AHLEI -Education Institute May 28 ...video.ahlei.org/webinars/USALI_Fin/USALI_Presentation.pdfPresentation Outline • The Process for Updating the USALI • Summary Operating Statement

USALI 11th Edition 1

www.ahlei.org/usaliAHLEI - Education Institute Webinar May 28, 2014

http://www.ahlei.org/usali


Today’s Presenters

• Ralph Miller – Inntegrated Hospitality Management, Ltd.• [email protected]

• Cindy Braak – Marriott International Inc.• [email protected]

• Christopher Garland – Four Seasons Hotels Limited• [email protected]

• W. Peter Temling – The Temling Group, LLC• [email protected]


mailto:[email protected]





Presentation Outline

• The Process for Updating the USALI• Summary Operating Statement

– Multi-Department Changes– Operating Department– Undistributed Departments– Non-Operating Income and Expenses

• Financial Statements• Financial Ratios and Operating Metrics• Revenue and Expense Guide• Implementation for January 1, 2015• Questions and Answers


Who is Responsible For Changes

• Hotel Association of New York CityOwns Copyright

• American Hotel & Lodging AssociationFinancial Management Committee – AuthorEducation Institute – Publisher

• Hospitality Financial Technology ProfessionalsSponsor


Committee Membership

• Hotel Industry ConstituentsIndividual Hotel OwnersHotel ChainsEducators Public AccountingSmith Travel Research / PKF ConsultingOwner Representatives / Asset ManagersManagement CompaniesConsultants


The Process

• Financial Management Committee of the AH&LA• First Meeting - November 2011

– Process started with a review of 2011 survey of HFTP members.

– Each committee member added their own issues.• Sub-Committees Tasked With Different Sections of the Book• Quarterly meetings

– Discussions– Research– Votes (simple majority)

• Forwarded to Publisher for Editing– February 2014


Reasons for Changes

• Keep up with changes in industry practice– Technology– Cluster Services– Sustainability– Distribution Channels– Globalization– Ratio Analysis– New Terminology

• Keep up with changes in accounting practice– IFRS– GAAP


Summary Operating Statement


Summary Operating StatementRevenue

• Rooms• Food and Beverage• Other Operated Departments• Miscellaneous Income

• Total Operating RevenueDepartmental Expenses

• Rooms• Food and Beverage• Other Operated Departments

• Total Departmental ExpensesTotal Departmental Income


Summary Operating Statement (continued)

Undistributed Operating Expenses• Administrative and General• Information and Telecommunications Systems• Sales and Marketing• Property Operations and Maintenance• Utilities

• Total Undistributed ExpensesGross Operating ProfitManagement FeesIncome Before Non-Operating Income and Expenses


Summary Operating Statement (continued)

Non-Operating Income and Expenses• Income• Rent• Property and Other Taxes• Insurance• Other

• Total Non-Operating Income and ExpensesEBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization)


Summary Operating Statement (For Operator)

EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization)

Less: Replacement Reserve

EBITDA Less Replacement Reserve


EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization)Interest, Depreciation, and Amortization

• Interest• Depreciation• Amortization

• Total Interest, Depreciation, and AmortizationIncome Before Income Taxes

• Income TaxesNet Income

Summary Operating Statement(For Owner)


Multiple Departments


Multiple Departments - Labor Reporting

Migration from Payroll Costs to Labor Costs• Considers the growing impact of ‘Outsourced

Labor’ in hotel operations• Includes payroll costs plus outsourced labor in

metric analysis and benchmarking


Multiple Departments – Labor Reporting

• The aggregated Salaries and Wages of Management and Non-Management personnel are presented on the department schedule.

• Service Charge Distribution is presented as a distinct cost category within Salaries, Wages, Contracted Labor and Bonuses.


