Hotel Market Analysis and ADR Forecasting Model
A hotel market analysis quantifies the existing supply of primary and secondary competitive hotels. Using this information and factoring in latent hotel demand (unaccommodated and induced) the model quantifies the market’s existing room night demand. The model then takes this information by individual market segments (i.e commercial, meeting/group and leisure) and projects the demand into the future. Using a competitive indexing algorithm, the software fits each competitive hotel (including the subject property) into the analysis based on its relative competitiveness. This produces a projection of each hotel’s market share (by segment), market mix and overall occupancy over a ten-year period.
The model can accommodate 5 Market Segments, 19 Primary Hotels, 20 Secondary Hotels and 10 Proposed Hotels (or hotels under construction). This is the only software that utilizes the competitive indexing algorithm which is significantly more accurate than the penetration procedure.
The average daily rate (ADR) forecast function of the model evaluates the ADR of the competitive hotels and produces a ten-year projection using both the Competitive Positioning and Segmentation methods.
The Hotel Market Analysis and ADR Forecasting Model is utilized by hotel consultants, appraisers, managers, operators, owners and lenders for many different types of analyses including:
- Market and feasibility studies for proposed hotels
- Impact studies to quantify the impact of new hotels
- Appraisals and valuations for both existing and proposed hotels
- Annual budgets to forecast future levels of occupancy and average rate
- Revenue management
- Marketing plans, staffing projections, property tax appeals, capital expenditure budgeting
This model is particularly helpful for hotel owners who need to assess the impact of changes in local hotel supply, the rebranding of nearby hotels, and any significant renovations made by competitive properties. With the massive consolidation of the major hotel brands, this type of analysis can be particularly helpful in charting future hotel ownership decisions.
The output from the Hotel Market Analysis and ADR Forecasting Model is extensive. Download a free copy of the Hotel Market Analysis & Valuation Software Operating and Use Guide for details on the software’s output.
The Hotel Market Analysis and ADR Forecasting Model is one of three models in Hotel Market Analysis & Valuation Software 6.0 which can be purchased separately or combined with the Hotel Revenue and Expense Forecasting Model and the Hotel Mortgage-Equity Valuation Model.
Hotel Revenue and Expense Forecasting Model
The key to any hotel market study and valuation is a supportable forecast of revenues and expenses. This model enables the analyst to input comparable financial operating data and using a proprietary algorithm, the program produces an 11-year forecast of revenue and expense which is set forth in accordance with the Uniform System of Accounts for Hotels. Hotel revenue and expenses are comprised of many different components that display certain fixed and variable relationships to each other. The software takes either actual financial operating data if the subject property is existing or comparable operating data if the subject is proposed and projects income and expense based on the projected occupancy and ADR from the Hotel Market Analysis and ADR Forecasting Model. The output reflects actual hotel operating performance where financial efficiency is created as occupancy and ADR increase.
The Hotel Revenue and Expense Forecasting Model is utilized by hotel consultants, appraisers, managers, operators, owners and lenders for many different types of analyses including:
- Market and feasibility studies for proposed hotels
- Appraisals and valuations for both existing and proposed hotels
- Annual budgets to forecast financial operating performance
- Revenue management to determine the financial impact of a wide range of
- revenue and distribution decisions
- Marketing plans, staffing projections, property tax appeals, capital expenditure budgeting
This model is particularly helpful in evaluating all types of capital expenditures. By projecting the financial performance after the proposed capital expenditure and comparing the results with the estimated cost, an IRR or net present value can be calculated which quantifies the economic benefit of the expenditure.
The output from the Hotel Revenue and Expense Forecasting Model is extensive. Download a free copy of the Hotel Market Analysis & Valuation Software Operating and Use Guide for details on the software’s output.
The Hotel Revenue and Expense Forecasting Model is one of three models in Hotel Market Analysis & Valuation Software 6.0 which can be purchased separately or combined with the Hotel Market Analysis and ADR Forecasting Model and the Hotel Mortgage-Equity Valuation Model.
Hotel Mortgage Equity Valuation Model
Most hotels are valued using a discounted cash flow procedure where the annual projected net incomes plus an assumed reversionary sale after the holding period is discounted to the present value at a defined discount rate. While this procedure is widely used throughout the world by appraisers, it does not reflect the actions of typical hotel buyers who usually finance hotel investments with debt capital. The Hotel Mortgage Equity Valuation Model created by HVS produces a significantly more accurate valuation which takes into account the actual cost of debt and equity capital.
The model works by entering the terms of typical hotel financing, along with a forecast of revenue and expense. The software then determines the value which provides the stated returns to the mortgage and equity components. The complex algebraic equations produce a highly accurate valuation which includes a detailed proof showing how the value is calculated.
The Hotel Mortgage Equity Valuation Model is extremely flexible offering a number of valuation approaches.
-The assumed holding period can be either 5 or 10 years
-The valuation can utilize a loan-to-value ratio, in which the size of the mortgage is based on property value.
-The valuation can utilize a debt coverage ratio (also known as a debt-service coverage ratio), in which the size of the mortgage is based on property level cash flow, mortgage interest rate, and mortgage amortization.
-The valuation can utilize a debt yield, in which the size of the mortgage is based on property level cash flow.
While this software model was originally designed for hotel valuations it works for all forms of commercial real estate and other types of investments where the property is financed with a combination of debt and equity capital.
The output from the Hotel Mortgage Equity Valuation Model is extensive. Download a free copy of the Hotel Market Analysis & Valuation Software Operating and Use Guide for details on the software’s output.
The Hotel Mortgage-Equity Valuation Model is one of three models in Hotel Market Analysis & Valuation Software 6.0 which can be purchased separately or combined with the Hotel Market Analysis and ADR Forecasting Model and the Hotel Mortgage-Equity Valuation Model.
