Learn about the credit risk issues for the top 5 industries researched on eStatement Studies. Examine the advantages and risks of lending to 5 industries and gain insight into their funding needs.

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CREDIT CONSIDERATIONS FOR
THE 5 MOST-RESEARCHED
INDUSTRIES
The Top 5 Industries Researched on RMA’s
eStatement Studies

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THE 5 MOST-RESEARCHED INDUSTRIES
ON STATEMENT STUDIES
• Hotels (except Casino Hotels) and Motels1
• Full-Service Restaurants2
• Lessors of Nonresidential Buildings (except
Miniwarehouses)3
• Offices of Dentists4
• Commercial and Institutional Building Construction5

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1.
HOTELS
(EXCEPT CASINO HOTELS)
AND MOTELS

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CREDIT CONSIDERATIONS FOR
HOTELS AND MOTELS : ADVANTAGES
Improved demand-
side drivers and a spike in
leisure and business
travel.
Improved consumer
confidence in the economy
has increased travel and
tourism.
This demand enhances
opportunities for this
sector to grow both
domestically and
internationally.
With limited supply and
stronger demand, room
rates are increasing,
driving up revenue.
Hotel/Motel

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CREDIT CONSIDERATIONS FOR
HOTELS AND MOTELS: RISKS
Higher costs and expenses related
to renovation erode profits.
The ubiquitous daily
room rate change
indicates income is
highly volatile and
affects cash flow and
adds pressure to
operating margins.
Labor costs, including
union versus non-union
employees, and
healthcare costs
influence profitability in
this sector.
As demand increases, it is
likely that there will be a
new supply of rooms
added to inventory, which
will affect occupancy rates
in high tourist areas.
For those exploring growth
opportunities overseas,
lingering uncertainty, such
as macroeconomic issues
in Europe and political
turmoil in South America,
is a concern.

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HOTELS AND MOTELS:
FUNDING NEEDS
Typically need
funds for:
Purchasing a property.
Remodeling.
New construction.
Debt consolidation.
Working capital for ongoing financing
needs.

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CREDIT RISK ISSUES TO CONSIDER FOR
HOTELS AND MOTELS
To make the
smartest
lending
decisions,
rely on
eStatement
Studies.
• The consumer confidence index data that
influences profitability in this sector.
• The critical staffing and employment factors
that indicate a good business model.
• How the adoption of new technologies can
show that a hotel or motel is poised for
continued growth in its market.
• What might indicate the threat of rate
compression in the local sector?
• Which type of hotels and motels are poised
for the strongest expansion?

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2.
FULL SERVICE
RESTAURANTS

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CREDIT CONSIDERATIONS FOR
FULL-SERVICE RESTAURANTS: ADVANTAGES
1Sales have increased recently.
3
Dining out is one of America’s most
popular recreational activities and is likely
to increase.
Economic forecasts show that growth
will continue thanks to a strengthening
economy.
2

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CREDIT CONSIDERATIONS FOR FULL-SERVICE
RESTAURANTS: ADVANTAGES (CONT.)
4In surveys, almost half of all consumers
say they’d like to eat out more often.
6
There is renewed interest in upscale dining by
younger consumers and business travelers.
For Millennials, restaurants are important
social hubs as well as places to eat.
Data indicate that as the economy
strengthens, consumer demand for the
convenience of eating out will grow.
5

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CREDIT CONSIDERATIONS FOR FULL-SERVICE
RESTAURANTS: ADVANTAGES (CONT.)
7
There’s been an increase in
international travel to the United States
which is expected to continue.
Full-service restaurants, particularly
in tourist areas, should see increased
business generated by those
travelers.
8

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CREDIT CONSIDERATIONS FOR
FULL-SERVICE RESTAURANTS: RISKS
Sales are
increasing, but
are modest
compared to
pre-recession
levels.
Some analysts
say
consumers are
still in a
“recession
mindset.” They
are cautious
and continue
to look for
ways to
reduce their
spending,
including
eating out.
Businesses
are reducing
expenses by
cutting down
on business
lunches.
The industry
faces a
challenge from
rising
wholesale food
costs—there
have been
record-
shattering
prices in the
commodities
markets.