Multiple Departments – Labor Reporting

• Modified Labor language and descriptions for relevancy

• All bonuses now go into the Bonus & Incentive line

• Goal to broaden categories for payroll taxes and benefits to reflect global needs

• Added category to consolidate benefits for ex-pats


Multiple Departments – Labor ReportingLabor Costs and Related Expenses

Salaries, Wages, Contracted Labor and BonusesSalaries and Wages

ManagementNon-Management

Sub-Categories as neededSub-Total: Salaries and Wages

Service Charge DistributionContracted, Leased or Outsourced LaborBonuses and Incentives

Total Salaries, Wages, Service Charges, Contracted Labor and BonusesPayroll-Related Expenses

Payroll TaxesSupplemental PayEmployee Benefits

Total Payroll Related ExpensesTotal Labor Costs and Related Expenses


• Enhanced accounting guidance is provided for the reporting of revenues and expenses on a Gross vs Net basis. A separate section was created for this topic.

• Guidance on Gross vs Net reporting is applicable to all departments. Readers are advised to refer to the Gross vs Net section.

Multiple Departments – Gross vs Net


TreatmentService charges must be treated as revenue and any corresponding payment of service charge to employees is treated as a wage expense.

Service Charges

DefinitionA service charge is a mandatory amount billed to the customer’s account for which the customer has no discretion as to payment, the amount of the charge, or it’s distribution to employees.


Multiple Departments – New Expenses

• A new expense category has been added to account for Cluster Services.

• Department specific Reservation Expenses are charged to the appropriate operating department.

• Each department will have an In-house Entertainment account.


Multiple Departments – Admin. Telecom.

• All administrative telecommunicationsexpenses are recorded in the Information and Telecommunications Systems department.


Operating Departments


Summary of Rooms Department Changes

1. Rooms Revenue segments revised and listed on the face of Rooms department operating statement, and definitions added for each segment

2. Package Revenue language “tightened up” and package breakage treatment addressed

3. Resort Fees moved to Miscellaneous Income (Schedule 4)4. Rooms Service Charges added as this is common in certain

geographic areas.5. Rebates or subsidies granted directly to a group moved to Contra

Revenue vs. being treated as part of Commissions and Rebates – Group expense

6. Expanded Complimentary Services and Gifts expense item to three separate expense categories, to include Complimentary Food & Beverage and Complimentary In-Room/Media Entertainment

7. Enhanced guidance is provided regarding the handling of Revenues & Expenses associated with mixed ownership lodging facilities.


Rooms Revenue Segments

More detailed room revenue reporting, with segmentation more aligned with revenue management definitions

10th Edition 11th Edition

Transient- Commercial/ Corporate- Leisure- Government/ Military- Frequent Guest/ Preferred- Travel Packages, FIT- Hotel Packages- Internet

Transient- Retail- Discount- Negotiated- Qualified- Wholesale

Group- Corporate- Association/ Convention- Government- Tour group- SMERF- Wholesale

Group- Corporate- Association/ Convention- Government- Tour group / Wholesale- SMERF

Contract Contract

Material Change in Transient

Segments; Added Definitions

Minor Change in Group

Segments; Added

Definitions


Package Revenues

• Established minimum frequency of once a year for setting ratios by which Package Revenues are allocated

• Encouraged more frequent ratios adjustment where needed (e.g., highly seasonal hotels like resorts)

• Changed allocation treatment for revenue components provided by third-party vendors to conform with GAAP, that is, to be part of the revenue allocation

• Added language to define “package breakage” and provided guidance to record this in Miscellaneous Income (Schedule 4), as a means of simplifying the process and causing less distortion in the other non-Rooms departments


Resort Fees and SurchargesIn the 10th Edition, under Other Rooms Revenue, there was a caption entitled, “Resort Fees and Surcharges”, which has been changed to “Surcharges and Service Charges”

Two other changes were made:

1. Service Charges in Rooms is specifically called out, as this is common in certain geographic areas

2. Resort fees are specifically called out as NOT being part of Other Rooms Revenue and should now recorded in Miscellaneous Income (Schedule 4)

NOTE: The key determining factors for the recording of Surcharges and Service Charges are set out in the Appendix 1: Gross vs Net Reporting. The property must assess whether it is acting as an Agent or as Principal in the transaction in order to makea determination on reporting the revenue from that transaction on a gross or a net basis.


