Hotel Investment Glossary: ADR, RevPAR, Cap Rate, PIP and More

Plain-English definitions of the terms owners, brokers, and lenders use every day, from ADR to yield. Bookmark it, and link your team to any term.

54 terms · Updated September 2026

A

ADR (Average Daily Rate): Rooms revenue divided by the number of rooms sold. It measures price, not how full the hotel is.
Area of protection: A zone around a franchised hotel where the brand agrees not to license another hotel of the same brand. Also called a radius restriction or impact protection.
Asset-light: A strategy in which a hotel company earns fees from franchising and management rather than owning the buildings. Most major brands now operate this way.
Average length of stay (ALOS): Total room nights divided by the number of guest stays. Longer stays lower turnover and housekeeping costs per night.

B

Booking window: How far in advance guests reserve. A shrinking window makes demand harder to forecast and price.
Brand standards: The design, service, and operating requirements a franchisor imposes on every hotel carrying its name. Changes to them often trigger capital spending.

C

Cap rate (capitalization rate): Net operating income divided by purchase price. A 6% cap rate means the hotel’s annual NOI equals 6% of what was paid for it. Try it with our cap rate calculator.
CapEx (capital expenditure): Money spent on long-lived improvements such as roofs, HVAC, or room renovations, as opposed to routine repairs.
Cash-on-cash return: Annual pre-tax cash flow after debt service divided by the equity the owner invested.
Chain scale: The industry classification of brands by average rate: luxury, upper upscale, upscale, upper midscale, midscale, and economy.
CMBS (commercial mortgage-backed securities): Loans pooled and sold to bond investors. Many large hotel loans, including single-asset deals, are financed this way.
Comp set (competitive set): The group of nearby hotels an owner benchmarks against for occupancy, ADR, and RevPAR.
Conversion: Rebranding an existing hotel to a new flag, or turning another building type (such as an office) into a hotel. Usually cheaper and faster than new construction.

D

Direct booking: A reservation made through the hotel’s own website, phone, or front desk rather than a third party, usually at lower acquisition cost than an OTA.
DSCR (debt service coverage ratio): Net operating income divided by annual debt payments. Lenders use it to judge whether a hotel can carry its loan; 1.25x or higher is common.
Dual-brand: Two hotel brands sharing one building and often one staff, such as an AC Hotel and an Element in a single tower.

E

EBITDA: Earnings before interest, taxes, depreciation, and amortization. A common measure of a hotel’s operating profit for valuation.
Extended stay: Hotels built for guests staying a week or longer, typically with kitchens and lighter daily service.

F

FDD (Franchise Disclosure Document): The document U.S. franchisors must give prospective franchisees, listing every fee, obligation, and financial disclosure. See our franchise fee comparison.
FF&E (furniture, fixtures, and equipment): Movable items such as beds, desks, TVs, and lobby furniture, as distinct from the building itself.
FF&E reserve: A set-aside, commonly 4% of total revenue, to replace furniture and equipment as it wears out. Lenders and management agreements usually require it.
Flag: Industry shorthand for a hotel’s brand. A “flagged” hotel carries a brand; an unflagged hotel is independent.
Franchise agreement: The long-term contract (often 15 to 20 years) licensing a brand name, reservation system, and loyalty program to an owner in exchange for fees.
Full-service hotel: A hotel with a full restaurant, meeting space, and room service, as opposed to a limited- or select-service property.

G

GOP (gross operating profit): Total revenue minus departmental and undistributed operating expenses, before management fees, fixed charges, and reserves.
GOPPAR: Gross operating profit per available room. A profitability measure that captures cost control, not just revenue.
Ground lease: An arrangement where the hotel owner leases the land rather than owning it. Remaining lease term strongly affects value and financing.
Group business: Blocks of rooms sold to conventions, weddings, sports teams, or corporate meetings, usually negotiated in advance.

H

HMA (hotel management agreement): The contract under which an operator runs a hotel for its owner in exchange for base and incentive fees.

K

Key: One rentable room or suite. “A 200-key hotel” has 200 rooms.
Key money: Cash a brand or operator pays an owner to win a franchise or management contract, often repayable if the deal ends early.

L

Limited-service hotel: A hotel with rooms and little else: no full restaurant and minimal meeting space. Lower staffing keeps margins high.
Loyalty program: A brand’s rewards program (such as Marriott Bonvoy or Hilton Honors). Owners fund it through fees and point reimbursements.
LTV (loan-to-value): The loan amount divided by the property’s value or purchase price.

M

Mezzanine debt: A loan that sits behind the senior mortgage and ahead of equity. It costs more because it carries more risk.

N

NOI (net operating income): Revenue minus operating expenses, management fees, and reserves, before debt service and income taxes. The basis for cap rates.

O

Occupancy: Rooms sold divided by rooms available. A 70% occupancy hotel sells 70 of every 100 rooms on an average night.
OTA (online travel agency): Third-party booking sites such as Booking.com and Expedia. They bring demand in exchange for commission. Compare the math with our OTA vs. direct calculator.

P

PIP (property improvement plan): The list of renovations a brand requires when a hotel is sold, converted, or renewed. PIP cost is a major factor in any purchase price.
Price per key: Sale price divided by number of rooms. The standard way to compare hotel deals of different sizes. Try the price per key calculator.
Pro forma: A projection of future revenue, expenses, and NOI, used to underwrite a purchase or development.

R

Replacement cost: What it would cost to build the same hotel new today. Deals priced well below replacement cost are often seen as protected from new competition.
Revenue management: Setting prices and inventory controls day by day to maximize revenue based on forecast demand.
RevPAR (revenue per available room): Rooms revenue divided by rooms available, or occupancy times ADR. The single most-quoted hotel performance metric.
RevPAR index (RGI): A hotel’s RevPAR divided by its comp set’s RevPAR, times 100. Above 100 means it is taking more than its fair share.
Royalty fee: The franchise fee paid for use of the brand name, typically a percentage of gross rooms revenue.

S

Select-service hotel: A step above limited service: a small bar or grab-and-go market and some meeting space, without full restaurants or room service.
Soft brand: A collection (such as Curio or Autograph Collection) that gives independent hotels a big brand’s distribution while letting them keep their own names and character.
Stabilized: A hotel whose occupancy and rate have settled into a normal run rate after opening, renovation, or repositioning.

T

Transient business: Individual travelers booking for themselves, as opposed to group business.
TRevPAR: Total revenue per available room, including food and beverage, parking, spa, and other departments, not just rooms.

U

USALI: The Uniform System of Accounts for the Lodging Industry, the standard chart of accounts that lets hotel financials be compared line by line.

V

Value-add: An investment strategy of buying an underperforming hotel and improving it through renovation, rebranding, or better management.

Y

Yield (debt yield): Net operating income divided by the loan amount. Lenders use it alongside DSCR and LTV to size hotel loans.