Peaking Profits?
Another outcome of the new USALI was a series of changes to the line items found at the bottom of the operating statement. Certain “non-operating” income and expenses are now reclassified and have been added to the historical “fixed charges” to create a new section titled “Non-Operating Income and Expenses.” After the deduction of non-operating income and expenses, the bottom-line profit is now defined as earnings before interest, taxes, depreciation, and amortization (EBITDA), a term commonly found in the financial statements of other forms of real estate.
With revenues increasing at a greater pace than expenses, U.S. hotels enjoyed a sixth year of growth in profits. In 2015, gross operating profits (GOP) increased by 6.3 percent, while EBITDA grew by 3.6 percent.
Because non-operating income and expenses are deducted to calculate EBITDA, CBRE Hotels’ Americas Research believes that more equitable benchmarking comparisons can be made at the GOP level. All property types in our Trends sample enjoyed GOP growth in 2015. Resorts, all-suite, and extended-stay hotels were able to achieve the greatest gains in GOP during the year. Full-service and limited-service hotels lagged in GOP growth. Full-service hotels in the New York City area, along with limited-service properties in Texas, dragged down the performance of these property categories.
After years of achieving record levels of occupancy and double-digit growth in profits, U.S. hotels appear to have taken a breather in 2015. However, it should be noted that the industry is not out of breath. Our Hotel Horizons forecasts call for continued RevPAR growth in the near-term, which should lead to persistent, albeit modest, gains in profits. This slowdown in the pace of growth is to be expected as the industry reaches the peak of the current business cycle.
About the Author
Robert Mandelbaum is director of Research Information Services for CBRE Hotels’ Americas Research. To purchase the 2016 Trends in the Hotel Industry report, please visit the firm’s new Property Information Portal at pip.cbrehotels.com.