Rebates or Subsidies Granted Directly to a Group

The Tenth Revised Edition had an expense category entitled, “Commissions and Rebates – Group”, which has been changed to “Commissions and Fees – Group” • The expense category caption was changed to remove “rebates” and add “fees”

• Removed a portion of the last sentence stating, “This line item also includes rebates or subsidies granted directly to the group” to conform with GAAP, since these should be a reduction of revenue

• Added a sentence to reinforce the proper GAAP treatment of rebates or subsidies, “Rebates or subsidies granted directly to a group should be recorded as contra revenue.”


Complimentary Services and Gifts

Expanded “Complimentary Services and Gifts” into 3 expense categories:1. Complimentary Food and Beverage

2. Complimentary In-Room/Media Entertainment (previously Cable/Satellite TV)

3. Complimentary Services and Gifts


Mixed Ownership Lodging FacilitiesMixed Ownership is reported in one of three ways depending upon the agreement between the property and the unit owner. Identifying the treatment includes a review of the Gross versus Net reporting.Property assumes the predominant economic risk – long term. The units must be in the hotel inventory for sale throughout the entire year and the hotel has contractually assumed the predominant economic risk. The revenues, expenses and statistics are all included in the Rooms Department Operating statement.

Property assumes the predominant economic risk – short term. The units are only in the hotel inventory for sale for part of the year and the hotel has contractually assumed the predominant economic risk. The revenues and expenses are included in the Other Operated Departments section. The units are not included in room inventory or reported as rooms statistics.

Third Party Unit Owner assumes the predominant economic risk – The owner has assumed the economic risk and the commission paid to the hotel as Agent is recorded net in Miscellaneous Income. Any recovery of costs is also recorded as revenue in the same department. The units are not included in room inventory or reported as rooms statistics.


Summary of Food and Beverage Department Changes

1. Focus on combined Food and Beverage Operations. 2. COVER terminology dropped in favor of CUSTOMER. 3. Public room set-up charges added.4. Expanded discussion regarding AUDIO VISUAL revenue recognition.5. Gift certificate revenue recognition expanded..


Food and Beverage Format

Separate food and beverage summary statements are not an alternative in the 11th

edition; rather, all properties must report a summary schedule that includes both foodand beverage revenues. Line items for total food and total beverage revenues arepresented in the new summary statement.

All food (beverage)

revenue presented together

Food and beverage sub

schedules optional

10th Edition 11th Edition

REVENUE Outlet Food Revenue Outlet Beverage Revenue In–Room Dining Food Revenue In–Room Dining Beverage Revenue Banquet/Catering Food Revenue Banquet/Catering Beverage Revenue Mini Bar Food Revenue Mini Bar Beverage Revenue Other Food Revenue Other Beverage Revenue Less: Allowances Total Food and Beverage Revenue

REVENUE Outlet Food Revenue In–Room Dining Food Revenue Banquet/Conference/Catering Food Revenue Mini Bar Food Revenue Other Food Revenue Total Food Revenue Outlet Beverage Revenue In–Room Dining Beverage Revenue Banquet/Conference/Catering Beverage Revenue Mini Bar Beverage Revenue Other Beverage Revenue Total Beverage Revenue Less: Allowances Total Food and Beverage Revenue


Surcharges and Service Charges

Food and Beverage surcharges and service charges are consolidated in Other Revenue.

Surcharges and Service Charges generally include any mandatory, non-discretionary, orother charge automatically added to a customer account in respect of the use of a service oramenity, and may include, but are not restricted to, such items as:

The key determining factors for the recording of Surcharges and Service Charges are set outin the Gross vs Net reporting section. The property must assess whether it is acting as anAgent or as Principal in the transaction in order to make a determination on reporting therevenue from that transaction on a gross or a net basis.

Item Revenue Recorded asBanquet service chargeRestaurant service chargeRooms service delivery chargeCorkage charge

F&B Other RevenueF&B Other RevenueF&B Other RevenueF&B Other Revenue


Gift Certificate Revenue

Included in Miscellaneous Other Revenue are unused orforfeited deposits related to gift certificates that are nototherwise required to be escheated to the state or localjurisdiction, or un-presented and expired prepaid food andbeverage coupons.

