Thread by @somehotelguy

Ok #HotelTwit, let’s talk benchmarking! We’ll look at each department from the Summary P+L and talk about how we compare it to like hotels, and why. This’ll get us to be able to do a “quick & dirty” proforma, which we’ll do for a real hotel next week

Quick reminder – you can find the Glossary of Terms in the thread below. I’ve added a few things since the launch as well

https://twitter.com/somehotelguy/status/1477387960484081668

Occ & ADR – These are easy! We compare them as-is… the key is to identify the most competitive and most comparable local hotels. We’ll talk about how I project Occ & ADR in a future thread. BTW – This covers Rooms Revenue also

Now let’s talk F&B revenue. IF we’re talking a limited-service or select-service hotels, I’ll tend to do a simple POR calculation. The logic being that guests of the hotel are your F&B customers, so it’s an easy metric – “how much revenue do I generate on a per guest basis?”

If we’re talking Full Service / Luxury, it’s a LOT harder. There I try and do a buildup of banquet revenue (on a revenue PSF basis), outlet revenue (on a per seat or PSF basis), and minibar / room service (POR), even for a quick & dirty

For other stand-alone departments, it’ll depend on the usage. Spa I’d look at as revenue per treatment room. Parking I tend to think about as capture rate based, which is essentially POR

Other Operated Departments is generally small stuff, so again I’ll go POR.  Same with Miscellaneous Income, unless I have a Resort / Facility Fee or a material Lease to factor in

On to Expenses! Rooms is a POR comp. Most rooms expenses – from staffing (housekeeping, front desk) to consumables (cleaning supplies, etc.) – are based on guest load. Rooms is mostly, though not completely, a variable cost of occupancy

F&B is a % of Revenue comp. The components aren’t easy to pigeonhole – cost of goods sold is look at as a % of sales, but isn’t necessarily driven that way, staffing is a function of demand with a high minimum load, etc. It’s a cop-out, but % of Revenue is the way to go

Parking, Spa, Similar Departments and Other Operated Departments are best comped on a % of Revenue basis. Similar to F&B, the drivers are more complicated, and you’ll end up building a proforma just for the larger businesses and the smaller ones frankly won’t matter

Miscellaneous Income is my favorite. The comp is % of Revenue, and the Expense load is 0%

On to the Undistributed Expenses…

Admin & General. The cost to oversee the operations a 120 room upscale select service hotel is essentially the same whether it’s 50% or 100% occupied. The exception in A&G is Credit Card Commissions, so you might want to break that out even in your back-of-napkin analysis

If so, it’s a % of Revenue for Credit Card Commissions and PAR for the rest

Info & Telecom. Similar to Admin & General, the cost is the cost, so it’s a PAR calculation.

Sales & Marketing. While the cost is the cost, Franchise Fees are included here and make up a substantial portion of the total department. So, I like to break those out, going PAR for Sales & Marketing and calculating the Franchise Fees on revenue

Property Ops & Maintenance. Again, the cost is the cost, though wear & tear happens more with occupancy. I tend to do PAR, but bump it up a touch in a high occupancy situation

Utilities. Utility usage varies with occupancy but has a floor of “how much do we need to keep the place from freezing / melting”. Here, I’ll go POR, but bump it a bit if we’re talking a lower occupancy situation

Management Fee. This will have 2 components, the Base Management Fee and the Incentive Management Fee. For basic benchmarking I ignore the Incentive and only look at base. This is almost always calculated as a % of Revenue, sometimes including a floor, so that’s how I look at it

Non-Operating. The most obvious of these (property taxes, insurance, ground rent) are all a PAR comparable. Less frequent things, like equipment leases or lease income, are harder to have a general rule for and need to be addressed case-by-case

EBITDA. I like to look at both % of Revenue (EBITDA Margin) and PAR (EBITDA per key). Both are pretty good benchmarks to look at for a 30 second analysis. “Is the EBITDA Margin way out-of-whack?” and “Is EBITDA per key way out-of-whack?” are good Q’s to ask

Replacement Reserve. Always done as a % of Revenue. Boom.

Net Operating Income. Same as EBITDA. NOI Margin and NOI per key. Same reasons.

Now that we’ve been through that, we’ll look at a real hotel next week and apply it, with a goal of saying “can I get close enough to the ask?”