A.CRE

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.

Related Content:
Click here to get this CRE Glossary in an eBook (PDF) format.
by