The Owner’s Glossary.

ADR

Average daily rate. Rooms revenue divided by rooms sold.

AGOP

Adjusted gross operating profit. GOP after the deductions an agreement specifies, commonly the base management fee. Often the base for the incentive fee.

ARI

Average rate index. The hotel’s ADR divided by the competitive set’s ADR, times 100.

Area of protection

A zone around the hotel in which the brand agrees not to open another hotel of the same flag for an agreed period.

Base fee

The operator’s fee charged as a percentage of total revenue, payable whether or not the hotel is profitable.

Cap rate

Capitalisation rate. Net operating income divided by value.

CapEx

Capital expenditure. Spending on the building and its equipment that lasts beyond one year.

Competitive set

The group of hotels a property is measured against, agreed between owner and operator.

Debt yield

Net operating income divided by the loan amount. A lender’s measure that ignores interest rate and value.

DSCR

Debt service coverage ratio. Net operating income divided by annual interest and principal payments.

EBITDA

Earnings before interest, tax, depreciation and amortisation. In hotel statements, GOP less management fees and non-operating items such as property tax, insurance and rent.

FF&E

Furniture, fixtures and equipment.

FF&E reserve

Money set aside each year, usually as a percentage of revenue, to replace furniture, fixtures and equipment.

Flex

The share of a revenue shortfall that management saved by reducing cost.

Flow-through

The share of additional revenue that becomes additional profit.

Franchise agreement

A contract under which the owner pays a brand for its name, standards and distribution, and the hotel is run by the owner or a manager the owner hires.

GOP

Gross operating profit. Revenue less departmental and undistributed operating expenses.

GOPPAR

Gross operating profit per available room.

HMA

Hotel management agreement. The contract under which an operator runs a hotel for its owner in return for fees.

Incentive fee

The operator’s fee charged as a percentage of profit, usually GOP or AGOP, sometimes payable only after an owner’s priority return.

Key money

A payment by a brand or operator to the owner to win a contract, usually recovered through term, fees or clawback.

LTV

Loan-to-value. The loan amount divided by the value of the property.

Mix

The spread of business across segments and channels that carry different prices and costs.

MPI

Market penetration index. The hotel’s occupancy divided by the competitive set’s occupancy, times 100.

NOI

Net operating income. As hotel investors use the term, EBITDA less the FF&E reserve.

Owner’s priority

A return the owner receives before the operator earns an incentive fee.

Performance test

A clause allowing the owner to end the agreement if the operator misses agreed profit and RevPAR thresholds.

PIP

Property improvement plan. Works a brand requires for the hotel to meet its standards.

RevPAR

Rooms revenue per available room. Also ADR multiplied by occupancy.

RGI

Revenue generation index. The hotel’s RevPAR divided by the competitive set’s RevPAR, times 100.

Stabilisation

The point, usually some years after opening or renovation, when a hotel reaches its normal level of trading.

TRevPAR

Total revenue per available room, including food, beverage and other income.

Undistributed expenses

Operating costs not charged to a single department: administration, sales and marketing, property operations, utilities, and information systems.

USALI

Uniform System of Accounts for the Lodging Industry. The standard format for hotel operating statements.

Longer explanations are in the answers. The arithmetic is on the Owner’s Desk.