Hotel Net Operating Income
Hotel Net Operating Income: An Owner's Guide to Earnings and Value
Hotel net operating income (NOI) is the property-level earnings figure owners and buyers use to connect a financial statement to investment value. It is not the same as GOP, cash in a bank account, or the bottom line after financing and taxes. The difference matters when you compare bids, negotiate an operator contract, decide on renovations, or judge whether a good year will repeat.
The bridge is straightforward once deductions land in the correct place. The harder work is establishing which costs recur, which belong to the owner, and whether the result is sustainable. USALI supplies the structure; disciplined underwriting turns it into a decision. This guide labels sources by year and sample rather than mixing unrelated datasets.
1. Start with the right earnings definition
The USALI waterfall, from receipts to owner earnings
The Uniform System of Accounts for the Lodging Industry (USALI) is the standard framework for presenting property results. Its 12th Revised Edition became effective January 1, 2026 (HFTP, 2026). The framework distinguishes earnings generated by departments from the costs of running the whole asset, and separates an operator's reporting conclusion from the owner's financial statements.
| Step | What the statement does | What the owner learns |
|---|---|---|
| Total revenue | Combine income from all operated departments. | The starting scale of the business, not an earnings result. |
| Departmental profit | Deduct direct operating expenses attributable to each department. | How much the departments contribute before shared costs. |
| Gross operating profit (GOP) | Deduct undistributed operating expenses: administration and general, information and telecommunications, sales and marketing, property operations and maintenance, and utilities. | Earnings before fees and owner-level charges. |
| Fee-adjusted earnings | Deduct base and incentive management fees. | What remains after paying the operator. |
| EBITDA | Reflect non-operating income and charges, including rent, property taxes, insurance, and relevant owner expenses. | A result after costs that sit below GOP. |
| EBITDA less FF&E replacement reserve | Deduct the reserve used to plan furniture, fixtures and equipment renewal. | The commonly used NOI proxy for valuation, subject to an explicit definition. |
| Owner's net income | Separately account for interest, depreciation, amortization and income taxes as applicable. | The accounting result for the owner, not the valuation proxy. |
Note: NOI definitions vary by reporting convention and valuation methodology. Confirm the treatment of management fees, property-level charges, and FF&E reserves before comparing hotel performance.
This sequence follows the HFTP USALI FAQ (undated) and the discussion of below-GOP costs in CBRE via LODGING (2026). A critical technical distinction: USALI does not define NOI as a formal line item. Its operator presentation concludes at EBITDA less Replacement Reserve, while the owner presentation ultimately reaches net income. GOP and EBITDA are non-GAAP earnings measures (HFTP, 2026).
The reserve is also not an expense recognized in arriving at EBITDA or net income. HFTP calls it a notional reporting account, commonly required by an operator agreement, franchise agreement, or lender, with no universal percentage prescribed by USALI (HFTP USALI FAQ, undated). Do not silently treat a reserve contribution as both a reported cost and a second deduction; that understates earnings.
What belongs in an owner's underwriting file
Actual contracts and ledgers determine whether a reported figure is useful. Request departmental schedules, shared-cost detail, fee calculations, tax and insurance history, franchise obligations and reserve requirements. Isolate one-time items. Every adjustment should trace to a document a hotel buyer can inspect.
For a managed asset, read the agreement before accepting headline GOP. Fee formulas, incentive thresholds, and owner-paid obligations decide how much reaches the investor. A self-operated asset must still account for the cost of replacing the services an outside operator would provide.
2. Use benchmarks with their samples attached
Two established views of recent US performance
Published ratios offer a screening range, not a target that every property should hit. A GOP percentage excludes important charges borne by owners. An EBITDA percentage is closer to the investment, but it may not match income after a replacement allowance. Neither should be presented as a published nationwide NOI percentage when the source does not provide one.
