Rising profits and reduced interest payments allowing some hotels to cover their interest obligations, but rising interest rates threaten
By Bill Grice and Robert MandelbaumJun 12, 2023
ACCORDING TO CBRE’s February 2023 Investment Performance forecast, total revenues for the average U.S. hotel returned to 2019 levels in 2022, but the recovery of hotel profits will be delayed until later this year. Hotel franchise and management companies have benefited the most from the ongoing revenue recovery because the fees they receive are frequently earned as a percent of revenue. However, for many hotel owners, along with their lenders and investors, the lag in the return of profits has been a hardship. Afterall, it is the profits of hotel operations that enable owners to pay their debt obligations and provide returns to their investors.
Based on an analysis of EBITDA and interest expense data from CBRE’s Trends in the Hotel Industry database, the combination of rising profits and reduced interest payments has enabled a growing number of hotels to cover their interest obligations in 2022 but is quickly becoming more challenging in the face of higher prevailing interest rates. To analyze the ability of U.S. hotel owners to pay their interest expense, CBRE studied a sample of 575 hotels that reported interest payments in their operating statements for the years 2019 through 2022. In 2022, these hotels averaged 167 rooms in size, an occupancy of 67.8 percent, an average daily rate of $168.60, and a RevPAR of $114.31, versus the $113.71 RevPAR achieved in 2019. It should be noted that hotels unable to make any interest payments in 2020, 2021 or 2022 were excluded from this analysis.
Interest Coverage
In 2019, 93 percent of the hotels in the study sample achieved an EBITDA level greater than their interest expense for the year. During 2019, the hotels in the sample achieved an average interest coverage ratio (EBITDA divided by interest expense) of 2.32x. Interest coverage ratios were greatest at limited-service hotels (2.52x), and lowest at resort properties (1.70x).
In 2020, during the depths of the industry recession created by COVID, the average interest coverage ratio dipped to 0.23x. During 2020, only 37.4 percent of the hotels in the survey sample generated enough cash from operations to cover their interest obligations, with extended-stay hotels fairing the best. For the remaining properties, owners had to call equity, dip into operating or capital improvement reserves, or negotiate a loan modification with their lender. On average, full-service and all-suite properties experienced the highest levels of distress during this period.
By 2022, 89.2 percent of the properties in the study sample were able to achieve an EBITDA greater than their interest expense, and the coverage ratio increased to 2.72x through a combination of improved performance paired with a favorable interest rate environment. While the average coverage ratio exceeds 2019 levels, the percent of properties able to meet their interest payment obligations fell short of 2019 results. This implies that a portion of the properties have achieved very strong recoveries and are more secure in their interest coverage than they were before COVID. However, not all properties that were able to cover their interest expense in 2019 had improved profits sufficiently to do so in 2022.
As has been well-documented, leisure travelers and remote workers have helped buoy the performance of resort hotels. The relatively strong recovery in both revenues and profits enabled 92.9 percent of the resort properties in the sample to generate an EBTIDA greater than interest expense in 2022. For the year, the average interest coverage ratio for resorts was a robust 3.70x. Resort metrics are not only greater than they were in 2019, but they are also the greater than the respective metrics for full-service, limited-service, all-suite, extended-stay and convention hotels in 2022.
Changes in Interest Expense
In combination with rising profits, we also observed a reduction in the average interest payment made by the hotels in our survey sample. From 2019 through 2022, average interest expense dropped from $6,192 per available room in 2019 to $5,921 in 2022, a decline of 4.4 percent. On average, the full-service and limited-service hotels in the sample benefited from a decline in interest expense from 2019 to 2022, while the other property types saw their interest expense increase.
The relative interest expense decline is due to a significant reduction in prevailing interest rates during this period. From the start of 2019 through March 2020, the Federal Reserve dropped the Federal Funds Rate (“FFR”) from 240bps to 5bps and held the FFR near zero until March of 2022. From March 2022 through the end of the year, the Federal Reserve reversed course and raised the FFR by 425bps, accounting for a rapid increase in debt service for properties that are leveraged with floating-rate debt. This is reflected in data from CoStar that indicates the average monthly hotel interest rate increased from 5.3 percent in 2019 to 7.2 percent by the end of 2022.
