amortization.
- Dividend Per Share: The sum of declared dividends issued by a company for every ordinary share outstanding.
Finally, investors monitor debt/asset and debt/equity ratios for investment efficiency and leverage.
Key performance indicators (KPIs) are an industry’s most important business metrics. When understanding market expectations for the hotel REITs industry, whether at a company or industry level, some KPIs to consider include:
Visible Alpha’s Standardized Industry Metrics
To understand market expectations for the hotel REIT industry, sell-side analyst estimates and consensus forecast data are key information sources. 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 a 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 May 2023
18
Global Tickers
238
Current Analyst Excel Models
212
Proprietary line items in our standardized operating metrics data
30
Contributing Brokers
26
Proprietary line items in our standardized financials data
117
Total standardized line items
Visible Alpha offers six hotel & resort REIT industry-related 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 global companies, Americas, or Europe. Every pre-built, customizable comp table is based on region, sub-industry, or key operating metrics.
NORTH AMERICA
- HOST HOTELS & RESORTS, INC. (NASDAQ: HST)
- Park Hotels & Resorts Inc. (NYSE: PK)
- DIAMONDROCK HOSPITALITY COMPANY (NYSE: DRH)
- PEBBLEBROOK HOTEL TRUST (NYSE: PEB)
- Sunstone Hotel Investors, Inc. (NYSE: SHO)
EMEA
- Pandox AB (STO: PNDX-B)
APAC
- Far East Hospitality Trust (SGX: Q5T)
- Japan Hotel REIT Investment Corporation (TSE: 8985)
Industry KPI Terms & Definitions
Visible Alpha offers an innovative, integrated experience through real-time, granular consensus estimates and historical data created directly from the world’s leading equity analysts. Using a subset of the below KPIs, this data can help investors hone in on the key drivers of companies to uncover investment opportunities.
Number of Hotel Properties
Number of hotel properties is the total number of hotels owned by a hotel & resort REIT.
Number of Rooms
Number of rooms is the total number of rooms available in a property owned or managed by a hotel & resort REIT.
Number of Room Nights
Number of room nights are the number of rooms available multiplied by the number of days in a given period. It is used as a measure of capacity in the hotel industry.
Occupancy Rate
Occupancy rate measures the utilization or occupancy of available rooms in a hotel during a specific period, often expressed as a percentage. It is calculated by dividing the number of rooms occupied by the total number of rooms available in a given period.
Average Daily Room 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 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.
Funds From Operation (FFO)
Funds from operations (FFO) is useful to investors in measuring the operating and financial performance of a REIT company. It is calculated as net income applicable to common stockholders excluding non-cash adjustments.
Core Funds From Operations (CFFO)
Core funds from operations (CFFO) measure the cash flow generated by a REIT’s core operating activities. CFFO is calculated as FFO minus non-core and non-recurring items. The value of CFFO is obtained by making one-time adjustments to the FFO.
Adjusted Funds From Operations (AFFO)
Adjusted funds from operations (AFFO) is a financial measure used to estimate the value of a REIT. It is calculated as FFO minus capital expenditures and maintenance capex.
Average Cost of Debt (%)
Average cost of debt is a measure of the average interest rate paid to fund the business. It is calculated as interest expense paid divided by average debt (secured and unsecured loans and revolving credit facilities).
Hotel EBITDA
Hotel EBITDA is a hotel’s operating income, which includes revenue generated from room sales, food and beverage services, and other core hotel operations, minus all operating expenses (such as employee wages, utilities, and maintenance) but excluding interest, taxes, depreciation, and amortization.
Hotel EBITDA Margin
Hotel EBITDA margin measures a hotel’s profitability as a percentage of its total revenue.
Room Revenue
Room revenue is revenue generated from rooms, calculated by multiplying the total number of room nights by RevPAR.
Food & Beverages Revenue
Food & beverage revenue is revenue generated from on-site restaurants, bars, cafes, and room service.
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Guide to Hotel REIT Industry KPIs for Investment Professionals
This guide highlights the key performance indicators for the hotel REIT industry and where investors should look to find an investment edge, including:
- Hotel REIT Industry Business Model & Diagram
- Key Hotel REIT Industry Metrics PLUS Visible Alpha’s Standardized Industry Metrics
- Available Comp Tables
- Industry KPI Terms & Definitions
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