Hotel Investing Metrics: ADR, RevPAR, NOI

Start Here: Ready to invest in hospitality real estate? Browse Hotel & Resort Opportunities or Learn About Resort Investing

If you want to evaluate a hotel or resort investment, you need to understand the metrics that matter. Unlike residential real estate, where cap rates and rental income tell most of the story, hospitality is more complex—and more dynamic.

Hotels and resorts operate as businesses, not just buildings. That means performance is measured through operational metrics that directly impact profitability, valuation, and investor returns.

This guide breaks down the most important metrics every hospitality investor should know.

ADR (Average Daily Rate)

What It Is

The average price charged for an occupied room on a given night.

Formula:

ADR = Total Room Revenue ÷ Number of Rooms Sold

Why It Matters

ADR is the top-line indicator of pricing power. A hotel charging $200 per night is fundamentally different from one charging $80 per night—even if occupancy is the same.

Higher ADR typically indicates:

• Better location
• Stronger brand positioning
• Superior amenities
• More effective marketing
• Premium guest experience

What to Look For

• Rising ADR over time signals strong demand and operational improvements
• Compare ADR to market comps (competitive set)
• Understand whether ADR is driven by true positioning or temporary demand spikes

Occupancy Rate

What It Is

The percentage of available rooms that are occupied.

Formula:

Occupancy Rate = (Rooms Sold ÷ Total Available Rooms) × 100

Why It Matters

Occupancy shows demand. A hotel at 80% occupancy is operating efficiently; a hotel at 40% occupancy is struggling to attract guests.

But occupancy alone does not tell the full story. A budget motel might have 90% occupancy at $50/night, while a luxury resort at 60% occupancy and $400/night generates far more revenue.

What to Look For

• Occupancy trends over time
• Seasonal patterns
• How occupancy compares to the local market average
• Whether low occupancy is due to poor operations or external factors

RevPAR (Revenue Per Available Room)

What It Is

The most important metric in hospitality. RevPAR combines ADR and occupancy to show total revenue performance per room, regardless of whether it was occupied.

Formula:

RevPAR = ADR × Occupancy Rate

Or:

RevPAR = Total Room Revenue ÷ Total Available Rooms

Why It Matters

RevPAR tells you how well a property is monetizing its rooms. It accounts for both pricing power (ADR) and demand (occupancy).

Example:

• Hotel A: $150 ADR × 70% occupancy = $105 RevPAR
• Hotel B: $120 ADR × 85% occupancy = $102 RevPAR

Hotel A is outperforming despite lower occupancy because it commands higher rates.

What to Look For

• Rising RevPAR signals a healthy, growing operation
• Compare RevPAR to market comps
• Evaluate whether improvements come from ADR growth, occupancy growth, or both
• Look at RevPAR trends over multiple years

NOI (Net Operating Income)

What It Is

The property's income after operating expenses but before debt service, taxes, and capital expenditures.

Formula:

NOI = Gross Operating Income − Operating Expenses

Why It Matters

NOI is the true cash-generating power of the property. It shows how much money the hotel makes before financing and capital costs.

Investors use NOI to:

• Calculate cap rates
• Determine property valuation
• Project cash flow potential
• Compare properties of different sizes

What to Look For

• Consistent or growing NOI
• NOI margins (NOI ÷ Revenue) to assess operational efficiency
• How NOI compares to debt service (if leveraged)

Cap Rate

What It Is

The yield on the property based on NOI and purchase price.

Formula:

Cap Rate = (NOI ÷ Purchase Price) × 100

Why It Matters

Cap rate is a quick valuation tool. A 7% cap rate means the property generates 7% of its purchase price in NOI annually (before debt service).

Lower cap rates typically indicate higher-quality assets, better locations, lower perceived risk, and more competitive markets. Higher cap rates may signal value-add opportunities, higher risk, less desirable markets, or operational challenges.

Cash-on-Cash Return

What It Is

Your actual cash return relative to the cash you invested (after debt service).

Formula:

Cash-on-Cash Return = (Annual Cash Flow ÷ Total Cash Invested) × 100

Why It Matters

This is what you actually earn. Cap rates do not account for financing; cash-on-cash does.

If you invest $100,000 and receive $8,000 in annual distributions after debt service, your cash-on-cash return is 8%.

IRR (Internal Rate of Return)

What It Is

The annualized total return on an investment, accounting for cash flow, appreciation, and timing.

Why It Matters

IRR is the gold standard for evaluating long-term real estate investments. It accounts for distributions during the hold period, appreciation at exit, and time value of money. A 15-20% IRR is considered strong in hospitality real estate.

The Bottom Line

Understanding these metrics is essential for evaluating hotel and resort investments. They tell you how well the property is performing, whether it is priced fairly, what kind of returns you can expect, and how the investment compares to alternatives.

Cytation provides full transparency into all key metrics for every offering, so investors can make informed decisions based on real data, not marketing hype.

If you want to invest in hotels and resorts, start by mastering these numbers. They are the foundation of every strong hospitality deal.