Future Requirements
CBRE’s February 2023 Investment Performance forecasts call for the average U.S. hotel to return to 2019 EBITDA levels in 2023. From there, CBRE is projecting an average 4.8 percent annual EBITDA growth rate through 2027. This is above the expected pace of inflation, a net positive for hotel owners. The lingering question is: “When will interest rates moderate?” Given recent unrest stemming from the March bank failures, all eyes will be on the Federal Reserve and indications as to when they will begin to lower the FFR in the face of tightening financial conditions both domestically and abroad.
The good news for hotel owners is that there is currently ample liquidity in the debt capital markets, as lenders continue to favor hotels as an asset class, given the relative outperformance versus other property types. To that end, CBRE has been canvassing active lenders on behalf of our clients, successfully securing proceeds for recapitalizations, acquisitions and refinancings for performing and non-performing properties.
CBRE recently adjusted its forecast for the year in light of stronger-than-expected demand and moderate supply.
Noble broke ground on StudioRes Mobile Alabama at McGowin Park.
The 10th StudioRes expands Noble’s long-term accommodations platform.
Noble recently acquired 16 WoodSpring Suites properties through two portfolio transactions.
NOBLE INVESTMENT GROUP broke ground on StudioRes Mobile Alabama at McGowin Park, a retail center in Mobile, Alabama. It is Noble’s 10th property under Marriott International’s extended stay StudioRes brand.
“Noble is institutionalizing one of the most resilient and undersupplied segments at the intersection of hospitality, mobility and how people stay,” said Shah. “We are scaling a branded platform to capture secular demand that creates stable cash flow and long-term value.”
In May, Noble acquired 16 WoodSpring Suites properties through two portfolio transactions, expanding its platform in branded long-term accommodations.
Noah Silverman, Marriott International’s global development officer, U.S. & Canada, said breaking ground on the 10th StudioRes with Noble reflects the brand’s growth and the companies’ three-decade partnership.
“With both companies’ expertise in long-term accommodations, Marriott’s distribution channels, and the power of our nearly 248 million Marriott Bonvoy members, we are confident StudioRes is uniquely positioned to generate customer demand at scale, drive performance and sustain long-term growth,” he said.
Meanwhile, Marriott has more than 50 signed StudioRes projects, about half under construction, the statement said. The first StudioRes opened in Fort Myers, Florida.
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AHLA Foundation is partnering with ICHRIE and ACPHA to support hospitality education.
The collaborations align academic programs with industry workforce needs.
It will provide data, faculty development, and student engagement opportunities.
THE AHLA FOUNDATION, International Council on Hotel, Restaurant and Institutional Education and the Accreditation Commission for Programs in Hospitality Administration work to expand education opportunities for students pursuing hospitality careers. The alliances aim to provide data, faculty development and student engagement opportunities.
Their efforts build on the foundation’s scholarships and link academics to workforce needs, AHLA said in a statement.
"We're not just funding education—we're investing in the alignment between academic learning and professional readiness," said Kevin Carey, AHLA Foundation president and CEO. "These partnerships give us the insights needed to support students and programs that effectively prepare graduates to enter the evolving hospitality industry."
ACPHA will provide annual reports on participating schools’ performance, enabling the Foundation to direct resources to programs with curricula aligned to industry needs, the Foundation said.
Thomas Kube, incoming ACPHA executive director, said the partnership shows academia and industry working together for hospitality students. The collaboration with ICHRIE includes program analysis, engagement through more than 40 Eta Sigma Delta Honor Society chapters and faculty development.
“Together, we are strengthening pathways to academic excellence, professional development and industry engagement,” said Donna Albano, chair of the ICHRIE Eta Sigma Delta Board of Governors.
Global hotel RevPAR is projected to grow 3 to 5 percent in 2025, JLL reports.
Hotel RevPAR rose 4 percent in 2024, with demand at 4.8 billion room nights.
London, New York and Tokyo are expected to lead investor interest in 2025.
GLOBAL HOTEL REVPAR is projected to grow 3 to 5 percent in 2025, with investment volume up 15 to 25 percent, driven by loan maturities, deferred capital spending and private equity fund expirations, according to JLL. Leisure travel is expected to decline as consumer savings tighten, while group, corporate and international travel increase, supporting RevPAR growth.
Major cities continue to attract strong demand and investor interest, particularly London, New York and Tokyo. APAC is likely to post the strongest growth, fueled by recovering Chinese travel, while urban markets remain poised for continued momentum.
Lifestyle hotels are emerging as the new “third place,” blending living, working and leisure. The trend is fueling expansion into branded residences and alternative accommodations. JLL said investors must weigh regional performance differences, asset types and lifestyle trends when evaluating opportunities.