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CREDIT CONSIDERATIONS FOR
FULL-SERVICE RESTAURANTS: RISKS (CONT.)
Restaurants see
intensifying
competition for
employees. As
the economy
continues to
improve, the
industry will
likely see a
higher
employee
turnover rate,
which could
drive up labor
costs.
Consumers
are focusing
more on
healthy
eating, food
quality, and
local sources
of food. They
are more
conscious
about weight
and obesity
issues.
The Healthy
Eating Index—
the USDA’s
measurement
of the quality
of Americans’
food choices—
is expected to
grow in
coming years.
These trends
pose potential
threats to full-
service
restaurants
that have not
adequately
adapted their
menus to the
farm-to-table
movement or
the Healthy
Eating Index.

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FULL-SERVICE RESTAURANTS:
FUNDING NEEDS
Typically need
funds for:
Equipment.
New construction or renovation of
existing building.
Rent.
Promotion.
Employee wages.
Licensing.
Working capital.

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CREDIT RISK ISSUES TO CONSIDER FOR
FULL-SERVICE RESTAURANTS
To make the
smartest
lending
decisions,
rely on
eStatement
Studies.
• How the trends in “casualization” of restaurants and
the Healthy Eating Index can impact full-service
restaurants.
• How consumer-confidence level changes influence
a household’s eating out expenditures.
• How government policies and health department
regulations affect full-service restaurant operating
costs.
• How employment trends impact restaurant
expenses.

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COMMERCIAL LESSORS
3.
LESSORS OF
NONRESIDENTIAL BUILDINGS
(EXCEPT MINI-WAREHOUSES)

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CREDIT CONSIDERATIONS FOR
COMMERCIAL LESSORS: ADVANTAGES
1
As the business sector improves, so
does demand for office, industrial,
retail, and hospitality space.
The commercial leasing industry is
expanding, boosting occupancy, and
providing opportunities to increase
rents.
2

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CREDIT CONSIDERATIONS FOR
COMMERCIAL LESSORS: ADVANTAGES (CONT.)
3
As operating revenue increases for
commercial lessors, so should
property value.
Volume and pricing for high-quality
properties in the coastal markets
have increased, a similar increase is
expected in some secondary
markets.
4

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CREDIT CONSIDERATIONS FOR
COMMERCIAL LESSORS: RISKS
Demand varies by property type.
Demand for office space
depends on office-related
employment in the finance,
insurance, technology, and
real estate industries.
Demand for hospitality
spaces is influenced by
consumer spending,
local business activity,
the cost of travel, and
the strength of the U.S.
dollar.
Demand for retail space
depends on consumer
spending and increased
employment in the finance,
insurance, technology, and
real estate industries.
Demand for industrial
space is influenced by
proximity to a labor pool,
transportation, local tax
rates, and the presence
of related industries.

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CREDIT CONSIDERATIONS FOR
COMMERCIAL LESSORS: RISKS (CONT.)
Equally
important in
determining
how this sector
will fare is
Understanding
how the national
economy affects
local
conditions—
which can vary
widely by
State
Town

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CREDIT CONSIDERATIONS FOR
COMMERCIAL LESSORS: RISKS (CONT.)
Demographics Tax burden
Zoning
Utility
infrastructure
Demand in metropolitan
markets can also be
influenced by:

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COMMERCIAL LESSORS:
FUNDING NEEDS
Typically need
funds for:
Land acquisition.
Land preparation and construction.
Property acquisition.
Working capital for ongoing financing
needs.

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CREDIT RISK ISSUES TO CONSIDER FOR
COMMERCIAL LESSORS
To make the
smartest
lending
decisions,
rely on
eStatement
Studies.
• Key candidate success factors that indicate a good
credit risk.
• The critical external factors likely to affect the
industry.
• Trends to watch that may have adverse effects on
the industry.

