Hotels are valued and traded on a specific vocabulary of performance metrics. Get them right and you can read a deal at a glance; get them wrong and you can overpay by mistaking a top-line number for a bottom-line one. This guide defines the metrics that matter in hotel investment — from ADR to cap rate — and shows how they connect from a single booked room all the way to the asset's value.
The Revenue Metrics
Occupancy
Occupancy is the percentage of available rooms that are sold over a period. If a 100-room hotel sells 70 rooms on average per night, occupancy is 70%. It measures demand capture but says nothing about price.
ADR (Average Daily Rate)
ADR is the average price paid for an occupied room: room revenue divided by the number of rooms sold. It measures pricing power but ignores how many rooms went empty. A high ADR with low occupancy can still be a weak result.
RevPAR (Revenue Per Available Room)
RevPAR is the single most-watched hotel metric because it combines price and volume. It is calculated two equivalent ways:
- RevPAR = ADR × Occupancy
- RevPAR = Total Room Revenue ÷ Total Available Rooms
Because it captures both rate and occupancy, RevPAR is the standard yardstick for comparing performance between hotels and across periods. Its limitation: it only reflects rooms revenue, not the rest of the business.
TRevPAR (Total Revenue Per Available Room)
TRevPAR extends RevPAR to capture all revenue — rooms plus food and beverage, spa, events, parking and other departments — divided by available rooms. For resorts and full-service hotels, where non-rooms revenue is large, TRevPAR is a truer measure of commercial performance than RevPAR alone.
The Profit Metrics
GOP and GOPPAR (Gross Operating Profit Per Available Room)
Gross Operating Profit (GOP) is revenue minus departmental and operating expenses, before fixed costs like rent, insurance, property taxes and management fees. GOPPAR expresses that profit per available room (GOP ÷ available rooms). GOPPAR is powerful because it reflects how efficiently a hotel converts revenue into profit — two hotels with identical RevPAR can have very different GOPPAR depending on cost control.
EBITDA
EBITDA (earnings before interest, tax, depreciation and amortisation) is the hotel's operating profit after management fees but before financing and ownership costs. In hotel deals you will often see EBITDA after a reserve for FF&E (furniture, fixtures and equipment) — a deduction set aside for the periodic refurbishment hotels inevitably require. Underwriting EBITDA without an FF&E reserve flatters the numbers and is a common trap.
NOI (Net Operating Income)
NOI is the income the property generates after all operating expenses but before debt service and income tax. In hotel investment, NOI is typically very close to EBITDA after the FF&E reserve. NOI is the figure that drives valuation, because it represents the cash flow available to an owner.
The Valuation Metrics
Cap Rate (Capitalisation Rate)
The cap rate links income to value:
- Cap Rate = NOI ÷ Property Value
- Property Value = NOI ÷ Cap Rate
A hotel with €1,000,000 of NOI valued at a 7% cap rate is worth roughly €14.3 million (€1,000,000 ÷ 0.07). A lower cap rate means a higher price for the same income — typical of prime, low-risk, stabilised assets. A higher cap rate means a lower price — typical of secondary locations, value-add plays or riskier income. For how cap rates vary across European hotel markets, see our guide to hotel cap rates and returns in Europe.
How the Metrics Connect
The metrics form a chain from a single booking to the asset's value:
- Occupancy × ADR → RevPAR (rooms performance)
- RevPAR + other departments → TRevPAR (total revenue performance)
- Revenue − operating costs → GOP / GOPPAR (operating efficiency)
- GOP − fixed costs, after FF&E reserve → EBITDA / NOI (owner's cash flow)
- NOI ÷ Cap Rate → Value (what the asset is worth)
This is why experienced buyers never stop at the headline RevPAR. A hotel can grow RevPAR while GOPPAR stagnates (costs rising faster than rate), and a strong NOI built on no FF&E reserve can mask looming refurbishment costs that will hit the next owner. The discipline is to follow the chain all the way down — which is exactly what underwriting a hotel acquisition involves; see how to buy a hotel in Europe for the full process.
The Bottom Line
Revenue metrics (occupancy, ADR, RevPAR, TRevPAR) tell you how well a hotel sells; profit metrics (GOP, GOPPAR, EBITDA, NOI) tell you how well it keeps what it sells; and the cap rate turns that income into a value. Read them as a connected chain — never in isolation — and always insist on an FF&E reserve before you trust an NOI. That discipline is the difference between buying a hotel and buying a spreadsheet.
Frequently Asked Questions
What is the difference between ADR and RevPAR?
ADR (average daily rate) is the average price of an occupied room and measures pricing power only. RevPAR (revenue per available room) multiplies ADR by occupancy, so it reflects both price and how many rooms were actually sold — making it the standard measure for comparing hotel performance.
What is a good RevPAR for a hotel?
There is no universal benchmark, because RevPAR depends heavily on location, segment and season. RevPAR is most useful as a relative measure — comparing a hotel to its own history and to a defined competitive set — rather than as an absolute target.
How is a hotel's value calculated from its income?
Hotel value is typically derived by dividing net operating income (NOI) by a capitalisation (cap) rate. For example, €1,000,000 of NOI at a 7% cap rate implies a value of about €14.3 million. Lower cap rates produce higher values and reflect prime, lower-risk assets.
Why is the FF&E reserve important in hotel underwriting?
The FF&E reserve sets aside money for the periodic refurbishment of furniture, fixtures and equipment that every hotel needs. Underwriting NOI or EBITDA without it overstates the true cash flow and can lead a buyer to overpay, because the refurbishment cost will fall on the next owner.
