Hotel Revenue Glossary · Financial

Owner's Priority (Owner's Return)

A minimum operating profit threshold that must be achieved before the management company earns its incentive fee. The owner's priority ensures the property owner receives a baseline return on investment before the operator participates in profit sharing.

Why it matters: Owner's priority creates a performance floor that aligns management company and owner interests. Revenue management is directly responsible for helping exceed this threshold, which determines whether the management company earns its incentive fee.

Worked example: The priority is A$2.2 million and the incentive is 15% of everything above it. Land NOI at A$2.15 million and the operator's incentive is zero — not small, zero. Land at A$2.35 million and it is 15% of A$150,000, or A$22,500. The A$200,000 that straddles the threshold is worth A$22,500 to the operator; the A$2.15 million underneath it is worth nothing. That asymmetry is why December pricing gets argued about.

Common mistake: Chasing the threshold in the final weeks with rate cuts that pull business forward. Discounting December to clear the priority borrows revenue from January, and the priority resets on 1 January regardless. If the year is short, say so in November while there is still time to sell into it rather than out of it.

All glossary terms Management Fee NOI (Net Operating Income) EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization)