Question

What is the management fee (1) on a per available room basis and (2) as a percentage of total revenue for a 255-room hotel located in California that had an occupancy level of 62%, ADR of $84.53, a room revenue to total revenue % of 56.4%, and a gross operating profit % of 24.8%? The management fee agreement stipulated that the company would receive 3% of gross revenue, and 10% of gross operating profit.

   Please calculate annual room revenue (round to two decimal places) $ ___

Annual total revenue (round to two decimal places) $ ___

GOP (round to two decimal places) $ ____

  Mgmt fee base fee (round to two decimal places) $ ___

  Mgmt fee incentive fee (round to two decimal places) $ ___

      Total mgmt fee (round to whole number) $ ___

Mgmt fee on PAR basis (round to two decimal places) $ ___ PAR/yea

Mgmt fee as % of total revenue (round to two decimal places) ___%

Answer 1

Total Rooms Available = 255 rooms

The hotel has a 62 % occupancy rate and average daily rate (ADR) is $ 84.53.

1. Annual Room Revenue = 255 rooms * 62% occupancy * $ 84.53 ADR * 365 days

                                      = $ 4,877,930.45.

2. Room Revenue to Total Revenue is 56.4%. Thus,

Room Revenue = Total Revenue * 56.4%

$ 4,877,930.45 = Total Revenue * 56.4%

Total Revenue = $ 8,648,812.85

3. Gross Operating Profit % is 24.8%. Profit % is calculated on Cost Amount. Thus,

Gross Operating Profit = Total Revenue /(100+Profit%) * Profit%

                                     = 8,648,812.85 /124.8% * 24.8%

                                     = $ 1,718,674.35.

4. Management Fee Base = Total Revenue * 3%

                                          = $ 8,648,812.85 * 3%

                                          = $ 259,464.39.

5. Management Incentive Fee = Gross Operating Profit * 10%

                                                 = $ 1,718,674.35 * 10%

                                                 = $ 171,867.43.

6. Total Management Fees = Management Fee Base + Management Incentive Fee

                                            = $ 259,464.39 + 171,867.43

                                            = $ 431,331.82.

7. Management Fee on PAR basis per year = Total Management Fee / Available Rooms

                                                                      = $ 431,331.82 / 255

                                                                       = $ 1,691.50 PAR per year.

8. Management Fee as % of Total Revenue = Total Management Fee / Total Revenue

                                                                      = 431,331.82 / 8,648,812.85

                                                                      = 4.99%.