Hotel Financial Model: ADR, Occupancy, RevPAR and GOP Explained
A hotel model is an operating business on top of a property. Learn how occupancy, ADR and RevPAR drive revenue and how profit flows to GOP and NOI.
Key takeaways
- RevPAR = occupancy x ADR. At 72% and $180 it is $129.60.
- Profit flows from departmental results to GOP, then after fees, fixed charges and the FF&E reserve to NOI.
- Model hotels monthly with seasonality and a ramp-up, and test downside on both occupancy and rate.
A hotel is a property with a business running inside it. Unlike an office or apartment block, there are no leases fixing income for years ahead: rooms are re-priced and re-sold every night. A hotel financial model therefore starts from operating drivers - occupancy and rate - and works down through departmental costs before it reaches the property-level figures a lender or investor recognises.
The three revenue drivers
- Occupancy: rooms sold divided by rooms available.
- Average daily rate (ADR): rooms revenue divided by rooms sold.
- Revenue per available room (RevPAR): occupancy multiplied by ADR, or rooms revenue divided by rooms available.
A worked example
A 120-room hotel runs at 72% occupancy with an ADR of $180.
- RevPAR: 72% x $180 = $129.60
- Annual rooms revenue: 120 rooms x 365 nights x 72% x $180 = about $5,680,000
If occupancy falls four points to 68% at the same rate, rooms revenue falls by about $315,000 a year. Because many hotel costs are fixed, most of that lost revenue falls straight through to profit.
From revenue to gross operating profit
Hotel accounts follow a departmental layout. Rooms, food and beverage and other departments each show revenue less their direct costs. Undistributed operating expenses - administration, sales and marketing, maintenance and utilities - are then deducted to reach gross operating profit, or GOP. GOP is the main measure of how well the operator is running the hotel.
From GOP to net operating income
Below GOP come management fees, property taxes, insurance and a reserve for furniture, fittings and equipment, commonly modelled at around 3% to 5% of revenue. What remains is the net operating income used for valuation and debt sizing. Leaving out the reserve is a frequent error: hotels need regular refurbishment and buyers price that in.
What a good hotel model includes
- Seasonality: monthly occupancy and rate, not annual averages.
- Segmentation where it matters: corporate, leisure and group business behave differently.
- A ramp-up period for new or repositioned hotels.
- Fixed and variable cost behaviour by department.
- Management or franchise fees on their contractual basis.
- Downside cases on both occupancy and rate.
We build these as hotel and hospitality financial models for feasibility, acquisition and development decisions.
Frequently asked questions
What is the difference between ADR and RevPAR?
ADR is the average price of the rooms that were sold. RevPAR spreads rooms revenue across all available rooms, sold or not, so it reflects both price and occupancy. A hotel can raise ADR and still see RevPAR fall if occupancy drops.
What is GOP in a hotel?
Gross operating profit is total revenue less departmental expenses and undistributed operating expenses. It is measured before management fees, property taxes, insurance, rent and the furniture, fittings and equipment reserve.
What is an FF&E reserve?
It is an annual allowance set aside to replace furniture, fittings and equipment. It is commonly modelled at around 3% to 5% of total revenue and is deducted before arriving at the income used to value the hotel.