Why You May Need to Change Your “Competitive Set” Now; STR Adopts New Guidelines

STR has adopted new guidelines that may have owners and operators rethinking their competitive sets 

BY: Jim Butler and the Global Hospitality Group
Published: June, 2016

The importance of the competitive set

Many hotel management agreements contain performance test standards allowing an owner to terminate a management agreement if the hotel fails to meet specified guidelines, and most of those tests incorporate a “RevPAR Test” – whether the hotel’s revenue per available room is comparable with a set of competitive hotels, its “competitive set.” The RevPAR test typically allows an owner to terminate a management agreement if the hotel’s RevPAR fails to meet a specified percentage, or index, of the competitive set’s RevPAR. Competitive sets can also be used to determine incentive pay or for other measures of performance, as well as projections of potential performance.

The competitive set data is typically provided by a single source: STR, Inc. STR has established itself as a unique provider of supply, demand, and overall performance data for the hotel industry by collecting financial performance and other information from a vast number of hotels in the United States, and using that information to create anonymized measures of performance.

The STR competitive set allows parties to select a known group of comparable hotels and measure performance against that set without seeing their actual financial data. Spurred on by changes in the hotel brands –the Marriott – Starwood merger is the most recent and highest-profile example — STR announced that, effective January 1, 2017, it will impose a new set of guidelines for determining eligibility of competitive sets.

STR’s new guidelines

The new guidelines contain the following key elements:

  • No single property and no single brand can comprise more than 50 percent of the total room count, excluding the subject property and other properties from the same company as the subject.
  • No single company can account for more than 70 percent of the total participating room supply of a competitive set, excluding the rooms of the subject property and other properties from the same company as the subject.
  • Sets must include a total of four properties, excluding the subject, and a minimum of two companies, excluding the subject.

Click here to read the entire article on Hotel Online.