CBRE's Trends sample covers
2,216 US hotels (CBRE via LODGING, 2026):
| Reporting year | GOP as share of receipts | EBITDA as share of receipts | Source |
|---|---|---|---|
| 2024 | 35.1% | 23.3% | CBRE via LODGING, 2026 |
| 2025 | 34.8% | 22.8% | CBRE via LODGING, 2026 |
Those are two reporting years within the CBRE study. They show compression at both levels, even before a replacement allowance enters an underwriting model. The gap between GOP and EBITDA illustrates why a department-level figure cannot substitute for owner-level income.
HotelData reports a different sample, drawn from Actabl ProfitSword data covering approximately
5,000 US hotels (HotelData, H1 2026 report). Its first-half comparisons are
within that dataset, not changes from the CBRE figures:
| Chain scale or grouping | H1 2025 GOP % | H1 2026 GOP % | Source |
|---|---|---|---|
| Entire sample | 41.3% | 44.9% | HotelData, 2026 |
| Luxury | 34.6% | 38.6% | HotelData, 2026 |
| Upper Upscale | 34.8% | 37.6% | HotelData, 2026 |
| Independent | 38.1% | 38.2% | HotelData, 2026 |
| Upper Midscale | 44.8% | 45.4% | HotelData, 2026 |
| Economy | 41.5% | 41.4% | HotelData, 2026 |
The 34.8% CBRE figure for full-year 2025 and 44.9% HotelData figure for H1 2026 are not a year-over-year comparison. Their time windows, property mixes and accounting populations differ (CBRE via LODGING, 2026; HotelData, 2026). HotelData's labels are chain scales or its independent grouping, not definitive proxies for service model or ownership structure.
These open sources supply no reliable numeric resort-only, boutique-only or select-service benchmark. CBRE says resort and all-suite categories alone achieved category-level growth in 2025; it does not report their percentages (CBRE via LODGING, 2026). Apply the data to a comparable competitive set, not a branding label.
The question behind the benchmark
A benchmark should trigger questions: Are labor schedules aligned with demand? Are utilities allocated consistently? Has the hotel's insurance basis changed? Does the fee contract favor volume over owner returns? Is the reserve funded or merely notional? The answers separate better execution from accounting differences.
Use profitability as a measure of disciplined execution, not a slogan. Similar top-line results do not establish comparable value when contracts and capital needs differ.
3. Diagnose cost pressure before chasing growth
What the recent record actually says
The national story is not simply weak demand. CBRE reported that in 2024, expenses above GOP increased 4.1% and below-GOP charges increased 3.6%, while total revenue advanced 2.3% (CBRE, 2025). The same analysis recorded insurance premiums up 17.4%, property taxes up 4.3%, and management fees up 1.1% in that year (CBRE, 2025). Those line items do not respond to a single marketing campaign.
The labor comparison is equally instructive. CBRE found hours worked down
7.4% from 2019 while compensation dollars were up
22.1% (CBRE, 2025). Staffing discipline remains essential, but a lower headcount by itself is not proof of improved economics. Service failures, turnover and deferred maintenance eventually appear elsewhere in the ledger or in guest demand.
In 2025, CBRE found total revenue growth of
2.6% against total cost growth of
3.1%. GOP dollars increased
1.5%, yet EBITDA dollars rose just
0.3% (CBRE via LODGING, 2026). Insurance costs fell
5.3% in that sample, although they remained twice the level paid in 2019 (CBRE via LODGING, 2026). That is why rising sales do not automatically create an equivalent rise in owner earnings.
Early 2026 was different. HotelData's first-half sample improved, particularly in luxury and upper-upscale groups (HotelData, 2026). Separately, a Hospitality Net report citing HotStats put US GOPPAR up
7.8% year to date through July 2026, versus total RevPAR up
5.2% (Hospitality Net reporting HotStats, 2026). Those are different metrics and source populations, but both make cost conversion worth examining instead of assuming continued deterioration.
