As the official holiday season comes to a close, and with temperatures biting, there is one industry that remains hot—hotels. And 2014 should be a banner year.
According to recent data from financial information company Sageworks, and reported by Forbes, hotels saw their third year of solid sales and profit growth, and net profit margins have made owners smile as tourism and business travel continue to improve. (And it's happening here and abroad.)
In addition to profits, transaction volume is growing as is faith in the public markets.
Private equity firm Blackstone Group has announced or executed initial public offerings for three of its hotel chains within the last six months. Meanwhile, Forbes cites STR, which expects hotel transaction activity to top $18 billion in 2014. (PKF is as bullish.)
Sageworks' also looked at private-company financial statements filed during the 12 months ended December 4. According to the group, hotels generated nearly 8-percent annual growth, on average, in line with sales growth rates in 2012 and 2011 and above the five-year average growth rate of about 4 percent.
“Hotels are consistently growing,” Sageworks analyst Brad Schaefer told Forbes. “In our data, we have seen some industries, like the retail sector, take a hit in sales growth but so far, hotel industry sales are still growing healthily and haven’t shown signs of stopping yet.”
Profits among hotels, on average, for the last 12 months were about 33 percent higher than they were in the year-earlier period, on top of 30-plus-percent growth during each of 2012 and 2011. Net profit margins, on average, approached 5 percent in the 12 months ended December 4. That is on par with the industry’s average net profit margin in 2012 and a turnaround from the 5-year average margin of negative 1 percent.
Ratios of costs (including direct labor) and other expenses (rent, advertising) relative to sales have been stable during the last few years.
Liquidity ratios for private hotels and motels are stable to improving, based on Sageworks’ financial statement analysis. Quick (average 2.79) and current (average 3.37) ratios for the past 12 months are above the 5-year averages.
Through its cooperative data model, Sageworks collects financial statements for private companies from accounting firms, banks and credit unions, and aggregates the data at an approximate rate of 1,000 statements a day. Net profit margin has been adjusted to exclude taxes and include owner compensation in excess of their market-rate salaries. These adjustments are commonly made to private company financials in order to provide a more accurate picture of the companies’ operational performance.