• Only the discounted value of the prepaid food andbeverage coupons not redeemed, or the amount notrequired to be escheated to the state or local jurisdictionshould be recorded as revenue.


Summary of Other OperatedDepartments Changes

1. Telecommunications• No longer an Other Operated Department.• Revenues and cost of sales moved to “Guest Communication” in

Minor Operated Departments.• Cost of administrative phone calls and internet connectivity

moved to new “Information and Telecommunications Systems” department.

• Cost of complimentary phone calls and internet connectivity moved to new “Information and Telecommunications Systems” department.

• All other telecommunications related expenses (labor, maintenance, operating supplies) moved to new “Information and Telecommunications Systems” department.


Summary of Miscellaneous Income Changes

1. Name Change• Department name changed from Rentals and Other Income to Miscellaneous

Income.

2. Other Breakage• Unused or forfeited Gift Cards or Gift Certificates, and un-presented or expired

Prepaid Coupons are recorded in Miscellaneous Income.

3. Package Breakage• Unused revenue from a package recorded in Miscellaneous Income.

4. Resort Fees• The entire amount of a mandatory resort fee is recorded in miscellaneous income,

even if the fee is described as covering services provided by multipledepartments.

5. Additional Guidance• Additional guidance provided regarding the definitions for Commissions, Business

Interruption Insurance, Foreign Currency Exchange and Interest Income.


Undistributed Departments


Information & Telecommunication Systems

• Consolidate all hotel expenses associated for information and telecommunication systems to provide better line of sight cost management

• Includes cost of cell phones, administrative call and internet services, and complimentary call and internet services.

• System expenses categorized by type of technology or by area benefiting from technology solution


Information & Telecommunication Systems Expenses

Labor Costs and Related ExpensesSalaries, Wages, Contracted Labor and Bonuses

Salaries and WagesManagementNon-Management

Information TechnologyTelecommunications

Sub-Total: Salaries and Wages

Service Charge DistributionContracted, Leased or Outsourced LaborBonuses and Incentives

Total Salaries, Wages, Service Charges, Contracted Labor and BonusesPayroll-Related Expenses

Payroll TaxesSupplemental PayEmployee Benefits

Total Payroll Related Expenses

Total Labor Costs and Related Expenses

Cost of ServicesCost of Cell PhonesCost of Internet ServicesCost of Local CallsCost of Long Distance CallsOther Cost of Services

Total Cost of Services


Information & Telecommunication Systems System Expenses

Administrative and GeneralCentralized Information System ChargesEnergy ManagementFood and BeverageGolfHardwareHealth Club/SpaHuman ResourcesInformation SecurityInformation SystemsOtherProperty Operations and MaintenanceRoomsSales and MarketingTelecommunications

Total System Expenses

Other ExpensesCluster ServicesContract ServicesCorporate Office ReimbursablesDues and SubscriptionsEntertainment - In HouseEquipment RentalMiscellaneousOperating SuppliesOther EquipmentSystem Storage and OptimizationTrainingTravel - Meals and EntertainmentTravel - OtherUniform CostsUniform Laundry

Total Other Expenses

Total Expenses


Summary of Additional UndistributedDepartments Changes

1. Additional guidance regarding the handling of Foreign Currency Exchange income and expenses.

2. Eliminated segregation of Sales and Marketing expenses.3. Clarified Revenue Management and Catering Sales

Functions as Sales and Marketing expenses.4. Utility Taxes was eliminated as a separate expense

category in the Utilities Department.5. Contract Services was added as an expense category in

the Utilities Department.


Non-Operating Income and Expenses

• Previously known as the “Fixed Charges Section”.• Changed title from “Rent, Property & Other Taxes

and Insurance” to reflect that there are other items affecting the property income statement that are not from hotel operations.

