Industry Terms – The Letter D

TrevPAR World - Industry Terms

Debt – money owed by a property to entities other than the owner; typically, this is the mortgage, but may include other obligations (mezzanine loan, taxes, etc.)

DCR – debt coverage ratio – debt service coverage ratio – the ratio of net operating income to annual debt payments; obviously, lenders want the property cash flow to be higher than the debt payments; generally lenders require DCR/DSCR to be 1.2 or higher; = NOI ÷ debt payment

Debt Service – Cash required during a given period for the repayment of interest and principal on a debt. Monthly mortgage payments are a good example of debt service.

Debt Yield – The return a lender gets on its loan to a borrower.

Default – 1. The failure to pay interest or principal promptly when due. Default occurs when a debtor is unable to meet the legal obligation of debt repayment. Borrowers may default when they’re unable to make the required payment or are unwilling to honor the debt. Defaulting on a debt obligation can place a company or individual in financial trouble. The lender will see a default as a sign the borrower isn’t likely to make future payments.

2. The failure to perform on a futures contract as required by an exchange. Defaulting on a futures contract occurs when one party doesn’t fulfill the obligations set forth by the agreement. The default usually involves not settling the contract by the required date. A person in the short position will default if he fails to deliver the goods at the end of the contract. The long position defaults when payment isn’t provided by the settlement date.

Deferred Maintenance – Refers to the practice of delaying maintenance on a property.

Delinquent Mortgage – A mortgage for which the borrower has failed to make payments as required in the loan documents. If the borrower can’t bring the payments current within a certain time period, the lender may initialize foreclosure proceedings. Foreclosure is a last resort for lenders because it’s an expensive procedure, and they typically lose money in foreclosure proceedings. A forbearance agreement is a potential option to foreclosure if the borrower’s financial difficulties are temporary. A deed in lieu of foreclosure is another option to foreclosure.

Discount Rate – the combined return % on an investment for both the equity and debt investors; essentially, the IRR on a hotel assuming there is no debt; sometimes referred to as Yield Rate; the Discount Rate/Yield Rate will always be at a level between the interest rate (the lender’s return rate) and the IRR (the investor’s return rate)

Distressed Sale – An urgent sale of assets because of negative conditions. For example, securities may have to be sold because there is a margin call. Because a distressed sale happens under unfavorable conditions, the seller generally receives a lower price.

Dual-Brand Hotels – A property that combines two hotels that operate separately but share economies of scale deriving from the sharing of resources such as back-of-house operations. Usually such properties combine two brands from one hotel chain, but there are examples of one building containing two flags from different hotel companies. Commonly referred in the United States as “two-pack hotels.” There also exist examples of three-pack hotels, although this property type is less common.

Author: Derek Martin 

Source – Hotel News Now

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