Hospitality

Question 1

What are the 3 types of hotel locations?

Answer 1

Urban
Holiday
Leisure

Question 2

What are the 3 types of hotels by demand?

Answer 2

Corporate
Holiday/leisure
MICE = meetings, incentives, conferences, and exhibitions.

Question 3

What are the 3 types of hotels by F&B services?

Answer 3

All-inclusive
Full-service
Limited-service

Question 4

What are the types of hotels by segmentation?

Answer 4

Lifestyle, Adults Only, LBTQ+, Halal, Wellness, Members Only, Pet Friendly, Marijuana Friendly.

Question 5

Define occupancy in hospitality.

Answer 5

The proportion of occupied beds over the total number of rooms available in a given period.

Question 6

Define ADR in hospitality.

Answer 6

Average Daily Rate is defined as total room revenue by the number of rooms sold.
ADR = room revenue/rooms sold

Question 7

Define RevPAR in hospitality.

Answer 7

Revenue per Available Room is defined total revenue of a property by the number of
available rooms.
RevPAR = room revenue / available rooms

Question 8

What is the formula for the number of available rooms?

Answer 8

available rooms = # of rooms * opening days

Question 9

What is the FF&E reserve?

Answer 9

Replacement reserve for furniture, fixtures, and equipment - money deployed to keep the rooms in good shape.

Question 10

What are the 3 types of land for branded residences?

Answer 10

Residential, touristic, and hotel.

Question 11

What are the 2 types of management contracts for branded residences?

Answer 11

Branded and non-branded.

Question 12

What are the 3 types of branding for branded residences?

Answer 12

Hotel brand, non-hotel brand, non-branded.

Question 13

What are the 3 types of owner remuneration for branded residences?

Answer 13

Pooled, non-pooled, and mixed.

Question 14

What are the 4 typologies of branded residences?

Answer 14

Integrated (hotel developments with residences integrated into the same building), adjacent (development of residences with the adjacent hotel), condo-hotel (hotel with the horizontal division of the accommodation units), and standalone (without adjacent hotel but with hotel services).

Question 15

What are some key trends that gave the branded residence sectors momentum?

Answer 15

Post covid momentum where clients want to ‘live’ rather than just ‘stay’. The idea of a second home is supported by trends such as working from home (technology), focusing on well-being, increasing the importance of brands, the aging population (retirement communities), and increased spending by millennials as they look for new experiences…

Question 16

Describe the business model of business residences.

Answer 16

Developers develop the properties which are sold to the owner (of branded residence). At the same time, there is a hotel operator who allows the owner of the branded residence to use the hotel’s brand. The hotel to which the branded residence belongs to then manages it - provides hotel services. Lastly, the clients that bought/rent the branded residences from the original owner make contributions and form a homeownership association that is led by the hotel operator.

Question 17

List the three hotel operating business models from lowest to highest risk to the owner.

Answer 17

Lease Agreement
Management Agreement (HMA)
Franchise Agreement

Question 18

Describe the Lease Agreement hotel operating business model.

Answer 18

• Landlord: owner of the asset
• Tenant: hotel company
• Tenant: assumes all operating and financial responsibilities.
• Owner: its return will vary depending on the risk assumed
• Rent structure includes: fixed fee, variable fee: % of Revenue and/or % of NOI and a hybrid lease
• Length: 20+ years

Question 19

Describe the Management Agreement hotel operating business model.

Answer 19

• The owner hires the hotel company to manage the hotel.
• The owner assumes all the risk of the business and all the returns, after paying the manager.
• Fees structure includes a standard: base fee (2-4% revenues) + incentive fee (8-10% GOP) + Other fees (mkg, reservations)
• Length: 15-30 years

Question 20

Describe the Franchise Agreement hotel operating business model.

Answer 20

• The owner gets the right to use the Brand, the distribution channels, and other knowledge of the hotel company.
• Owner retains all risks and liabilities + control of the property
• Fees structure:
• Initial fee
• Royalty fees
• Others: marketing contribution, reservation
  *Length: ~15 years

Question 21

How is departmental profit calculated?

Answer 21

Is operational profit, thus
operational revenues - operational /departmental costs

Question 22

What are undistributed expenses?

Answer 22

Overhead costs are necessary for the daily running of a hotel business but are not directly linked to a revenue source as is the case with operating expenses. These frequently include items such as anything required for general administration as well as IT and telephone systems.

Question 23

What is gross operating profit (GOP)?

Answer 23

GOP = revenues - operational expenses - overhead
GOP is what is used to measure the success of business strategies, service, and promotional offerings as well as how effectively a hotel is managing revenue sources in light of any outgoing expenses. This is the essential analytic that is widely used to determine if a change of course is required.
With GOP, hoteliers can determine if additional resources need to be diverted to a specific department or offering as a result of an increase in guest demand, preventing inventory levels from dwindling to a point where service expectations cannot be met.

Question 24

What are management fees? How are they distributed?

Answer 24

In the case of a management agreement, the owner of the hotel will have to pay fees to the management company.
These are usually distributed as follows:
Base Fee: is a fixed percentage of the hotel’s gross revenue. It covers the cost of day-to-day management services, including sales and marketing, operational support, and administrative functions. 2-6%
Incentive Fee is an additional fee based on the hotel’s financial performance. Tied to specific KPIs (RevPAR, GOP, NOI). 10-25%.

Question 25

What are some examples of fixed charges/costs?

Answer 25

taxes, insurance, and routine maintenance.

Question 26

How is NOI calculated?

Answer 26

Net operating income is calculated as revenues - operational expenses - overhead expenses - management fee - fixed expenses.

NOI allows hoteliers to assess what income is available to further fund business operations, how much they can spend on marketing efforts, what remains to invest in new services, and what can be marked as a property’s profit margin.

Question 27

What are the 6 components of the yield construction?

Answer 27

Risk-free rate, country risk premium, industry/sector risk, sub-sector risk, covenant risk, and structure risk.

Question 28

What is the structure risk component of a yield?

Answer 28

It is the rate that reflects the risk spread between the different operating structures of a hotel (lease, management, franchise, or vacant possession). Spread between 0-
1.00%

Question 29

What is the covenant risk component of a yield?

Answer 29

The asset’s tenure (freehold/leasehold) and the level of gearing (Debt/Equity Ratio)
impact the risk related to an asset

Question 30

What is the sub-sector risk component of a yield?

Answer 30

Trading assets entail a higher risk than other property-type assets, usually evaluated between 0.75-2.00%. The risk depends on the market where the hotel asset is located.

Question 31

What is the sector risk component of a yield?

Answer 31

The sector risk premium is the specific risk inherent to the property sector and is estimated at 1.50%