FOR THE SECOND year in a row, hotel owners and operators in the U.S. failed to meet their budgeted operating goals in 2017, according to CBRE Hotel’s Americas Research, following five years of highly accurate budget projections. One reason appears to be an increase in the cost of providing service for guests, said Robert Mandelbaum, CBRE’s director of research information services.
The 722 hotels in CBRE’s Trends in the Hotel Industry study budgeted for a 3.2 percent gain in total operating revenue in 2017, but achieved only 1.7 percent. Rooms revenue made up 63.8 percent of that revenue, so deficient occupancy and ADR are the primary causes of the shortfall, Mandelbaum said.
Also, the hotels saw a 0.1 percent decline in occupancy rather than the 0.8 percent increase for which they had budgeted. The forecasted 2.5 percent growth in ADR turned out to be 1.8 percent instead.
“Combined, the decline in occupancy and slow ADR growth rate resulted in a rooms revenue gain of 1.7 percent that was nearly half the budgeted growth rate of 3.3 percent,” Mandelbaum said.
While the hotels did come in 0.3 percent under their budgeted expenses increase of 2.6 percent, the savings were insufficient to meet profit goals. Revenue grew 1.7 percent while expenses grew 2.4 percent.
“Muting the benefit of the lower accommodated room count was an apparent increase in the cost of servicing guests,” Mandelbaum said. “Expenses on a dollar-per-occupied room basis grew by 2.4 percent. This compares unfavorably to the budgeted increase in expenses POR of 1.8 percent. The 0.6 percent overage in budgeted expenses POR indicates that the costs and prices for labor, supplies, goods sold, and services were greater than expected.”
Limited-service hotels saw the worst of the shortfall, though full service properties also lost. Occupancy for limited-service rose from 77.2 percent in 2016 to 77.6 percent in 2017, limiting options to reduce expenses, Mandelbaum said. That led the properties’ expenses to grow3.1 percent while their revenue grew only 1.1 percent.
“Considering limited-service hotels budgeted for a healthy 7.4 percent rise in profits during the year, the 2.3 percent decline in EBITDA from 2016 to 2017 was a big disappointment,” Mandelbaum said.
Full-service hotels had projected a 4.8 percent gain in EBITDA, but saw only 0.2 percent.
Forecasts for 2019 call for a 2.6 percent increase in RevPAR that will lead to a 2.5 percent gain in total hotel revenues that will combine with projected 1.9 percent increase in expenses to lead to a 3.5 percent rise in profits, Mandelbaum said.
“After two years of budget shortfalls, it will be natural for operators to be more conservative when preparing their estimates for 2019,” he wrote. “Conversely, owners see record occupancy levels, and wonder why their operations are not capable of generating greater cash flows, thus putting upward pressure on expectations. It is hoped that these two opposing perspectives will settle on a budget that is close to reality.”