HOST Almanac: STR identifies P&L winners and losers
 
HOST Almanac: STR identifies P&L winners and losers
30 AUGUST 2016 8:39 AM

This year’s update of the HOST Almanac reports which areas in the hotel industry did well (inflation-adjusted profits) and which ones didn’t (property taxes).

BROOMFIELD, Colorado—In late-May, STR, parent company of HNN, released the 2016 HOST Almanac, which includes same-store income statement data for approximately 5,000 hotels across the nation. We summarized our findings of national profitability in our news release at that time.

The two most significant data points were the 5.1% increase in revenues and 7.1% increase in gross operating profit for 2015. In examining the data in more detail, there are some interesting trends when looking at specific line items that we collect. Here are some of the biggest year-over-year winners and losers from an owner’s perspective for 2015.

Inflation-adjusted profits—winner

2015 U.S. profits surpassed the previous peak in 2007 on an inflation-adjusted basis. In fact, 2015 profits were greater than every other since 1990, except for 2000. The 2015 profits of $14,964 per available room were more than $2,500 per available room greater than the inflation-adjusted, long-term historical average.

Revenues
Other F&B revenue—winner?
Other food-and-beverage revenue grew 20.2% in 2015 for our same-store sample. Other F&B revenue primarily consists of meeting space rentals, audiovisual services and rental and F&B-related service charges.

This revenue category is closely aligned with banquet and catering operations and group business. In 2014, these revenues increased as group business bounced back to pre-recession levels. In 2015, these revenues are heavily affected by the 11th edition Uniform System of Accounts for the Lodging Industry changes. The new USALI requires all service charges for the F&B department to be reported as revenues, and the associated expense is then included in F&B expenses, and the impact is apparent, particularly for full-service hotels.

Other operated department revenues—loser
Other operated department revenues actually decreased in 2015 (-5.5%). This category includes revenues from spa, golf, parking and other ancillary operations. This department was down partially due to losing some resort fee revenue, which is now included in miscellaneous income based on the 11th edition USALI. Big-box hotels also negatively affected these revenues, as some significantly scaled back their other department operations.

Miscellaneous income—winner
Miscellaneous income increased 28% in 2015, which was the greatest revenue increase. This category is, of course, the smallest percentage of revenues, contributing only 2.4% of total revenues for this same-store set of hotels.

Miscellaneous income includes revenues for anything that doesn’t have any direct expenses. This includes items such as attrition fees, cancellation fees, commissions from third parties, guest laundry and dry cleaning, and any leased retail or restaurants on-site. The majority of the increased revenues in miscellaneous income came from resort fees this year. The 11th edition USALI requires resort fees are now required to be included in miscellaneous income, rather than included in rooms revenues or other departments. These fees are significant for many hotels, especially those in resort destinations, and this ancillary income greatly affected miscellaneous income overall.

Expenses
Marketing—loser/winner
Marketing expense realized an 8.6% increase in 2015. Marketing expense also includes franchise fees, which increased 9% in 2015. While an 8.6% increase was the largest expense increase, marketing expense is spent to increase or maintain room demand and revenues, so this is certainly not a bad use of dollars.

Utilities—winner
Utility expense was an interesting category this year because it actually decreased from last year. Utility expense is considered a variable expense, which typically increases along with occupancy. While occupancy increased again, utility costs decreased. This decrease is clearly related to lower prices in the energy sector.

Property taxes—loser
Property taxes were the expense with the second most growth in 2015. Property taxes are considered a fixed expense, so you wouldn’t expect much growth year-to-year. Of course, many hoteliers were able to appeal their property tax assessments in 2009 through 2012, when revenues were way down. For many areas, reassessments only take place every two or three years, so it looks like this expense is beginning to catch back up with the revenue gains made in the past several years.

Insurance—winner
Insurance was another interesting category this year, in that it decreased 3.6% in 2015. Insurance is also a fixed expense, so you don’t expect much year-over-year change. It was relatively flat in 2014 as well, so this expense has been well-controlled by hoteliers in recent years.

Other notables

Upper midscale converts revenue increases into profit gains—winner
The big winner this year in terms of profit growth were upper midscale hotels with 8.4% gross operating profit growth. Upper midscale hotels achieved a 5.9% increase in total revenues, while also turning that revenue increase into even greater profit gains. The luxury class illustrated the lowest revenue and GOP gains this year, 4.9% and 6%, respectively.

Resort locations illustrate strong GOP growth—winner
Hotels included in STR’s resort location type—as opposed to urban, suburban, airport, etc.—illustrated strong profit growth in 2015. While total revenues in this segment grew 6%, GOP grew 9.9%. Modest growth in rooms, administrative and general, and property operations and maintenance expense certainly helped in this segment, but so did a 6.3% decrease in utility expense.

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