Story

I asked what RevPAR was in a room where everyone already knew

So I sat in on a call I had no business being on. A guy I know does investor relations for a sponsor that buys hotels and he said come listen, you'll learn something.

Twenty minutes in, everyone is saying RevPAR this and RevPAR that, and I finally typed in the chat, sorry, what is RevPAR. And instead of ignoring me somebody unmuted and explained it, which I appreciated more than I let on.

Revenue per available room. You take your room revenue and divide it by every room you had available, whether it was sold or not. So it folds occupancy and rate into one number. A hotel can lift RevPAR by charging more, or by filling more rooms, and those are two different stories about the business.

Then somebody said the quiet part, which is that RevPAR alone doesn't tell you what fell to the bottom line, because filling rooms costs money and raising rate mostly doesn't. Somebody else said that's why they look at the flow through.

I wrote down four more terms I didn't know and I've been chasing them since. But I did learn that asking the dumb question out loud got me a better answer than an hour of searching.

5 replies

paulgrant17PassivePRO5

The rate versus occupancy thing is the part I'd never thought about. In a rental you fill it once and you're done for a year. Filling a hotel room costs a housekeeper and linens every single time.

mikeoconnell7SP2APRO6

@wren that's exactly it, and it's where all the service businesses live. Every extra room sold is a cleaning, a laundry load, an amenity restock. My side of the world is the vendors who show up when occupancy goes up.

devon_pierce Get yoursPRO5

I've been building a list for eighteen months and hotels aren't on it, but I keep reading these because the operating side is so much more visible than in an apartment building. @compass did anyone say what a normal RevPAR spread looks like between segments?

megan_doyle15 Get yours

Wait so if occupancy goes up and rate goes down, RevPAR could be flat and the hotel is actually doing worse because it spent more to get there? That took me a minute.

bmoreno23AB1B

@rigging yes, that's what the flow through comment was about. I came into this from zero six months ago and the hotel numbers were the first ones that made sense to me, because it's a business with a product you can picture, and everything else I read is about cap rates.