chapter 11 outline - Chapter 11 I Forces Shaping the Hotel...

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Chapter 11 I) Forces Shaping the Hotel Business a. Purpose i. To better understand economics, supply and demand curves as well as capital structure in order to more aware of the cyclical nature of the lodging industry. ii. To better understand as well as define the concept of securitization. b. The Economics of the Hotel Business i. A Cyclical Business 1. What it means: The demand for hotel rooms rises and falls with the business cycle. 2. Generally follows the direction of the economy but the impact will not be felt for several months ii. Hotel Cycles and Financial performance 1. Hotels revenue is generally dependant on society’s social, governmental and business sectors. 2. The key drivers in the profitability of a lodging property are occupancy and average room rate. a. A property with a high occupancy can still lose money with low room rights b. A property with low occupancy but high room rates can still be profitable 3. Some European countries rebound from the hotel cycles more quickly than their American counterparts. a. Strongest Spain iii. RevPAR or ProfPAR 1. Definitions a. RevPAR Revenue per available rooms i. Found by dividing the total revenue by the number of available rooms b. ProfPAR Profit per available room i. Found by dividing operating profit per year by the daily available rooms per year. ii. Considered by most to be the most accurate representation of hotels performance. iv. Hotels as Real Estate 1. “You don’t build a church just for Easter Sunday” 2. Pro a. Hotel pricing are more attractive because there is an ability to increase rates overnight. b. Land can be sold after profits are made as a hotel. 3. Con a. Hotels are more risky than other real estate ventures due to the large capital needed upfront.
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