Glossary of Termsquestion

Acquisition cost
Amortization
Average Daily Rate (ADR)
Book value
Capitalization Rate (or Cap Rate)
Competitive Set
Demand Generation
Depreciation
EBITDA
Interest coverage ratio
Leverage
Liquidity
Net asset value (NAV)
Occupancy
Premium Budget/Economy Hotel
Revenue
Revenue per Available Room - REVPAR

Acquisition cost
The outlay of funds needed to purchase a property. In addition to the purchase price, it includes expenses such as closing costs, mortgage loan origination fees, legal and appraisal fees, and title insurance.

Amortization
The process of retiring debt through repayment of principal. Amortization occurs when the payment on the debt exceeds the required interest payment for a given time period.

Average Daily Rate (ADR)
A statistical unit that is often used in the lodging industry. The number represents the average rental income per occupied room in a given time period. ADR along with the property's occupancy are the foundations for the property's financial performance. The ADR can be calculated by dividing the room revenue by the number of rooms sold.

Book value
The net value of a company’s assets less its liabilities. Book value will reflect depreciation and amortization, which are expensed for accounting purposes.

Capitalization Rate (or Cap Rate)
A measure of the return generated by a property investment. The cap rate is calculated by dividing property net operating income by its purchase price.

Competitive Set
A group or cluster of hotels in a defined area that are determined to be the most similar to the property.

Demand Generation
The focus of targeted marketing programs to drive awareness and interest in a company's products and/or services. Commonly used in business to business, business to government, or longer sales cycle business to consumer sales cycles, demand generation involves multiple areas of marketing and is really the marriage of marketing programs coupled with a structured sales process.

Depreciation
An annual charge taken to reduce the value of a property due to age, obsolescence, etc. Depreciation is a non-cash expense that reduces income but not cash flow.

EBITDA
Earnings before interest, taxes, depreciation and amortization.

Interest coverage ratio
A metric used to measure a company’s ability to meet its debt interest obligations. This is usually calculated as the ratio of EBITDA to interest expense.

Leverage
The utilization of debt to finance property acquisitions.

Liquidity
The ability to convert assets into cash without an appreciable loss in value. Investments are said to have good liquidity if they can quickly and easily be converted into cash.

Net asset value (NAV)
The market value of a company’s properties and other assets after subtracting its liabilities and other obligations.

Occupancy
Rooms sold divided by rooms available.

Premium Budget/Economy Hotel
Microtel Inn and Suites as developed and operated by Caerus Hospitality.

Return of capital
The portion of an MLP’s distribution in excess of taxable income. For a tax-paying stockholder, a return of capital does not create taxable ordinary income but does reduce the stockholders’ tax basis.

Revenue per Available Room - REVPAR
Room revenue divided by rooms available (occupancy times average room rate will closely approximate RevPAR).

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