RevPAR
RevPAR (revenue per available room) is the key metric for measuring how much a hotel earns, and therefore for valuing hotel property. It shows room revenue per available room per night, whether or not the room was actually let. The figure therefore captures both how full the hotel is and how much it is paid, in a single measure that makes hotels comparable across size and market.
RevPAR is calculated in two equivalent ways: either room revenue divided by the number of available rooms, or occupancy multiplied by the average room rate. The average rate is called ADR (average daily rate) and is the price per room actually let. The relationship is simple: a hotel with 80% occupancy and an ADR of 1,500 kroner has a RevPAR of 1,200 kroner. The distinction between ADR and RevPAR matters, because two hotels can have the same ADR but very different RevPAR if one of them is half empty. A hotel can lift RevPAR both by filling more rooms and by charging more, and the best operators do both.
For hotel property, RevPAR is what drives value, because a hotel's income is far more variable than the rent in an ordinary commercial building. While an office building has a fixed lease, a hotel sells its rooms again every single night, and income swings with the season, the economic cycle and one-off events. Hotels are therefore often valued on operating profit and a yield requirement that is higher than for offices, precisely because the cash flow is less certain. Many hotel properties run on a model where the owner receives a turnover-based rent linked to the hotel's income, so RevPAR directly affects what the owner earns.
RevPAR is also used to compare markets. Industry players track RevPAR by city and segment to see which markets are strengthening, in the same way vacancy and rent levels are used for offices. One weak point of the measure is that it says nothing about profitability: two hotels with the same RevPAR can have very different bottom lines depending on what it costs to run them.
From Placepoint's glossary: RevPAR
More information: Store norske leksikon: hotell
English: RevPAR (revenue per available room).
Frequently asked questions
What is RevPAR?
RevPAR (revenue per available room) is a hotel's room revenue per available room per night, whether or not the room was let. It captures both occupancy and price in one measure, and is the key metric for valuing hotel property.
What is the difference between RevPAR and ADR?
ADR (average daily rate) is the average price per room actually let. RevPAR is room revenue per available room, that is, occupancy multiplied by ADR. Two hotels can have the same ADR but different RevPAR if occupancy differs.
Why are hotels valued on RevPAR and not on rent?
Because a hotel sells its rooms again every night and has far more variable income than a commercial building with fixed rent. Hotels are valued on operating profit and a higher yield requirement because the cash flow is less certain.
Does RevPAR say anything about profitability?
No. RevPAR measures only income per room, not costs. Two hotels with the same RevPAR can have very different bottom lines depending on how expensive they are to run.