Hotel finance glossary

How the terms fit together

Hotel finance terms fall into two families that meet in the middle. The performance family describes how a hotel trades: occupancy and ADR combine into RevPAR, revenue flows down through gross operating profit, GOPPAR, to EBITDARM. The finance family describes how a hotel is funded: a lender applies a loan to value against a going-concern valuation, tests affordability against EBITDARM, and prices the loan as a rate or a margin. EBITDARM is the hinge between the two, because it is both the bottom of the trading numbers and the top of the lending sums.

Use this glossary as a reference while reading the other guides. The terms recur across buying, valuation, borrowing and development.

The performance metrics in one place

As a UK reference, Knight Frank and HotStats put London RevPAR around 233 pounds and regional UK around 98 pounds in Q3 2025, on occupancy of 87.5% and 82.8% and ADR of around 266 pounds and 118 pounds respectively.

The finance terms in one place

On the funding side, the vocabulary describes how a lender sizes, prices and secures a loan against the hotel. Loan to value sets how much is advanced against the going-concern value; the deposit is the inverse. Affordability is tested through the debt service cover ratio against EBITDARM. The product, term mortgage, bridging, development or mezzanine, sets the structure, term and rate. These terms recur across every hotel finance conversation, and understanding them lets you compare offers on a true basis rather than on the headline rate alone.

How to use this glossary

Keep this page open as you read the other guides and as you work through a deal. When a lender, valuer or agent uses a term you are unsure of, look it up here first so the conversation stays clear. The terms are not jargon for its own sake: each one describes a real lever in how a hotel is valued and funded, and knowing them puts you on a more even footing with the professionals around the table. Where a term touches on a regulated matter, remember that lending to a hotel as a trading business is unregulated commercial lending outside the FCA mortgage perimeter, and a regulated owner-occupier case is referred to an authorised firm.

ADR (average daily rate)

The average revenue earned per occupied room over a period, total rooms revenue divided by rooms sold. It measures pricing but ignores empty rooms.

Arrangement fee

A fee charged by the lender for setting up a facility, commonly around 1 to 2% of the loan, often added to the facility rather than paid up front.

Bridging loan

Short-term finance, typically up to 12 to 18 months at around 0.75 to 1.30% per month, used for fast purchases, auctions, light works or gap funding before a term mortgage.

Brand affiliation

Trading a hotel under a recognised brand, through a franchise or a management agreement, to access its distribution, loyalty and operating standards.

Debt service cover ratio

The amount by which trading profit exceeds the loan repayments, expressed as a ratio. Lenders require headroom so the loan stays serviceable if trade dips.

Development finance

Staged funding to build or convert a hotel, advanced at up to around 60 to 65% of cost or around 60% of GDV, at around 9 to 12% per annum over 18 to 36 months.

EBITDARM

Earnings before interest, tax, depreciation, amortisation, rent and management fees. The standard hotel profit measure that lenders size debt against and valuers capitalise into value.

FF&E

Furniture, fixtures and equipment, the fit-out of rooms and public areas. A significant project and replacement cost, separate from the building itself.

Franchise

An arrangement where an owner licenses a brand and runs the hotel themselves, paying royalties and marketing fees and meeting brand standards.

Freehold

Outright ownership of the property and land, generally preferred by lenders because it gives stronger, lasting security.

GDV (gross development value)

The expected market value of a finished, trading hotel. Development finance is sized partly as a percentage of GDV, commonly around 60%.

Going concern

Valuing or trading a hotel as an operating business, reflecting its income and goodwill, rather than as a bare building. The primary basis for hotel valuation and lending.

GOPPAR

Gross operating profit per available room. A profit measure, unlike RevPAR which is a revenue measure, showing how efficiently a hotel converts sales into operating profit.

Leasehold

Holding the right to occupy and trade a property under a lease for a term. Lenders assess the lease length and strength, and lend more cautiously than on freehold.

Loan to value (LTV)

The loan as a percentage of the hotel's value. On a stabilised hotel a lender typically advances up to around 65 to 70% LTV, setting the deposit at roughly 30 to 35%.

