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.

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.
  1. Formula: Total Room Revenue / Total Available Rooms
  2. 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.
  3. 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.
  1. Formula: ADR x Occupancy Rate
  2. Example: Using the same 'Grand Value Hotel':
  3. First, we find the ADR: €8,000 revenue / 80 sold rooms = €100.
  4. Next, we find the Occupancy Rate: 80 sold rooms / 100 available rooms = 80%.
  5. Now, we multiply them: €100 ADR x 80% Occupancy Rate = €80.
  6. 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.

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.

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.

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.

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.

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.