Financial Performance

The 2002 Canadian edition of PKF Consulting’s Trends in the Hotel Industry Annual Operations Report contains the 2001 operating results for 555 hotel properties representing about 103,000 guest rooms.  The 50-page report provides detailed financial data by operating department nationally and regionally for full service hotels, limited service hotels, suite hotels and resorts.  The full findings of this report will be released by the end of October 2002. 

The events of September 11^th had a momentous impact on the Canadian accommodation industry in 2001.  With the adjustment in rate and occupancy, there was also a destabilization in industry profitability.  Actual profitability in 2001 was 9% below 2000 levels and 15% below Pre 9/11 expectations for the year.

However, it is important to remember that earnings in recent years have been at an all time high.  Even the reduced earnings in 2001, at an estimated $16,181 per available room were almost on par with 1999 levels, which in itself was a record year.

The 2001 data indicates that relative to 2000, there was a 3% decrease in total revenues per available room after a 4% increase in 2000.  Net income before other fixed charges decreased by 9% nationally in 2001, after increasing 6% in 2000. 

In absolute dollars, the largest revenue losses were experienced in Central Canada (Ontario, Quebec), where revenues were knocked down by $1,757 per available room compared to 2000 levels.  Atlantic Canada properties were behind by $1,563 per available room, while Western Canada properties fell by $1,034.  However, Western Canada properties were hardest hit in terms of dollar declines to the bottom line in 2001, with Income Before Other Fixed Charges down by $1,603 per available room relative to 2000, compared to Central Canada (down $1,418 per available room) and Atlantic Canada (down $763 per available room).  Despite some erosion, Ontario and Quebec properties continue to lead the country in overall bottom line performance.

Nationally, the performance deterioration of full service hotels was the greatest with a 3% decline in revenues per available room and a 10% regression in net income before other fixed charges per available room.  Again the decline was greatest in Western Canada, with revenues decreasing by 6% and net income before other fixed charges decreasing by 18%.  British Columbia and Alberta full service properties were impacted the greatest in terms of bottom line performance.

Nationally, limited service hotels experienced a 1% decrease in revenues per available room, with net income before other fixed charges per available room comparable to 2000 levels. Central Canada was impacted the greatest, with revenues decreasing by 4% and net income before other fixed charges by 7%.

Financial Outlook

The accommodation industry’s fundamentals are sound.  Industry profitability at a property level was at its highest ever in 2000, despite decreased occupancy relative to 1999.  And, the industry’s balance sheets could not be better.  Over 90% of the Canadian Accommodation Industry was acquired or built prior to 1999.  The balance sheets of these assets reflect conservative debt/equity structures and asset values indicative of industry profit levels at the time of acquisition or development.  As a result, the industry was in a firm position to weather the erosion of bottom lines in 2001.

Our projection is for earnings to recover to 1999 levels by 2003.  Therefore, while the industry may be down, and not one can deny that there are reasons for concern in numerous markets, the prospects for overall industry earnings are generally positive.

INTRODUCING PKF BENCHMARKER REPORTS

Benchmarker reports are based on the analysis of financial statements from over 555 Canadian Hotels.  With these reports, owners and operators can benchmark their property performance to a competitive sample, comparing revenues, expenses and profits on a departmental basis.  Benchmarker reports will help you make business decisions that affect your properties’ financial performance, whether its:

• Increasing revenues
• Reducing operating expenses
• Building a bigger bottom-line