REVPAR (Revenue Per Available Room)
Referred to in commercial real estate as RevPar, Revenue Per Available Room is a metric used in hotel underwriting to calculate the amount of revenue each available room generates in a given period.
RevPar is calculated by either 1) dividing the total actual revenue generated by the number of available rooms or by 2) multiplying the hotel’s average daily room rate (ADR) by the hotel’s occupancy rate. The RevPAR differs from the ADR in that it accounts for any unoccupied rooms.
RevPar = Total Actual Revenue ÷ Available Rooms
Or
RevPar = ADR x Occupancy Rate
Putting ‘REVPAR’ in Context
Southern Crescent Hospitality Partners, a real estate private equity firm, recently acquired the Heartland Inn Birmingham, a 120-room limited-service hotel located along a busy highway in Birmingham, Alabama. The firm identified this acquisition as a core-plus opportunity due to the property’s stable historical performance, proximity to key demand drivers such as a regional medical center and corporate offices, and potential for modest operational improvements.
After closing the acquisition, the firm conducted a detailed underwriting analysis to evaluate the property’s performance metrics, with a specific focus on Revenue Per Available Room (RevPAR). Using the following data for a recent month:
- Total Actual Revenue: $360,000
- Number of Available Rooms: 120 rooms
- Number of Days in the Period: 30 days
- Occupancy Rate: 80%
- Average Daily Rate (ADR): $125
RevPAR Calculation
RevPAR is calculated using either of the two formulas:
- RevPAR = Total Actual Revenue ÷ (Available Rooms × Days in Period)
- Total Available Room Nights = 120 rooms × 30 days = 3,600
- RevPAR = $360,000 ÷ 3,600 = $100
Or:
- RevPAR = ADR × Occupancy Rate
- RevPAR = $125 × 80% = $100
In this case, the RevPAR is $100, meaning that each available room at the Heartland Inn Birmingham generated $100 in revenue during the evaluated month.
Contextual Insight
RevPAR is a critical metric because it reflects both room rates and occupancy levels, providing a more comprehensive view of performance than ADR alone. For the Heartland Inn Birmingham, the $100 RevPAR aligns with the regional average for similar properties, signaling a stable and predictable income stream. However, Southern Crescent Hospitality Partners identified opportunities to improve RevPAR through modest room upgrades and enhanced marketing efforts aimed at increasing occupancy to 85%.
This analysis allowed the firm to forecast an annualized increase in total revenue of approximately 5%, strengthening the property’s long-term value and cash flow.
Frequently Asked Questions about RevPAR (Revenue Per Available Room)
What is RevPAR in hotel real estate underwriting?
RevPAR (Revenue Per Available Room) is “a metric used in hotel underwriting to calculate the amount of revenue each available room generates in a given period.” It combines pricing and occupancy into a single performance indicator.
How is RevPAR calculated?
RevPAR can be calculated in two ways:
RevPAR = Total Actual Revenue ÷ Available Rooms
RevPAR = ADR × Occupancy Rate
Both methods give insight into how much revenue is earned per room, factoring in occupancy.
What is the difference between RevPAR and ADR?
RevPAR differs from ADR in that it “accounts for any unoccupied rooms.” While ADR reflects the average rate per occupied room, RevPAR measures revenue across all available rooms, giving a more complete view of revenue performance.
What was the RevPAR at Heartland Inn Birmingham?
The RevPAR was $100, calculated as either:
$360,000 ÷ (120 rooms × 30 days) = $100
$125 ADR × 80% Occupancy = $100
Why is RevPAR considered a critical performance metric?
RevPAR is valuable because it “reflects both room rates and occupancy levels,” providing a more comprehensive view of a hotel’s revenue performance than ADR alone.
How can a firm improve RevPAR?
At Heartland Inn Birmingham, the firm planned to improve RevPAR through “modest room upgrades and enhanced marketing efforts aimed at increasing occupancy to 85%.”
What revenue growth was forecasted from improving RevPAR?
The firm forecasted “an annualized increase in total revenue of approximately 5%” by boosting occupancy and thus improving RevPAR.
Click here to get this CRE Glossary in an eBook (PDF) format.