Ownership & finance
EBITDA
Earnings Before Interest, Taxes, Depreciation, and Amortization measures a hotel's pure operating profitability by stripping out non-operating expenses, financing structure, and accounting methods. Distinct from corporate accounting, hospitality EBITDA often reflects property-level performance after deducting management fees and reserve funds.
Formula
EBITDA = Net Income + Interest Expense + Tax Expense + Depreciation + Amortization
How it is used
Owners and investors use EBITDA as the primary metric for valuing assets, determining debt coverage, and benchmarking operational performance against peers. Because it excludes capital structure and tax environments, it isolates the asset's core cash-generating capability. Revenue managers and general managers impact EBITDA directly by optimizing GOP through rate strategy and labor efficiency. Lenders evaluate EBITDA to set maximum loan amounts and debt service coverage covenants, while buyers apply market cap rates directly to adjusted EBITDA to establish purchase prices.
Worked example
A 200-room hotel generates $8,000,000 in total revenue and $2,400,000 in Net Operating Income. After subtracting $200,000 in property taxes, $150,000 in interest, and $450,000 in depreciation, Net Income is $1,600,000. Adding back $450,000 (depreciation), $150,000 (interest), and $200,000 (taxes) yields an EBITDA of $2,400,000, reflecting a 30% EBITDA margin.
Common mistake
Confusing standard EBITDA with GOP or Adjusted EBITDA, which typically accounts for FF&E reserves and base management fees crucial for accurate hotel valuation.