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4.
OFFICES OF DENTISTS

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CREDIT CONSIDERATIONS FOR
DENTAL PRACTICES: ADVANTAGES
1
Dental practices are one of the most profitable
industries in the entire economy, and that is likely to
continue.
3
There is expected to be a rise in the need for dental
services in two population groups: children and the
elderly.
Unlike other medical fields, the dental industry is
not as burdened by the administrative costs of
interacting with health insurance entities to be
reimbursed for patients’ out-of-pocket costs: Many
patients pay out-of-pocket costs themselves.
2

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CREDIT CONSIDERATIONS FOR
DENTAL PRACTICES : ADVANTAGES (CONT.)
4The Affordable Health Care Act will expand the
number of children who will have access to dental
care.
6
Dentists will also be in demand in the future:
projections are that there will be more dentists
retiring than new dentists entering the field.
It is projected that aging Baby Boomers,
a population that numbers close to 70 million,
will be seeing dentists more in the next few
years.
5

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CREDIT CONSIDERATIONS FOR
DENTAL PRACTICES : RISKS
One threat to dental
practices is the possible
reduction of Medicaid
funding by states.
Dental practices can also be
hampered by the large
amount of money required to
open an office.
There have been great
technological developments
in equipment, but that has
driven up the overhead
costs for starting a new
dental practice.
Overhead costs are
becoming so cost
prohibitive that more dentists
are combining with other
dentists to form a shared
clinic rather than opening
an independent office.

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DENTAL PRACTICES :
FUNDING NEEDS
Typically need
funds for:
Dental equipment
Dental supplies
Furniture
Staff salaries
Rent or mortgage payment
Office supplies
Working capital

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CREDIT RISK ISSUES TO CONSIDER
FOR DENTAL PRACTICES
To make the
smartest
lending
decisions,
rely on
eStatement
Studies.
• The effects of changes in Medicare, Medicaid, and
private insurance coverage on the industry.
• Key points of healthcare reform that will impact
dentists.
• How the prices of nonferrous metals and
technological advances will impact dental practices.
• How the increasing elderly population will affect
dental practices over the next five years.
• Insight into how the increase in at-home
preventative care affects the industry.

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5.
COMMERCIAL AND
INSTITUTIONAL
BUILDING CONSTRUCTION

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CREDIT CONSIDERATIONS FOR COMMERCIAL
AND INSTITUTIONAL BUILDERS: ADVANTAGES
As the nation’s economy
rebounds, demand for
new commercial and
institutional building
construction is growing
at a steady pace.
Office building
construction has been on
an upswing over the last
few years.
Institutional
construction is
expected to bounce
back significantly after
several years of a flat
market, especially in the
K-12 educational and public
works sectors.
The rising trend of
consumer spending
and subsequent
demand for new retail and
office space is expected to
grow industry revenue.

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CREDIT CONSIDERATIONS FOR COMMERCIAL
AND INSTITUTIONAL BUILDERS: RISKS
Commercial and institutional builders rely on steel (a commodity
prone to fluctuation) to construct a wide variety of structures.
Builders who try to
generate business by
keeping customer prices low
could see negative effects
on their profits.
External and internal factors
determine how builders fare.
Offsetting rising building
material costs, tracking trends
in office vacancy rates and
consumer spending, and
taking advantage of
opportunities in private
nonresidential construction
will be key.
Delays caused by labor
disputes or supply chain
problems can also affect
profitability.
Commercial and institutional
builders must maintain access
to skilled workers and
subcontractors, secure new
contracts without compromising
price margins, and explore the
pros and cons of upgrading to
higher-quality construction
materials.

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COMMERCIAL AND INSTITUTIONAL BUILDERS:
FUNDING NEEDS
Typically need
funds for:
Land acquisition and development.
Repositioning of underperforming
properties.
Equipment financing.
Tract development.
Construction labor and materials.
Working capital for operating
expenses.

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CREDIT RISK ISSUES TO CONSIDER FOR
COMMERCIAL AND INSTITUTIONAL BUILDERS
To make the
smartest
lending
decisions,
rely on
eStatement
Studies.
• How consumer spending affects demand for
commercial and institutional building
construction.
• Insight into key external drivers that influence
profitability in this sector.
• The sectors that serve as major sources of
demand and investments in this industry.
• How interest rates affect operating expenses and
profitability.
• How local government spending can be an
indicator of profitability in this sector.

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ABOUT eSTATEMENT STUDIESSM
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involved in analyzing financial statements. It features two
data set types:
• Financial Ratio Benchmarks.
• Industry Default Probabilities and Cash Flow.
eStatement Studies gives you the power to make more
informed financial decisions.
For more information, contact
eStatementStudies@rmahq.org

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