Translate the numbers into decisions
Start with a monthly departmental comparison against the same period and demand mix. Separate changes in occupancy and average rate from changes in service staffing, distribution expense, departmental purchasing, and energy use. Then bridge to the owner's statement. A more efficient room business is valuable only if the gain survives the fees, fixed charges and replacement needs below it.
Pricing should be evaluated alongside channel cost and guest quality, not just gross receipts. Revenue management that fills weak nights at an uneconomic acquisition cost improves an occupancy report while weakening the investment result. Likewise, postponing repairs creates a temporary lift that an informed buyer will reverse during due diligence. Sustainable earnings come from aligning demand generation, service delivery and lifecycle spending.
For independent properties, there is no universal expense playbook. The right staffing pattern, brand investment and capital calendar depend on the actual concept and market. A credible plan explicitly distinguishes savings achieved through better purchasing or scheduling from cuts that degrade the experience guests are paying for.
4. Work through the fees and replacement reserve
A normalized illustration, not a market forecast
Consider a $100 unit of annual receipts, used strictly as a mathematical denominator rather than as an actual property's results. CBRE's 2025 sample implies $34.80 of GOP and $22.80 of EBITDA per $100 of receipts (CBRE via LODGING, 2026). The difference is $12.00, encompassing fees and other below-GOP items; CBRE's published percentages do not break that difference into a standard fee allocation.
For a
teaching-only allocation, assign
$3.30 of that $12.00 to a base management fee, using the
3.30% average stabilized rate reported in HVS's
2020 Canadian guide (HVS, 2020; Canada). The remaining
$8.70 is simply the arithmetic balance for other below-GOP items
in this hypothetical, not an observed CBRE expense category. This combines sources to explain the mechanics; it is
not a real cross-market performance result or a recommended fee for US assets.
| Illustrative bridge per $100 of annual receipts | Amount | Basis |
|---|---|---|
| Total receipts | $100.00 | Normalized denominator; not a sourced market average |
| GOP | $34.80 | CBRE sample, 2025; reported 2026 |
| Less illustrative base management fee | −$3.30 | HVS, Canada, 2020 |
| Less other below-GOP charges, balancing amount | −$8.70 | Calculated to reconcile to the CBRE EBITDA ratio; not a survey result |
| EBITDA | $22.80 | CBRE sample, 2025; reported 2026 |
| Less illustrative FF&E reserve | −$4.17 | HVS 4.17% stabilized average; Canada, 2020 |
| Valuation income proxy | $18.63 | Arithmetic: $22.80 less $4.17; illustrative only |
The key point is not $18.63 as a benchmark. There is no support here for a universal NOI percentage. The lesson is that two different deductions can materially change what the investor underwrites after the familiar GOP number: the operator fee and the capital replacement allowance. A real calculation should use the property's own expenses, signed fee schedule, and required reserve, with no balancing assumption.
European contracts surveyed by HVS commonly used base fees of
2%–4% of gross receipts and incentive fees of
8%–10% of adjusted GOP; the study also described structures with higher incentives of up to
15% of GOP (HVS, European contracts, undated). These are
European contract observations, not current US averages. HVS's Canadian figures are also jurisdiction-specific and dated. Use them to see why fee design deserves attention, not to skip review of a live contract.
The reserve protects the asset over time, but does not cover every capital project. Renovations beyond the contractual allocation require additional funding. If the reserve appears only notionally, confirm whether cash was set aside: accounting presentation and liquidity are different questions.
5. Capitalize sustainable income, not the headline
How the cap-rate equation changes a bid
The basic valuation relationship is capitalized value = sustainable annual NOI ÷ cap rate. The denominator reflects required yield and asset risk; a lower rate produces a higher indicated value for identical cash flow. It is a shortcut for stabilized income, not a substitute for a discounted cash-flow analysis when near-term spending, lease terms or repositioning materially alter future distributions.
