Currently, the Uniform System of Accounts for the Lodging Industry, 11th Revised Edition (USALI) does not consider the possible alternative use of hotel assets during an international pandemic. To help guide hotels during this time, the USALI Global Finance Committee came together to collaborate and issue their recommendations for recording expenses in a variety of situations that are both extraordinary and unique to the current pandemic.
This material was recently presented in the latest HFTP webinar, which was recorded and is now available upon registering to receive the web link. The accompanying presentation slides are also accessible online.
The committee prepared this new guidance through their expert interpretations of accounting principles and considerations of existing guidance in the USALI in order to assist users in the determination of the most appropriate classification for revenue and expenses. This guidance has been vetted and offered for comment to the entire committee – a diverse group of HFTP and AHLA Financial Management Committee members employed as owners/asset managers, operators, brands and more. The brand representatives on committee have all been supportive of this guidance.
Important to note: there was a significant amount of judgment and interpretation required in the application of the principles and examples below, and the outcome is entirely dependent on all of the factors in a particular circumstance when considered together – not driven by one individual factor versus another.
Covid-19 Puzzlers for USALI Recording: Health Care or Government Agency Use
During the Covid-19 pandemic, hotels have engaged in contracts outside of the ordinary course of business. For example, hotels have been employed as lodging for first responders, commandeered by local, state or national governments, operated partially or fully as medical facilities, or taken on other temporary arrangements where the facility is not operating as it would in normal circumstances.
When hotels provide lodging and services to third parties like government agencies or health organizations, how should the hotel record revenues and expenses? The following are several scenarios, including considerations, indicators and recommendations:
Scenario: Treatment of revenue/expenses where a hotel (or portion thereof) is used by a health organization or government agency.
Considerations:
- Is the hotel acting as a principal to serve the guest, or is it acting in its capacity to serve the organization/agency?
- Is the hotel still operating in the public environment – does it allow outside guests or has it closed its doors to outside guests?
- Is the hotel the “primary contractor” or “employer of records” of the employees?
- What services are being provided by the hotel employee?
- Has the hotel asset changed its means, or does it still operate as a hotel?
Outcome #1: Indicators to Report as Rooms Revenue
- The health organization or government agency rents a portion of the room inventory.
- The hotel continues to rent rooms to the public at large. Whether by segregating floors or sections, there is still a block of rooms committed to transient guests.
- The hotel remains the primary contractor and employer of record of hotel employees.
- The hotel employees continue to provide typical services directly to hotel guests, including laundry services and room service.
How to Report as Rooms Revenue
- The lodging revenue from the health organization or government agency should be reported as Contract Rooms Revenue – Schedule 1.
- The rooms occupied should be reported as actual.
- Expenses should be reported in the appropriate department.
Outcome #2: Indicators to Report as Miscellaneous Income
- The outside organization or agency rents a portion of the rooms inventory and provides its own laundry and catering services.
- The hotel does NOT rent its remaining inventory.
- In this case, most hotel employees have been laid off or are temporarily unemployed.
- The hotel retains certain employees to preserve and protect the owner’s asset, including maintenance and security.
- The hotel retains certain employees to sell services, such as laundry or F&B.
How to Report as Miscellaneous Income
- The rental revenue from the organization or agency should be reported as Miscellaneous Income – Schedule 4.
- Rooms occupied should be reported as 0.
- Supplemental F&B or laundry service revenue should be reported in the appropriate department. F&B and laundry expenses should also be reported in the appropriate department.
- Minimal labor, maintenance, utility, property taxes and insurance should be recorded in the appropriate departments.
Outcome #3: Indicators to Report as Non-operating Income
(where the health organization or government agency leases/rents/contracts the entire hotel)
- The organization or agency wants the real estate and the rooms, but they are not looking for any hotel services.
- The majority of hotel employees are laid off or temporarily unemployed.
- The organization or agency hires their own personnel to provide all direct guest services including: F&B, cleaning, medical, maintenance and laundry.
- The hotel may retain a few of its employees to preserve and protect the owner’s asset including maintenance and security.
- Bottom line: The hotel is not acting like a hotel anymore.
How to Report as Non-operating Income
- The rental revenue from the organization or agency should be reported as Non-operating Income – Schedule 11.
- The rooms occupied should be reported as 0.
- Minimal labor, maintenance, utility, property taxes and insurance recorded in the appropriate departments. These costs are going to be ongoing.
In Summary
Look carefully at the use and the operating means of the hotel asset. Does it still look like and operate as a hotel? Reporting will be done on a more traditional basis. If it is less a hotel and more of a real estate asset for third parties, you will need to have a different approach. And, of course, there are also instances where you may have a hybrid.
Several other issues were presented during the HFTP USALI webinar regarding government-sponsored wage subsidy programs, government assistance loan programs, severance/reduction-in-force plans, and reopening plans/costs. Continue to check back on HFTP Connect for future blog posts featuring this new USALI guidance or view the complete webinar online.
