Understanding your STR reports: Profit & Loss (P&L)

Regardless of how the hotel industry benchmarks performance, the end goal is always maximum profitability. Like all other elements of industry benchmarking, there are data sets and reports designed specifically to measure the success of that goal.  In this final installment of our 2022 “Understanding your STR reports” series, we dive deep into profit & loss data, commonly referred to around the industry as P&L, with a look at how to apply specific metrics in maximizing revenues and creating more efficient operations.  

If you missed any of the previous four educational blogs, we have them archived for your convenience: The basics | Percentage changes, indexes and comp set rankings | Supply, demand & development |  Forward-looking data

P&L Reports

A P&L report displays profits or losses over a given period, based on a property’s or portfolio’s revenue and expenses. These reports are a direct reflection of the ability of a company to drive sales, manage expenses and generate profits. Those reports help hotels analyze operating, gross operating and EBITDA margins, trends like staffing shortages or rising energy costs, and the ability to capitalize on opportunities and improve weaknesses. 

Reports can be used at different levels. For owners and hotel/management companies, P&L data offers an understanding of how effective their strategy has been (net income). For investors, reports show the financial viability of projects through assessment of profitability in markets as well as historic trends (GOP, or Gross Operating Profit).

P&L KPIs and why are they used:

Actionable data is time sensitive. Every day is the past for a hotel, so looking back with frequency means that data can be operationalized, strategies can be altered, and contracts can be renegotiated. Monthly P&L allows you to do just that by using four key performance indicators (KPIs) as a starting point:

TRevPAR considers revenue from all departments, including food and beverage sales, meeting space, spas, golf, parking and even phone/internet services. TRevPAR also covers miscellaneous income, such as cancellation and resort fees, which could otherwise be easy to overlook in the overall performance equation. 

Benchmarking your TrevPAR within the market can help you better understand the opportunities your property has within different departments. If TRevPAR for hotels in your competitive set is significantly higher, you may need to narrow in on various departments to see where your fees differ. For example, if your hotel is charging significantly less for parking than its competitors, this could be an opportunity to increase parking revenue, and subsequently, your TRevPAR. Additionally, TRevPAR can help determine why revenues were up during a particular period. By comparing different groups to determine which made more of a revenue impact on your hotel, you can adjust your strategy to target different business in the future.

Analyzing GOPPAR highlights how effectively you are running your business by measuring your property’s bottom line. While you might overperform in your top-line indicators, there could be areas in which you have too many expenses and fall below market. 

Shoulder months are the perfect example, because GOPPAR can help you understand how well you manage with less demand. Are your expenses higher than needed? Do you employ too much staff at certain times? 

Many factors impact hotel labor costs, such as macroeconomic conditions that dictate unemployment rates, or microeconomic drivers such as seasonality within a hotel’s specific market. Labor figures are one of, if not the highest, operating cost for hotels and therefore directly affect profitability, so it is imperative to closely examine this expense when trying to understand a hotel’s efficiency. 
 

GOP (Gross Operating Profit) refers to a hotel’s profit after subtracting all operating expenses. 
 

GOP illustrates the level of operational profitability of a hotel and is the primary indicator used by the operational side of the business and revenue managers. 
 

EBITDA (Earnings before interest, income tax, depreciation, and amortization) = Gross Operating Profit - Management Fees - Non-Operating Income and Expenses

EBITDA is a secondary metric as it can be impacted by more variations. EBIDTA offers an understanding of the company's value and its worth to potential buyers and investors, painting a picture of growth opportunities (eliminates the impacts of financing, government, and other accounting decisions to provide a raw indication of earnings.

P&L in action

For data providers (Revenue Managers, General managers, etc.):

When looking at your portfolio, you may look at a single location over a specified time period (monthly). Have your property’s expenses changed from the same month last year versus this year? How well has the hotel performed and what is the margin generated? Considering the current landscape, is your labor cost per available room higher and how does it compare to your total revenue per available room? Circling back to GOPPAR and using month-on-month comparisons, reports allow you to add layers to performances. While again you may perform well in the main KPIs, higher expenses may hinder gross profits. 

This is highlighted in a more visual way with a dashboard that includes a detailed summary of expenses and revenues per departments, helping you to pinpoint where profits been made and the margins generated (or not).   

For Economic players (Owners, banks)

When looking at an existing or potential portfolio/hotel, whether you plan to purchase or receive a purchase request (loan), P&L reports help define the viability of the project and profits that can stem from the portfolio financial gestion. The dashboard is built in to display expense and revenue trends for period.

A data file lists all hotels and each line item by departments. Those will help analyze the hotel’s profitability before it pays its income taxes (EBITDA). In managing expenses, it is easier to manage internal costs (related to day-to-day operations) vs. external, which are out of the property(ies)’ control (taxes, VAT increase, loans...).

P&L reviews provide a macro perspective on the market and give a trend, which especially helpful when looking at overall market performances. In the U.K. for example, market that have been reliant on business travel, like Berlin, have seen improvement in recent months.

With P&L, partners can manage their portfolios by looking at what is driving revenue and what brings it down. Now more than ever a good understanding and management of the operation of a hotel can define its cash flow and help with forecasting revenues in the long-term.

What is received and what you can garner from the reports:

Those familiar with P&L reports would have seen them coming annually but with the increased demand for granular data and industry growth, those are now available on a monthly basis. Along with a corporate data file, data providers receive a tableau dashboard liked to the data file, as well as Global and US slides reviews*.

To put it simply, the corporate file summarizes in one excel file all portfolio raw data against its individual country/market/segments. The dashboard is an interactive visualisation tool to look at custom segments of your portfolio and easily spot trends, opportunities within a different timeframe, identify seasonality and benchmark labour costs by different department.

Methodology
For the annual P&L report, a property opened at least eight months and submitting data in any USALI format would be taken in consideration. For the monthly report, STR uses a threshold of 20 open days. During COVID-affected periods, this was flexible as per the industry landscape.

What data is needed and how do you submit it?

STR for years collected P&L data on annual basis. Aligned with industry needs and the evolution of its offerings, STR shifted its focus to monthly P&L data collection in 2019. Now thousands of hotels submit their P&L figures monthly with 100 data points taken into consideration for each hotel. A glossary for these data points can be found here.

Fortunately, data participants are not constrained by specific formats that need to be completed (other than being USALI compliant). STR accepts data dumps and has a dedicated department that can match the data to fit reporting purposes. We are also investing in integrations with accounting systems—like we have done with property management systems—which has proven to be successful in scaling the product.

For the monthly P&L program, STR would require an extract from the hotels’ accounting system that will be then mapped on in our system. This extract needs to include all the required P&L data points. We are making it as easy as possible for our clients to send this data and have supportive documents for this purpose. Reach out to your contact at STR to discuss participation in the program.