MMCG Invest reported the following approximate US transaction-market levels with data as of
August 2025. These are
secondary consultancy estimates, drawing on its database and CoStar rather than a verified primary segment table from CBRE (MMCG Invest, 2025):
| Hotel grouping in MMCG analysis | Approximate cap rate | Source |
|---|---|---|
| Luxury and Upper Upscale | 8.1% | MMCG Invest, August 2025 data |
| Upscale and Upper Midscale | 9.5% | MMCG Invest, August 2025 data |
| Midscale and Economy | 10.5% | MMCG Invest, August 2025 data |
Apply the 9.5% secondary-source rate to the purely illustrative $18.63 from the prior bridge, and the result is about $196.11 in indicated asset value per $100 of annual receipts. That is arithmetic, not a price estimate for a real property, and it deliberately blends source-specific inputs only to show sensitivity (MMCG Invest, 2025; CBRE via LODGING, 2026; HVS, Canada, 2020). A small change in the underwritten income or selected rate changes the result; neither input should be selected to justify an asking price.
CBRE's H2 2025 US Cap Rate Survey, released in
2026, said surveyed rates were broadly steady, but its freely available summary did
not publish these specific lodging-category figures (CBRE, February 2026). Do not relabel MMCG's estimates as CBRE figures. No supported boutique-specific or resort-only rate is available in the supplied evidence.
The owner's test: would the buyer keep the adjustment?
Before applying a rate, rebuild the income figure from the general ledger and contract documents. Decide which extraordinary charges truly disappear, which labor or service reductions are sustainable, what the franchise or brand requires, and whether the reserve fits the property's condition. Stress-test the result against tax reassessments, insurance renewals, wage pressure, and capital projects. That is how you separate a temporary peak from earnings a buyer can defend.
After acquisition, test direct-booking initiatives on contribution after acquisition costs, and renovations on incremental cash flow after capital and disruption. Owners need both the departmental result and the below-GOP reconciliation. More top-line volume alone does not prove value creation.
For a deeper look at governance, reporting and accountability, see ROAM Hospitality's
boutique hotel asset management framework.
ROAM Hospitality approaches the question from the perspective of concept, execution, and owner returns: the underwriting case and the guest experience must make sense together.
Frequently Asked
What is hotel NOI?
Hotel Net Operating Income (NOI) is the income generated by a hotel after subtracting applicable operating expenses from its operating revenue.
What is the formula for hotel NOI?
The basic formula is:
NOI = Operating Revenue − Operating Expenses
The exact calculation should follow the property's applicable reporting definition.
Is hotel NOI the same as revenue?
No. Revenue measures the amount generated by the hotel, while NOI accounts for applicable operating expenses and therefore measures property-level operating income.
Is hotel NOI the same as profit?
No. NOI is a property-level operating measure. It generally does not represent the owner's final profit after financing costs, taxes, depreciation, capital expenditures, and other ownership-level items.
Is NOI the same as RevPAR?
No. RevPAR measures room-revenue productivity, while NOI measures operating income after applicable operating expenses.
Can RevPAR increase while NOI decreases?
Yes. RevPAR can increase while NOI declines if the additional revenue is offset by higher labor, distribution, utilities, maintenance, or other operating expenses.
What is NOI margin?
NOI margin expresses NOI as a percentage of operating revenue.
NOI Margin = NOI ÷ Operating Revenue × 100
What expenses are excluded from NOI?
Depending on the reporting definition, NOI generally excludes items such as financing costs, debt principal payments, income taxes, depreciation and amortization, and certain capital expenditures.
How can a hotel improve NOI?
A hotel can improve NOI by increasing profitable operating revenue, controlling operating expenses, improving labor and operational efficiency, increasing ancillary revenue, managing distribution costs, and making effective revenue-management decisions.
Why is NOI important to hotel owners?
NOI helps owners and investors evaluate how effectively a property converts operating revenue into property-level operating income and provides an important measure of operating performance and asset economics.
Does higher NOI always mean higher hotel value?
Not necessarily. Stronger NOI can improve property economics, but hotel valuation also depends on factors such as market conditions, property quality, risk, growth expectations, capital requirements, and investor expectations.
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