• Added Income line items to Schedule 10:– Interest Income from Replacement Reserve or other restricted

accounts– Other Income such as income from parts of the facility not controlled

or directed by hotel operations (e.g., antenna or billboard lease)– Cost recovery (should net to zero against cost recovery expense)



Rent• Eliminated 2 discrete line items on Schedule 10

– Information Systems & Telecommunications Equipment rent, now both captured under Other Property and equipment rent

• Added guidance under Land & Buildings rent to include a facility/complex to provide housing for employees, which is common in certain geographic areas

Property and Other Taxes• Provided additional guidance on Other Taxes and

Assessments (e.g., Building Improvement District or assessments for public improvements)



• Added a line item for Deductible under Insurance• Added additional expense categories:

– Cost Recovery Expense– Gain/Loss on Fixed Assets– Owner Expenses (e.g., asset management fees, owner

directed audits)– Unrealized Foreign Exchange Gains/Losses (e.g., revaluation

of foreign currency bank accounts and Replacement Reserve)


Non-Operating Income and ExpensesIncome

Cost Recovery IncomeInterest IncomeOther Income

Total IncomeRent

Land and BuildingsOther Property and Equipment

Total RentProperty and Other Taxes

Business and Occupation TaxesOther Taxes and AssessmentsPersonal Property TaxesReal Estate Taxes

Total Property and Other TaxesInsurance

Building and ContentsLiabilityDeductble

Total InsuranceOther

Cost Recovery ExpenseGain/Loss on Fixed AssetsOwner ExpensesUnrealized Foreign Exchange Gains or Losses

Total OtherTotal Non-Operating Income and Expenses


Financial Statements


Summary Financial Statements

• Included statement of comprehensive income which replaces income statement

• Included reference to International Financial Reporting Standards (IFRS)

• Included gift certificates and cards in current liability section• Expanded explanation of inventories• Expanded explanation of operating equipment• Included explanation of pre-opening expenses


Financial Ratios andOperating Metrics


Summary of ChangesFinancial Ratios and Operating Metrics

• Name changes to Financial Ratios and Operating Metrics• The section is divided into two major categories: Financial Ratios and

Operating Metrics• In the Operating Metrics section, enhanced statistics are provided for

operated and undistributed departments, as well as labor.• A recommended schedule for the presentation of important statistics

will be provided for operated and undistributed departments.• A recommended schedule will be provided to present labor statistics

for all departments.


Summary of ChangesFinancial Ratios and Operating Metrics

• Average Room Rate calculation is based on “rooms sold” instead of “rooms occupied”.

• “Cover” changed to “Customer” for F&B metrics.• Utilities Ratios have been expanded to include: Electric cost ratios,

Gas cost ratios, Steam cost ratios, Chilled Water cost ratios, Total Energy cost, Total Utilities cost ratios. In addition, energy usage ratios have been added.

• While detailed calculations about a hotel’s carbon footprints have not been approved, this edition has laid a foundation for tracking and monitoring a hotel’s environmental impact.


Revenue and Expense Guide


Revenue and Expense Guide

• Guide for reporting revenues added.• User-friendly format – sortable and searchable


What’s Next?


Implementation

• eText publication available for the 1st time

• Hard CoverBook is published and is available NOW

• Implementation for fiscal years beginning January 1, 2015

• www.ahlei.org/USALI


Implementation

• Deliverables– Hard Cover Book– eText version with search capabilities and “interactive” schedules– Resource Portal to accommodate FAQ, queries to the FMC,

webinar archive, clarifications, and potential updates– Downloadable Excel files providing formats for all schedules and

statements


Questions and Answers

• Ralph Miller – Inntegrated Hospitality Management, Ltd.• [email protected]

• Cindy Braak – Marriott International Inc.• [email protected]

• Christopher Garland – Four Seasons Hotels Limited• [email protected]

• W. Peter Temling – The Temling Group, LLC• [email protected]






THANK YOU

www.ahlei.org/usali

Documents

AHLEI -Education Institute May 28 ...video.ahlei.org/webinars/USALI_Fin/USALI_Presentation.pdfPresentation Outline • The Process for Updating the USALI • Summary Operating Statement