======RevPAR======
RevPAR (Revenue Per Available Room) is the undisputed heavyweight champion of performance metrics in the hotel industry. Think of it as the ultimate report card for a hotel's core business: renting out rooms. It tells you, on average, how much revenue a hotel is making from each of its rooms, regardless of whether they are occupied or sitting empty. This simple number brilliantly combines two critical aspects of a hotel's success: its ability to fill its rooms (the [[Occupancy Rate]]) and the price it can command for them (the [[ADR]], or Average Daily Rate). A hotel might be fully booked, but if it's giving rooms away for peanuts, it's not a healthy business. Conversely, sky-high room rates mean nothing if the hotel is a ghost town. RevPAR cuts through the noise and gives investors a clear, combined picture of how effectively a hotel is managing its pricing and occupancy to maximize revenue from its most valuable asset—its rooms.
===== How to Calculate RevPAR =====
==== The Two Formulas ====
There are two simple paths to calculate RevPAR, and both lead to the same destination. Understanding both gives you a richer perspective.
  * **The Direct Method:** This is the most straightforward calculation.
    - //Formula: Total Room Revenue / Total Available Rooms//
    - **Example:** Imagine the 'Grand Value Hotel' has 100 rooms. Last night, it sold 80 rooms and generated a total of €8,000 in room revenue.
    - Its RevPAR would be: €8,000 / 100 available rooms = **€80**.
  * **The Component Method:** This method is often more insightful because it breaks down the two levers management can pull.
    - //Formula: [[ADR]] x [[Occupancy Rate]]//
    - **Example:** Using the same 'Grand Value Hotel':
    - First, we find the ADR: €8,000 revenue / 80 sold rooms = **€100**.
    - Next, we find the Occupancy Rate: 80 sold rooms / 100 available rooms = **80%**.
    - Now, we multiply them: €100 ADR x 80% Occupancy Rate = **€80**.
    - As you can see, the result is identical. This method clearly shows the hotel achieved its €80 RevPAR through a combination of a €100 average price and 80% occupancy.
===== Why RevPAR Matters to a Value Investor =====
For a value investor, analyzing a hotel company is about finding well-oiled machines that consistently generate cash. RevPAR is one of your most important diagnostic tools.
==== A Holistic Health Check ====
RevPAR is like a company's blood pressure reading—it combines two vital numbers into one meaningful metric. Looking at just the ADR (the price) or just the Occupancy Rate (the volume) in isolation can be misleading. A hotel that slashes prices to achieve 100% occupancy might look busy, but it's likely sacrificing profitability. RevPAR balances these two forces, rewarding hotels that find the sweet spot between high prices and high occupancy. A steadily increasing RevPAR signals that management is skillfully navigating its market.
==== Comparing Apples to Apples ====
Want to know if Marriott is outperforming Hilton in a specific region? RevPAR is your go-to metric. It allows for a relatively fair comparison of core room-renting performance between different hotel companies or individual properties. However, a smart investor knows to compare similar types of properties. It’s not fair to compare the RevPAR of a five-star luxury resort in Paris with a budget motel on a German autobahn. You want to compare luxury to luxury and budget to budget to get a true sense of competitive strength.
==== Tracking Trends Over Time ====
A single RevPAR number is a snapshot; the //trend// is the story. By tracking a hotel's RevPAR over several quarters or years, you can see its trajectory. Is it growing, stagnating, or declining? Is it resilient during economic downturns? A consistent, upward RevPAR trend is a hallmark of a durable business with a strong brand, excellent management, and a defensible market position—exactly what a value investor loves to see.
===== Limitations of RevPAR =====
While incredibly useful, RevPAR isn't the whole story. It has a few blind spots that every savvy investor should be aware of.
  * **It ignores other revenue streams:** A hotel is more than just bedrooms. RevPAR completely overlooks income from restaurants, bars, conference halls, spa treatments, and parking. A hotel, particularly a resort, might have a modest RevPAR but make a killing on its other services. For a fuller picture of revenue, analysts sometimes turn to [[TRevPAR]] (Total Revenue Per Available Room), which includes all sources of revenue.
  * **It says nothing about profit:** RevPAR is all about the top line (revenue), not the bottom line (profit). A hotel could boost its RevPAR by spending a fortune on marketing or offering costly amenities, which could crush its profit margins. To gauge profitability, investors need to look at metrics that account for costs, such as [[GOPPAR]] (Gross Operating Profit Per Available Room). A company that grows RevPAR while also expanding its profit margins is the true gold standard.