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AMERICAN HOSPITALITY-ONLINE REPORT

In 2001 and 2003 the industry experienced respective increases of 7.0 percent and 5.9 percent.  However, in 2002, hotel utility costs declined 5.5 percent.  During the first half of 2004, PKF believed there might be some moderation in Utility Costs for U.S. hotels.  According to PKF’s mid-year Trends survey, hotel energy costs grew 4.5 percent during the first six months of 2004 compared to the first half of 2003.  However, by year-end 2004, the annual Trends sample of hotels ended up with 6.0 percent more being spent for Utilities than in 2003.  This implies an increase in energy costs of approximately 7.5 percent during the second half of 2004.  Rising oil prices in early 2005 once again have U.S. hotel owners and operators concerned.

Insurance and Interest Go Down

Contrary to other operating expenses, it appears that hotel insurance costs have begun to stabilize.  “On average, the hotels in our Trends sample paid 1.8 percent less for property and general liability insurance in 2004 than they did in 2003.  Even with this one-year decline, Insurance expenses for hotels have doubled since 1999,” Mandelbaum noted. What are not included in this statistic are the insurance costs for Florida hotels that were damaged or closed due to the many hurricanes in 2004.  Early indications are that the insurance costs for these properties have started to rise dramatically in 2005. Although not part of a hotel’s operating statement, another cost item that declined slightly in 2004 was interest expense.  For those hotels that reported an interest payment in PKF’s Trends survey, this expense declined 3.1 percent.  “Since our Trends survey consists solely of ‘same-store’ properties that provided data for both 2003 and 2004, the reduction in interest expense can most likely be attributed to re-financing,” Woodworth explained.  “With profits increasing and interest payments on the decline, the percentage of properties in the Trends sample that were able to generate sufficient cash from their operations to cover their interest payments rose from 79.9 percent in 2003 to 84.3 percent in 2004.”

ProfPAR, Not RevPAR

During the recent recovery of the U.S. lodging industry, much attention has been given to the growth in top-line performance measurements.  Numerous articles have been produced exalting the growth in occupancy and average daily room rates.  “After reading these analyses, one might think that the hotel industry lives on RevPAR alone,” Woodworth commented.  “Not mentioned nearly as frequently are the gains in bottom-line profits (ProfPAR) being achieved by U.S. hotels.” “Certainly, growth in revenue is important and obviously a strong contributor to growth in profits.  Management and franchise companies are acutely aware of changes in total hotel revenue since their compensation is frequently dependent on changes in this line item.  However, for management companies with incentive fees, owners, investors, and lenders, the profits generated from hotel operations dictate their income,” Woodworth added. Given the increases in revenue projected for the next few years, the ability to control costs will dictate unit-level profitability.  As a benefit to its data partners and clients, PKF-HR offers Benchmarker, a service that allows hotel owners and operators to compare the financial performance of their properties against a select group of comparable properties.