1. What is a REIT?
2. What makes a REIT attractive to investors?
3. What is meant by RevPAR?
4. What is meant by Occupancy Rate?
5. What is meant by ADR?
6. What is the difference between a full-service hotel and a limited-service hotel?
7. How do I invest in Holloway Lodging REIT?
1. What is a REIT?
In 1960, United States Congress introduced the Real Estate Investment Trust, or "REIT" (pronounced "reet") in order to provide the public with a vehicle to participate in the equity ownership of commercial real estate. A similar REIT vehicle developed in Canada in the 1990's. REITs have evolved into an attractive investment category offering investors liquid exposure to targeted real estate categories (such as hotels) and providing steady income and significant growth potential. Most North American REITs are publicly traded on major stock exchanges. These public entities have their own ticker symbols and trade the same way as common stocks. However, a corporation or trust which qualifies as a REIT does not pay income tax, a unique feature shared only with mutual funds. This means that most of a REIT's cash flow can be distributed to unitholders, and there is no double taxation of the income to the investor. In exchange, a REIT must distribute all of its taxable income to its unitholders. Much of this distribution is treated as a return of capital to the unitholder and so is not immediately taxable.
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2. What makes a REIT attractive to investors? In addition to the tax benefits, REITs also offer investors:
- Current income: usually stable and often providing an attractive return.
- Liquidity: units of publicly traded REITs are readily converted into cash because they are traded on the major stock exchanges.
- Professional management: REIT managers are skilled, experienced real estate professionals.
- Active management, who seek to grow the business through economies of scale, synergies and operational expertise. This means that wealth creation is not solely dependent on real estate appreciation.
- Portfolio diversification, which minimizes risk RRSP-eligibility (RRIFs and RESPs too).
- Performance Monitoring: a REIT's performance is monitored on a regular basis by independent directors of the REIT, independent analysts, independent auditors, and the business and financial media. This scrutiny provides the investor a measure of protection and more than one barometer of the REIT's financial condition.
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3. What is meant by RevPAR?
RevPAR stands for Revenue Per Available Room. RevPAR is the industry standard for measuring the revenue-generating effectiveness of a hotel property. It is calculated by multiplying the average daily room rate (ADR) by the occupancy rate and so reflects a combination of price and volume.
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4. What is meant by Occupancy Rate?
The occupancy rate of a hotel measures the number of hotel nights sold by the total number of rooms. It is calculated by dividing the total number of rooms sold by the number of rooms available.
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5. What is meant by ADR?
ADR or "average daily room rate" is a hotel revenue measurement calculated by dividing the gross room revenue by the number of occupied room nights sold during a specified period. It is the average price the hotel rooms are sold for.
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6. What is the difference between a full-service hotel and a limited service hotel?
A full service hotel has additional revenue-generating services and amenities such as restaurants, banquet facilities, business centres and swimming pools. These facilities enable the hotel to attract more market segments. Banquet facilities, for example, are required in order to attract convention business. Because of the higher replacement cost for this type of hotel resulting from its more extensive infrastructure, the barriers to entry in this segment of the market are much higher than with limited service hotels.
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7. How do I invest in Holloway Lodging REIT?
Holloway Lodging REIT units can be purchased through any brokerage or trading institution and trade on the Toronto Stock Exchange (TSX) under the symbol HLR.UN.
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