Management agreement

An arrangement where a brand operator runs a hotel on behalf of the owner for a fee, so the operator's covenant and the fee both matter to a lender.

Mezzanine finance

A top-up layer of debt that ranks behind the senior loan, used to reduce the deposit. It is dearer than senior debt because it carries more risk.

Monitoring surveyor

An independent surveyor who certifies progress on a development or conversion so the lender can release each staged drawdown.

Occupancy

The proportion of available rooms sold over a period. One of the two inputs to RevPAR, alongside ADR.

Operator

The business or person that runs the hotel day to day. The operator's experience and track record materially affect the finance a lender will offer.

Refinance

Replacing existing debt with a new facility, to secure better terms, release equity, or move a development or bridging loan onto a long-term mortgage.

RevPAR

Revenue per available room, occupancy times ADR, or rooms revenue divided by available rooms. The headline hotel performance metric, watched by operators, investors and lenders.

Sale and leaseback

Selling the freehold of a hotel to an investor and leasing it back, releasing capital while continuing to operate the hotel as a tenant under a lease.

SONIA

The Sterling Overnight Index Average, a benchmark reference rate over which variable-rate commercial loan margins are often quoted.

Stabilisation

The period after opening or repositioning during which a hotel builds towards a stable, mature level of occupancy and RevPAR.

Term commercial mortgage

Long-term debt to buy or refinance a trading hotel, typically up to around 65 to 70% LTV over 15 to 25 years at around 7 to 10% per annum.

TRevPAR

Total revenue per available room, including food, drink, events and other income, not just rooms. More relevant for full-service hotels.

Use class C1

The planning use class for hotels in England. Converting a building to hotel use is normally a material change of use requiring planning permission.

Yield (capitalisation rate)

The rate at which a hotel's maintainable profit is capitalised into value. A lower yield means a higher value; London prime hotel yields were around 5 to 6% in H1 2025 per Cushman and Wakefield.

Bridging-to-term

A funding path where a short-term bridging or development facility funds a purchase or project, then is refinanced onto a long-term term mortgage once the hotel is trading.

Covenant

The financial strength and reliability of the borrower or tenant standing behind the income. A strong covenant supports higher leverage and a keener rate.

Drawdown

A staged release of development or conversion finance, paid against a monitoring surveyor's certificate confirming the work completed, so interest accrues only on funds drawn.

Due diligence

The investigation a buyer and lender carry out before committing, covering the accounts, trading, building, bookings, staff, licences and leases.

Fair maintainable trade

The level of revenue and profit a reasonably efficient operator could sustainably achieve in the hotel, the basis a valuer uses rather than one owner's actual results.

Gross operating profit (GOP)

Profit after the hotel's direct operating costs but before fixed charges such as rent, finance, depreciation and management. The step above EBITDARM in the accounts.

Interest-only

A loan where you pay only the interest during the term and repay the capital at the end, lowering the monthly cost but leaving a larger sum to refinance or repay later.

Loan to cost (LTC)

The loan as a percentage of total project cost on a development or conversion, typically up to around 60 to 65%, with the borrower funding the balance as equity.

Monitoring surveyor

An independent surveyor who reports on progress and cost on a development so the lender can release each drawdown with confidence.

Normalisation

Adjusting a hotel's accounts for one-off items, owner's drawings and non-market costs to arrive at a maintainable, comparable level of profit.

OpCo PropCo

A structure that separates the operating company running the hotel from the property company owning the building, usually with a lease between them, so trade and property can be financed or sold separately.

RevPAR index

A hotel's RevPAR compared with its competitive set, where 100 is a fair market share. Above 100 the hotel outperforms its rivals; below 100 it lags.

Stamp duty land tax

A tax on the property element of a purchase in England and Northern Ireland, charged at HMRC's commercial rates, payable on completion.

TUPE

The Transfer of Undertakings (Protection of Employment) rules, under which hotel staff transfer to the new owner on their existing terms when a hotel business changes hands.