HQuant Lodging Index (HLI)

HQuant Lodging Index

The introduction of the HQuant Lodging Index (HLI) brings the real estate investment community and the lodging industry into a whole new era.

As part of the investment community's collective efforts to establish a property dersivatives market in the US, the HQuant Lodging Index creates a unique opportunity to allow investors a more efficient and less costly means to invest in the dynamic and vibrant multi-billion dollar lodging industry. Derivative contracts written on the HLI provide the lodging industry and other financial institutions an unprecedented ability to hedge the risk associated with hotel ownership. Since lodging properties are historically viewed as one of the riskiest categories of commercial real estate, establishing a derivative market will satisfy the needs of investors to mitigate this risk.

Through an exclusive agreement with Smith Travel Research, the recognized leader in the provision of hotel performance information, HQuant is able to create a proprietary index of hotel performance based on the average daily rates charged by the indexed group of hotels. The index can provide daily information over a narrow geographic range. Both its timeliness and its detailed coverage delineate the HQuant Lodging Index from other property indices which are often reported on a quarterly basis and defined over broad regions

The HLI capitalizes on the nature of hotel income where daily room rates can be viewed as the rent from "daily leases." We anticipate this unique feature of the HLI will lead to the development of a wide range of derivative contracts that meet the needs of the hotel industry and real estate investors.

• Risk Management - Since much of the perceived riskiness of hotel acquisitions stems from the volatility of these daily leases, derivative contracts on the HLI will provide a new tool to hedge this risk.
• Sector Investments - Taking a long position on the index will allow investors to participate in the current strong hotel market without the acquisition of the underlying real estate asset. This provides a more efficient and less costly means of participating in the profitability of the lodging sector without incurring the high cost of entry associated with an hotel acquisition.
• Operation and Event Risk Management - Hotel operating companies are susceptible to event risks and other market conditions that result in a decrease in their property's income. Taking a short position even on a broad based HLI will provide the company a means to hedge again this risk.
• Lender Protection - A key determinant of a borrower's ability to make schedule debt service payments is the property's income. Taking an offsetting position on the HLI will allow a mortgage lender or investor to hedge the risk the borrower will become delinquent leading to loan default.