Microsoft Word 2007 ichrie conference Proceedings Final-Final 06-06-07. doc

 
RESULTS 
Descriptive Statistics and Univariate Analysis 
The descriptive statistics in Table 1 show the average lodging firm held $2.49 billion in assets and 
generated $1.17 billion in net sales over the sample period. Although a number of lodging firms have expanded 
internationally, the ratio of foreign sales is still small, representing an average of only 5% of net sales. Among 
derivative users, total notional value of hedging derivative contracts amounted to an average of $220 million, 
representing 8% of total assets and 23% of total long-term debt. The data also show that lodging firms are heavy 
users of long-term debt, which represented an average of $1.18 billion or 50% of total assets. Relative to total long-
term debt, the debt structure of lodging firms is comprised largely of fixed rate debt. Floating rate debt comprised of 
an average of $367 million or 37% for all firms. However, a further breakdown of this figure by users and non-users 
shows a substantial difference. Floating rate debt (relative to total long-term debt) represented a mean (median) of 
41% (36%) of total long-term debt for derivative users prior to the impact of interest rate swaps to alter this 
exposure. On the other hand, floating rate debt accounted for a mean (median) of 18% (10%) of the debt structure 
of non-user firms. After incorporating the use of swaps, the mean (median) proportion of floating rate debt for 
derivative users declined to 36% (31%).
 
Market risk disclosures of lodging firms reveal that 46 out of 48 firms had policy statements that indicated 
exposure from interest rate risk, especially from floating rate debt. Of the 38 derivative users, 33 firms managed 
interest rate exposure with interest rate swaps that qualified for hedge accounting treatment with the remaining firms 
using swaps or interest rate caps that were speculative. I also find that 16 firms indicated a preference for long-term 
fixed rate financing and 18 firms used a mix of short-term floating rate and long-term fixed rate debt to manage 
interest rate exposure. In some cases, firms such as Hilton Hotels disclosed a desired target optimal ratio of 65% 
fixed/35% floating debt while Host Marriott provided a target range of 70% to 85% fixed rate debt. These 
preliminary results indicate three key lodging dbet strategies. First, the debt structure of lodging firms is comprised 
of largely fixed rate debt, more so for non-derivative users. Second, firms use mainly interest rate swaps and to a 
lesser extent interest rate caps to manage exposure. Third, many lodging firms use a mix of short-term floating debt 
and long-term fixed debt other than derivatives to manage exposure. A firm could also obtain short-term floating 

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