Separately, a Hapi and Revinate survey found fragmented systems, inaccurate data and limited integration remain barriers for hotels seeking better data access to improve guest experience and revenue.
Fragmented systems, poor integration limit hotels’ data access, according to a survey.
Most hotel professionals use data daily but struggle to access it for revenue and operations.
AI and automation could provide dynamic pricing, personalization and efficiency.
FRAGMENTED SYSTEMS, INACCURATE information and limited integration remain barriers to hotels seeking better data access to improve guest experiences and revenue, according to a newly released survey. Although most hotel professionals use data daily, the survey found 49 percent struggle to access what they need for revenue and operational decisions.
“The Future of Hotel Data” report, published by hospitality data platform Hapi and direct booking platform Revinate, found that 40 percent of hoteliers cite disconnected systems as their biggest obstacle. Nearly one in five said poor data quality prevents personalization, limiting satisfaction, loyalty and upsell opportunities.
“Data is the foundation for every company, but most hotels still struggle to access and connect it effectively,” said Luis Segredo, Hapi’s cofounder and CEO. “This report shows there’s a clear path forward: integrate systems, improve data accuracy and embrace AI to unlock real-time insights. Hotels that can remove these technology barriers will operate more efficiently, drive loyalty, boost revenue and ultimately gain a competitive edge in a tight market.”
AI and automation could transform hospitality through dynamic pricing, real-time personalization and operational efficiency, but require standardized, integrated and reliable data to succeed, the report said.
Around 19 percent of respondents cited communication delays as a major issue, while 18 percent pointed to ineffective marketing, the survey found. About 10 percent reported challenges with enterprise initiatives and 15 percent said they struggled to understand guest needs. Nearly 46 percent identified CRM and loyalty systems as the top priority for data quality improvements, followed by sales and upselling at 17 percent, operations at 10 percent and customer service at 7 percent.
Meanwhile, hotels see opportunities in stronger CRM and loyalty systems, integrated platforms and AI, the report said. Priorities include improving data quality for personalized engagement, using integrated systems for real-time insights, applying AI for offers, marketing and service and leveraging dynamic pricing and automation to boost efficiency, conversion and profitability.
“Clean, connected data is the key to truly understanding the needs of guests, driving amazing marketing campaigns and delivering direct booking revenue,” said Bryson Koehler, Revinate's CEO. “Looking ahead, hotels that transform fragmented data into connected data systems will be able to leverage guest intelligence data and gain a significant advantage. With the right technology, they can personalize every interaction, shift share to direct channels and drive profitability in ways that weren’t possible before. The future belongs to hotels that harness their data to operate smarter, delight guests and grow revenue.”
In June, The State of Distribution 2025 reported a widening gap between technology potential and operational readiness, with many hotel teams still early in using AI and developing training, systems, and workflows.
Hyatt partners with Way to unify guest experiences on one platform.
Members can earn and redeem points on experiences booked through Hyatt websites.
Way’s technology supports translation, payments and data insights for Hyatt.
HYATT HOTELS CORP. is working with Austin-based startup Way to consolidate ancillary services, loyalty experiences and on-property programming on one platform across its global portfolio. The collaboration integrates Way’s system into Hyatt.com, the World of Hyatt app, property websites and FIND Experiences to create a centralized booking platform.
World of Hyatt members can earn and redeem points on experiences booked through Hyatt websites, including wellness programs, cultural activities, ticketed events and local collaborations, the companies said in a statement. Members can also access FIND Experiences, which includes activities and auctions where points can be used to bid on events.
"In our search for an on-brand platform to power experiences and tap into ancillary revenue opportunities, Way's collaboration has been a true unlock for us," said Arlie Sisson, Hyatt’s senior vice president and global head of digital. "After a thorough evaluation of potential solutions, Hyatt chose Way to power the next chapter of our digital strategy by streamlining operations, elevating brand differentiation, enhancing personalization and, most importantly, delivering care at every touchpoint in the guest journey."
The Way initiative spans Hyatt’s portfolio, covering cabana rentals, in-room amenities and partnerships with local providers, the statement said. Way’s technology supports real-time translation, more than 100 currencies, multiple payment methods and data insights to help Hyatt manage operations globally.
"Hyatt set a high bar and Way is proud to bring their vision to life," said Michael Stocker, Way’s co-founder and CEO.
"The platform supports enterprise needs while preserving the guest experience."